In this series we’ll be covering the following 7 deadly sins of retirement planning:

#1 Failing to maintain a realistic pace
#2 Ignoring the impact of costs and debt
#3 Getting emotional about the money
#4 Getting stuck in cash
#5 It’s not all about the money…but don’t ignore the cash
#6 Ignoring the value of a financial planner
#7 Failing to protect your legacy for the next generation

Today we kick off with number one on the list:

#1 Failing to maintain a realistic pace?

The average per kilometre pace for the world marathon (42.2km) record is about 2m54s per km, which could be seen to be rather sedentary when compared to Usain Bolt’s record of 1m36s if Usain was able to maintain his speed for the standard marathon distance of 42.2km (he would complete the marathon in around in 63 minutes, beating the current world marathon record by nearly an hour!). Clearly maintaining a sprinters pace over such a long distance this pace is not humanly possible, yet often retirement plans are expected to attain and maintain a herculean investment pace over an inappropriate length of time. This is, however, often the expectation of retirees-in-waiting who, after 30 years of plying their trade, are now 5 to 10 years away from retirement and faced with the realization that their retirement savings is actually insufficient for their golden years.

Suddenly they are confronted with seemingly unbelievable calculations, performed by a retirement planner called in to assist in providing a solution to enable the candidate retirees to meet their financial retirement needs. These mathematical calculations, usually based on a required rate of return on investment of the available capital, may indicate that what is required may be (a) additional cash injections of Titanic proportions and/or (b) Harry Potter-conjured investment returns hitherto unknown in the investment world and/or (c) that the anticipated retirement date may need to be postponed or (d) that post-retirement employment needs to be sought.

Not believing these options our retirees-in-waiting then turn to the financial media in the search for alternative solutions and here they will be confronted with a plethora of opinions as to how much is enough to have in the bank for a comfortable retirement, varying opinions as to how this amount is to be scientifically calculated, all the while ruing time and the opportunities lost to discuss this important matter with qualified persons over the years. Sadly, many will contact advertisers offering high rates of investment return and be lured into inappropriate investments, often without being made aware of the concomitant risk that accompanies those investments.

6 steps to avoid under-funding your retirement

Warren Buffet, considered by many to be one of the world’s most successful investors says; “to invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

1. Understand your current holistic financial position

One cannot start a journey without a clear understanding of where you are and where you want to go. Understand your current situation and ensure that all your assets and current and potential obligations are considered.

2. Set reasonable financial goals

Spend time thinking about and planning for your future expenses and financial obligations to ensure continued quality of life and peace of mind into retirement.

3. Calculate the required rate of return

Calculate the rate of return required from your available investable assets to provide a sustainable retirement income.

4. Determine the asset allocation

Establish the required asset allocation to determine the optimal asset class blend to achieve a range of returns for the lowest possible level of risk. 100 years of investment history has shown that equities have produced an average return of 7% pa above inflation. During this period and, in the short-term however, there can be large positive and negative fluctuations in investment returns, hence the need for a disciplined long-term approach to investing.

5. Assess the risk associated to the required rate of return

Assess whether you will be able to tolerate the associated risk, possible short-term volatility and probability of negative returns associated with the required asset allocation and investment strategy. If the associated risk is unacceptable you will need to revisit your financial goals or other variables such as retirement age or current savings capacity.

6. Utilise a qualified financial planner

There are many good financial planners available to choose from, however, key critical is choosing a planner that is qualified and with whom you can establish a long term working relationship that is mutually beneficial over the long term.

While the process may not be fool proof, what have you got to lose?