Retirement Savings | 5 Key Factors to Consider In Your Retirement Planning

Hopefully you have started your retirement savings plan. However, whether you have already started or you are about to, planning for a successful retirement requires you to understand these five key factors that are likely to affect your retirement savings. Once you understand them, you will be well prepared to deal with them and lower their impact on your savings.

Factor 1: How Long You Will Live After Retirement

Is it 5, 10, 15, 20 or 30 years? We both don’t know for sure but it’s prudent to plan for an appropriate length of time. Or you think it isn’t necessary since you aren’t sure of how long you will live. Oh God!...don’t think of dying now. Dying isn’t your business to worry about. Your business is to hope and believe for the best.

Even if you die after 2 or 5 years and you have accumulated a sizable amount of retirement savings to take you to 30 years, there is no loss. Your dependants, whether they are human beings or pets, will benefit from it.

The main point is, if when you happen to live long, you don't run out of money when you need it most.

Factor 2: Healthcare Costs

Currently you may be enjoying good health. That’s wonderful and you should be grateful for that. Nevertheless, regardless of your current health and family medical history, anticipating the costs of health care in retirement means you'll be better prepared for the unexpected. Medical breakthroughs and longer life expectancies have contributed to the high rise of health care costs.

Factor 3: Inflation

When estimating your current expenses that you will need in retirement, you need to factor in inflation. But there is one problem… no one knows the future rate of inflation. However, find out what the average annual rate of inflation is. Then use the formula below to calculate the expected annual expenses.

inflation rate

Can we try it in an example? Okay

Lets see… say your current annual retirement expenses estimate is Ksh 300,000. You have 30 years to retirement. The annual inflation rate is 6%.

inflation rate

What do we get? Ksh 1.72M

Alriiiight, may be the formula is making you uncomfortable. I promised to make things simple for you. So here is an inflation factor table with instruction on how to use it. Download and use.

Factor 4: Withdrawal Rate

How much are you expecting to withdraw from your retirement savings? The amount you will withdraw can affect your likelihood of a successful retirement. It's important for your savings to last long and not withdraw too much too soon.

Factor 5: Asset Allocation

Asset allocation is the process of spreading your savings across different types of investments. The main goal of allocating your assets among various asset classes is to maximize return for your chosen level of risk. How much you save, where you save the money, and how you choose to invest it is up to you.

Having considered these five key factors together with others such as age at which you want to retire, the kind of lifestyle you’d like to live while retired, where you’d like to live during retirement etc, start saving and investing the right amount, save and invest regularly, choose the best mix of investments for your nest egg based on your retirement goals and risk appetite, and protect your financial resources with insurance.