Retirement Planning: DIY
Retirement Plan in 7 Steps

Retirement planning is a "must do" task to achieve a comfortable retirement life. Its importance cannot be overemphasized. Retirement planning is one of the key components of personal financial planning.

Gone are the days when you can depend on your social security benefits to take care of your retirement years.

Retirement is a defining moment of our life!

We have to plan and prepare for it! 

In your retirement years, you will be in a better position to be of service to others. 

First, you are armed with experience and wisdom which you can share to others. 

Second, you are free from the bondage of a job, clocking in and out of the office. 

Third, you no longer have to worry of your day to day sustenance.

But this ideal scenario will not be possible if you don't plan for it. Instead of being a blessing to others, you will become a burden to your family and relatives.

If you desire for a comfortable and enjoyable retirement years, take charge. Implement these 7 steps to achieve a comfortable retirement life.

1. Start retirement planning the moment you land your first job.

This means that you have to manage your cash flow early on and set aside a fixed amount for saving and investment. This is very easy to do when you are young and do not a family to support yet.

In Filipino families, the earning singles end up without savings because the family members and relatives look up to them as "milking cow" having no family of their own to support. It pays to be generous but it should not be at the expense of your own future.

The sooner you save and invest for your retirement, the better for you and your family. It cultivates discipline and clear direction.

When you start investing early, the more your money grows. And with money growing, you can expect to earn passive income when you retire based on your chosen retirement age.

The very basic step you should do is to learn how money works. Understand the concept of compounding and the rule of 72. This will help you determine, how much to set aside from your income for investment purposes.

2. Make retirement planning an integral part of your total financial plan

Your retirement plan should not be an isolated plan. It should be an integral part of your total financial solution and consistent with your investing strategies and your protection plans.

Inflation and financial crisis affects your future retirement benefits. Learn the concept of inflation and how it erodes your savings and investment. You need to learn how to to cushion its effects on your retirement income. Choose an investment vehicle that beats inflation.

You all need to factor in your expected life expectancy in your retirement plan. Longer life expectancy means more financial resources to support you in your lifetime. If we spend 20 more years in life after retirement (say your retire at 60 and live until 80), whew! it means more years to support for your needs.

3. Manage Cash Flow: the 1st step to a solid financial foundation.

Start with proper management of your cash flow. Make efforts to increase your cash flow. You can do it in three ways:

1. Increase income. Make use of your spare time to earn more. Further, learn new skills which are marketable.
2. Reduce expenses. Make a doable budget. Know where your money goes and identify areas where you can cut down cost.
3. Do both. Earn more and spend less.

This is easier said than done. You need to muster enough discipline and determination to succeed.

4. Be consistent. Follow your investment plan religiously.

A long term savings plan requires discipline and consistency to become sustainable. Later on it becomes a habit. When it becomes a habit to set aside a fixed amount from your income to invest, it becomes a lot easier. It becomes second skin to you. When this happens, you are not easily swayed to temptations to spend for unplanned things and activities. Your relatives and friends will get the signal of your determination.

5. Secure your long term health care needs.

Illnesses appear when you are getting old. Poor health erodes your savings and when it becomes serious it will cost your fortune to support your health care needs. It is best to get a long term health care plan.

Higher and unforeseen medical expenses during retirement definitely drains your retirement income. So you need to plan how to manage medical expenses which is expected with old age.

6. Create an emergency fund.

Building an emergency fund is one of the steps to a solid financial foundation. An emergency fund is three to six months equivalent of your monthly expenses. You should have an emergency fund to be used in case of emergencies to prevent you from withdrawing from your investment portfolio.

7. Stay away from debt. Opt for zero debt.

Your mantra should be "earn interest rather than pay interest". What good is there when you do have an investment which earns an annual interest of 12% but you are paying debts at 2% per month? Simple mathematics will tell you that are the loser. A 2% monthly interest is 24% in annual interest. Effective interest is much higher than this if you factor-in the absolute value of your debt.

If you plan for major purchases, save for it! Learn to delay gratification. If you wont get hurt without it, then you can postpone acquiring it later when you have the cash. The rule is: if you can't pay it in cash, then you can't afford it!

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With proper retirement planning, you are building a solid financial foundation. To recap: you need to implement the seven steps for an effective and successful retirement planning

1. Start a retirement plan the moment you land your first job.
2. Make retirement planning an integral part of your total financial plan.
3. Manage cash flow.
4. Consistently follow your retirement investment plan.
5. Secure your long term health care needs.
6. Create an emergency fund.
7. Stay away from debt.