Retirement planning is all about ensuring smoother transitions between life stages. I believe that besides amassing capital, we must also plan for other aspects of retirement. This post will share some perspectives that are often overlooked by Singaporeans in the area of financial planning for retirement.
1. Retirement Lifestyle expectations
Retirement is not about basic survival needs because many of us would expect some level of freedom and luxury in our later life stages.
Expenses include the following (non-exhaustive)
- Daily living expenses (E.g. Food, utilities, transport, household expenses)
- Excess of Medical fees (outside of insurance coverage)
- Celebration and festivities (E.g. Birthdays, parties, weddings, new year celebrations)
- Vacation budget
- Additional Buffer of 5-10% of total budget
Do create a rough budget for a full year and multiply by the number of years you would live after retirement while taking into account 1-2% of real inflation losses of your capital. That would be the amount you need to amass from today until the day you retire.
2. Cost for Financial Planning
Though financial planning does require time and effort, cost is often overlooked for most adults. Paying commissions should not be a mandatory thing for retirement planning.
| Retirement term policy | Unit/Mutual Funds | Shares portfolio | |
| Contributions | Monthly | Periodic | Undefined |
| Annual Returns | Not advisable to maximise returns | Not practical due to high commissions | Annual Dividends |
| Commission | High | High | Low |
| Risk | Low | High | High |
| Best for? | All Income | High Income | All Income |
The above table emphasises on cost and risk involved when prepare financially for retirement. Do pick one which will suit your risk appetite and provides returns according to your expectations. However, do take into a count that risk does not equate to loss. Most people sway away from risk. Find out more about risk in buying shares and why insurance policies are also undesirable in their own ways
3. Counting Backwards
Many people are saving as much as they can but they haven been calculating how much they could save before the age at which they would like to retire. That is currently a common issue with young people in Singapore. If they intent to retire by age 60 with $1,000,000 (not adjusting for inflation), then it is necessary to start aiming for progressive saving and investment targets year on year.
In such case when they feel it is unreachable, then I feel it must be adjusted at an earlier age or a contingency plan to increase your income at a certain age with an action plan to ensure it works. This will help emphasise the realism of our retirement planning.
Final thoughts
After Maturity, endowment and retirement policies will eject your capital automatically and it will not be financially wise to start another policy at a later stage in life. On the contrary, shares ownership does not have an expiry date, meaning that it has a lot more flexibility than other financial planning methods. Do consider and weight the pros and cons before sealing the deal with a financial planner as though the risk is low, the cost itself is higher than you might have imagine.d.
The purpose of this blog is to attempt to break stereotypes so that Singaporeans can make more informed choices for their financial planning and management.
