The basics of planning for your retirement with liwwa

Planning for retirement is a daunting task for many, as the preparation involves figuring out the perfect balance between determining how much to save, and which investments to have in your portfolio. Nevertheless, thoughtful retirement planning is the first step towards having a comfortable, secure, and fun retirement - and it is essential to build the financial “nest egg” that will fund your future.

While there are countless considerations to account for when it comes to retirement planning, this blog post will go over the basics by covering the following topics:

1. Retirement spending needs
2. Asset allocation
3. How liwwa fits into your retirement plans

Determining your retirement spending needs

The first step of your retirement planning journey is determining how much you will need to save to be able to retire comfortably without worrying about market volatility. A simple and widely-used rule of thumb to calculate this value is “The 4% rule”. This rule dictates that a retiree can safely withdraw 4 percent of their portfolio in each year of retirement. The purpose of adopting the rule is to keep a steady income stream while maintaining an adequate overall account balance for future years. These withdrawals will primarily be covered by interest and dividends rather than depleting your overall wealth.

Here’s how the rule plays out in reality:

If you have $1 million saved in an investment portfolio, you could withdraw $40,000 in year one of retirement, and $40,000 each year afterward. Following this logic, if you have a $2 million portfolio, you could withdraw $80,000 in the first year, and so on.

With this rule in mind, it is simple to determine how large your target retirement account ought to be. You should begin by estimating how much your cost of living is, on an annual basis and divide this figure by 4% For example, if you believe that you would be able to live a comfortable life with $50,000 per year, you will be required to have an initial balance of $1.25 million in your retirement account to be able to support yourself financially (50,000 divided by 0.04).

“The 100 Rule” for Asset Allocation"

Once you’ve determined the “nest egg” that you need to save to retire, it's now time to decide how to invest your money to get there. In a general sense, your age dictates how much risk you should be willing to take on in your investments, and therefore, your asset allocation. The younger you are, the more risk you're able to tolerate. Once you get older, it is more reasonable to cut back on the amount of risk in your portfolio.

One common asset allocation rule of thumb has been dubbed “The 100 Rule.” It states that you should take the number 100 and subtract your age. The result should be the percentage of your portfolio that you devote to equities. Meanwhile, the remainder of your portfolio should be allocated to fixed-income securities and other alternative, low-risk investments.

As an example, if you’re 40 years old, this rule suggests you should invest 60% of your money in stocks, while the rest of your portfolio should be put in fixed-income and low-risk investments. The rationale behind this is that young adults have allocated a larger percentage of their portfolio to stocks as equity returns tend to be higher in the long-run.

However, if you’re nearing or in retirement, you’d need your money sooner and on an annual basis. At that point, it makes more sense to invest more heavily in securities such as fixed-income/alternative investments that are generally less volatile and considered “safe”. Examples of these assets include:

Bonds Treasury bills Cash Savings accounts Certificates of deposit (CDs) Investment in liwwa

liwwa is here to simplify the retirement planning process:

You may want to consider investing in liwwa as a part of the fixed-income portion of your retirement portfolio for a number of reasons. To begin with, our platform has the potential to be a powerful diversification tool as the performance of liwwa portfolios is tied to the performance of regional SMEs to repay their loans and is less correlated to the overall economy in the way that traditional investments are, such as stocks and bonds, therefore sheltering investors from shocks to the economy. Additionally, unlike Certificates of deposit (CDs) and many other fixed income assets, liwwa has no minimum investment amount, making it an accessible option for many new investors.

As a fixed income instrument, liwwa also provides superior returns when compared to traditional assets. To illustrate this point, a savings account may provide an investor with 0.5% annual returns and a U.S Cash equivalent asset such as a Treasury Bill typically provides returns of approximately 2% per annum. On the other hand, investors with liwwa have enjoyed a median IRR of 13.2%.

Our platform also takes the effort out of investing, as liwwa investors have the capability of using our innovative Auto-Invest tool. The tool allows investors to automate their investment strategy by specifying their risk tolerance, investment horizon, and level of diversification. Afterward, their portfolios in liwwa will remain invested automatically. Currently, over half of liwwa's active investors are taking advantage of this feature to increase diversification, reduce volatility, and earn higher returns.

Empower your retirement, start saving!

Once you set your retirement objectives we recommend that you start and keep saving, and stick to your goals! Start small and try to increase the amount you invest for retirement each month. The sooner you start investing, the more time your money has to grow. Make actively planning for retirement a priority and don’t feel discouraged if you haven’t begun your journey as an investor - it’s never too late to begin investing!