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Saving for retirement.

My father is nearing retirement and I have been helping him put his finances in order and it has made me realise that I need to start saving for my own old age. What should I do?

Sooner or later we all have to face up to how we will live in retirement as it is vital that your money does not run out before you do! So how can you determine a comfortable target?

First, what is a reasonable annual sum for you to live on comfortably? Multiply this sum by 20. You really need to take into account inflation and any tax that you will need to pay in the country in which you retire. To get a more accurate figure, this is where a financial planner can help you.

Now focus on a plan to build your target fund. Investing for retirement can be one of the biggest investments you make. The most common way is to invest in a plan earmarked as your pension plan, which links your money to stocks and shares, meaning that values can go down as well as up over the short-term. However, the expectation is that you will get higher returns on your money over the medium to longer term. As investing is a medium to long term commitment you need to be clear that you can maintain the commitment. This means looking closely at your income and outgoings and making a regular commitment you can afford to maintain and topping this up with additional payments as opportunities arise.

To avoid risk choose a plan with good flexibility. Match payment currencies to your income and investments to the currency in which you will spend your pension.

Risk cannot be avoided completely and can be a strong ally. If you are comfortable with a certain level of risk this often translates into additional investment returns which is fundamental to longer term investment performance. To further reduce these risks you will be spreading them so that "all your eggs are not in one basket", this means considering the mix and proportions of your investments. Your ultimate pension will depend upon: how much you invest, the investments chosen and how they perform and the way you turn the fund into regular payments to provide you with an income.

An independent financial adviser can conduct a full review of your financial plans and help you. Your adviser will spend time understanding your goals and priorities and recommend product options and strategies to achieve them. Key points are: when and where do you hope to retire, what is your target fund, what other investments or assets do you have, how much can you afford to contribute, how you feel about risk and what other pensions do you have.

Your Money is compiled by financial

planning consultant Brian Davis.

Copyright 2011 Gulf Daily News

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Publication:Gulf Daily News (Manama, Bahrain)
Date:Jul 3, 2011
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