Do you know how much money you will need, and are likely to have when you retire? Including your superannuation savings, general savings and any proceeds from the sale of a home, how much money will you have in the bank when you stop working? Do you have a plan to maintain cash flow once a salary stops coming in? What is your plan to pay off any outstanding debt before retirement?
Retirement planning, unless you have a substantial investment base already, is something that should be given priority now, regardless of your age. This is not only because we are all working on a limited timeframe, but because the value of our savings and any perceived profits is shrinking. As inflation continues to rise and our existing cash and assets continue to decrease in value, not having a robust retirement plan is not only irresponsible but downright foolish.
If you have plans in place to have access to $750,000 in 30 years time, will that still be enough? What will that amount convert to in terms of real money when the time comes? What will you be able to buy, and how long will that amount realistically sustain you?
The only way to keep up with inflation is to earn more through investment. Keeping pace with inflation is no longer good enough, especially because the value of money is now incredibly hard to predict. Combine this with the inherent variability of various necessities of living such as electricity, food and fuel, and you have a scenario where you need to overestimate your financial requirements many times over.
Your retirement plan doesn't need to be, and perhaps shouldn't be, focused on retirement. A wiser approach may be to create a two-pronged approach; reduce debt and work hard to increase the cash flow viability of your investment portfolio. Meaning, create cash flow-based investments that pay off your debt, and that can eventually work to pay your monthly costs over and above what you can expect to need once you are retired. This means putting a plan in place to gradually build up over a number of years, eventually becoming a self-sustaining ecosystem that allows for market variables. It should take into account economic uncertainty, the impact of financial downturns and any other scenarios through focusing on the only areas that can be controlled – the reduction of debt, and the increasing of cash flow.
Traditional retirement strategies include having a certain amount of money in the bank, which will hopefully be enough to pay for monthly expenses. But as already mentioned, the value of money is an uncertain variable that may impact directly on your ability to retire comfortably. By choosing to focus on the reduction of money needed to service existing debt, and increasing cash flow, you give yourself the most powerful weapons to counterbalance inflation. Even as your cash flow is worth less, the value of your investment – and therefore the money coming in, rises with inflation. For example, rent increases in line with inflation – just because you paid $400 a month for an apartment five years ago, doesn't mean that will be the cost now.
By focusing on valuable investments rather than money, a comfortable retirement becomes much more likely.