by D. Victor

Created on: July 07, 2009   Last Updated: August 09, 2009

Retirement planning is not an activity that is undertaken for its own sake. It is just a means to an end. It represents a way to accumulate enough retirement savings and income to meet retirement needs and mitigate retirement risks. While there are several reasons to plan for retirement, the top five can be singled out as follows:

1) Maintain your lifestyle/ standard of living

2) Greater longevity

3) Uncertainty

4) Rising cost of living/ inflation

5) Rising medical expenses

1) Maintain your lifestyle

Retirement represents a period where you cease to work- at least full-time. When you cease full time employment, there is usually a shortfall in income. You need to have replacement income and savings to maintain your current lifestyle. One of the major objectives of retirement planning is maintenance of your desired standard of living throughout retirement. Without this, your retirement dream would easily become a nightmare.

2) Greater longevity

Senior citizens are living far longer in retirement than before for an amalgam of reasons. Even as far back as 1983, the US Congress recognised this trend in making Social Security Amendments. The current life expectancy for males is just below 80 while it is just over 80 for females. In addition, the average age of retirement is decreasing, which suggests that retirement periods are longer. More time spent without working full-time precipitates a greater need for retirement planning.

3) Uncertainty

When you are not working, your savings are more susceptible to unforeseen, major expenses. Retirement planning helps you to anticipate this by helping you to plan or prepare for the vicissitudes of life. Although you cannot always financially prepare for all contingencies, retirement planning can help you to anticipate those that may arise once you retire.

4) Rising cost of living

Inflation risk is a major retirement risk- especially as most retirement benefits are fixed or do not keep up with inflation. The rising cost of living is a guarantee- something that you can safely anticipate. That places additional pressure on retirement income and retirement savings. Combating the erosive effects of inflation is yet another good reason to plan for retirement.

5) Rising medical expenses

Senior citizens have a higher risk of developing critical illnesses, particularly in their seventies. This is a period when insurers usually cease or reduce medical coverage for senior citizens as well. When you retire, you must ensure that you have a buffer that could help you self-insure for medical conditions. Even if you have a medical plan, it is important to have more than enough for anything that is not covered under it.

There are several financial and non-financial reasons to prepare for retirement, even though financial reasons often take precedence. Planning for retirement is not an activity that you should undertake just for its own sake. It is a vital tool in helping you to fulfil your retirement dream.

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