Retirement Planning: Build Your Future

Time is your greatest asset when it comes to retirement planning. Thanks to compound interest, even small amounts invested early can grow into substantial sums. Consider this example: • Person A starts saving $300/month at age 25 • Person B starts saving $600/month at age 40 • Both retire at 65 with 6% average annual returns Results: • Person A invests $144,000 total → ends with approximately $603,000 • Person B invests $180,000 total → ends with approximately $348,000 Despite investing $36,000 less, Person A ends up with $255,000 more because of those extra 15 years of compound growth. This is why financial advisors emphasize: the best time to start was yesterday; the second best time is today.

The amount you need depends on your lifestyle, location, and retirement goals. Common approaches include: The 25x Rule Multiply your expected annual retirement expenses by 25. If you want to spend $50,000/year, you need $1.25 million. The 80% Rule Plan to replace about 80% of your pre-retirement income. Some expenses decrease (commuting, work clothes) while others may increase (healthcare, travel). Factors to consider: • Desired retirement age (earlier retirement = more savings needed) • Life expectancy (plan for 25-30+ years in retirement) • Healthcare costs (often the biggest retirement expense) • Inflation (your money needs to keep up with rising costs) • Desired lifestyle (travel, hobbies, helping family) • Government benefits (social security, pension programs vary by country)

Most countries offer tax-advantaged accounts to encourage retirement savings. While specific names and rules vary, they generally fall into these categories: Tax-deferred accounts (like 401(k), IRA, RRSP, or pension schemes) • Contributions reduce your current taxable income • Investments grow tax-free until withdrawal • Withdrawals taxed as income in retirement • Often have annual contribution limits • Ideal if you expect lower income in retirement Tax-free accounts (like Roth IRA, TFSA, ISA) • Contributions are made with after-tax money • Investments grow tax-free • Withdrawals are completely tax-free • Annual contribution limits vary by country • Flexible and ideal if you expect higher taxes in retirement Employer-sponsored plans • Often include employer matching contributions (free money!) • May be defined benefit (guaranteed pension) or defined contribution • Always contribute enough to get the full employer match Check your country's specific retirement account options and contribution limits.

Your investment approach should evolve as you age: In your 20s-30s (Aggressive growth) • Higher allocation to equities (80-100%) • Focus on growth stocks and equity funds • Long time horizon allows recovery from market downturns • Maximize contributions to take advantage of compound growth In your 40s-50s (Balanced approach) • Shift toward 60-70% equities, 30-40% bonds • Begin thinking about capital preservation • Continue maximizing tax-advantaged contributions • Review and adjust your retirement target In your 60s+ (Capital preservation) • Increase bond and stable income allocation (50-60%) • Consider dividend-paying stocks for income • Create a withdrawal strategy • Plan for healthcare costs Diversification is key at every stage. Spread investments across asset classes, sectors, and geographic regions to reduce risk.

The 4% rule is a popular guideline for sustainable retirement withdrawals. How it works: • In your first year of retirement, withdraw 4% of your total savings • Each subsequent year, adjust that amount for inflation • This approach historically has provided income for 30+ years Example: • $1 million nest egg = $40,000 first-year withdrawal • If inflation is 2%, year two withdrawal = $40,800 Limitations to consider: • Based on historical US market returns (may not predict future) • Doesn't account for sequence of returns risk • May be too conservative or aggressive depending on your situation • Consider flexible withdrawal strategies that adjust to market conditions

Avoid these pitfalls: 1. Starting too late Every year you delay costs you significantly in compound growth. Even $50/month is better than nothing. 2. Underestimating healthcare costs Healthcare can be your biggest expense in retirement. Plan for insurance, medications, and potential long-term care. 3. Withdrawing from retirement accounts early Early withdrawals often come with penalties and taxes, plus you lose future growth potential. 4. Being too conservative too early Young investors often shy away from stocks, but time allows you to ride out market volatility. 5. Not accounting for inflation $1 million today will have much less purchasing power in 30 years. Your investments need to outpace inflation. 6. Ignoring tax planning The order and timing of withdrawals from different accounts can significantly impact your tax burden.