Retirement is one of the key objectives for financial planning. It is also one of the toughest objectives to accomplish, mainly because retirement planning requires people to take a long-term approach.
Retirement planning requires both a mixture of discipline and a sound strategy. It may seem like a daunting task, but here are some tips to consider that would greatly help most of us.
1. Time Is Your Ally
The power of compounding suggests that the best time to plan for retirement is when a person starts working. Saving and investing from a young age will give a person more time for their investments to grow. More importantly, it also enables them to ride out the volatility of the market.
A common mistake is to start planning on retirement at too late an age. For example, if a person only starts thinking about retirement in his 50s, it becomes an uphill task. Not only does the individual has to set aside a much larger sum of money each month to invest, but he also has less time to grow his investments.
If you are still in your late 20s or early 30s today, do yourself a favour, and start your retirement planning immediately.
Read Also: The Power Of Compound Interest
2. Grow Your Investment Prudently
The right information and some common sense can go a long way when it comes to retirement planning. What do we mean by that?
Make logical choices. For example, if our own CPF Special Account is already giving us a risk-free rate of up to 5% annually, would it make sense to invest it in other instruments such as a fixed deposit that gives lower return? Obviously not.
Likewise, if your understanding on stocks is poor and you constantly find yourself having difficulty staying up to date with the latest news about a company, then you might be better off investing in an index fund through dollar cost averaging. This way, you do not have to be worried about timing the market and selecting the “right” stocks.
Other logical choices include rebalancing your portfolio to have a higher weightage of safer assets in your portfolio as your grow older. For example, you might want to consider parking more money in your CPF Special Account, as you grow older, to take advantage of the higher risk-free interest rate that it provides.
3. Hedge Your Downside
A good retirement plan should always include measures to protect oneself if an unfortunate event occurs. This is where insurances play a big part.
Common insurance policies that most of us would need will include a hospitalization and surgery plan (payable via Medisave), home insurances and term insurances. For those who are able to afford the premiums, other health insurances such as critical illness plans are worth considering. All these plans can help hedge you and your family against any sudden bill shock, which could easily ruin your retirement plan.
Think of it as scaling a mountain while wearing a safety harness. It may not be the most comfortable and may even slow you down at times, but ultimately, most of us would still prefer wearing it.
4. Get A Home Within Your Affordability Level
As with all loans, there would be interest payable on it. As a rule of thumb, the interest payable on your mortgage would typically be about one-third of your total borrowing (e.g. you loan $300,000, your interest is about $100,000). Exact figures will depend on the borrowing rate and your loan tenure.
Getting the right home can make or break your retirement plan. And we don’t mean it from an asset appreciation perspective, but rather, an affordability perspective. Spend too much of your monthly income repaying the mortgage of an expensive home and you might find yourself struggling to cope with saving up for retirement.
5. Planning WITH your loved ones.
It is almost always better to do it with the support of your spouse or loved ones than without it.
Retirement planning can be subjective. Not everything that you have in mind would receive the consensus of your family members. For example, you and your spouse may not agree on the lifestyle that you need to adjust to in order to save up for your retirement.
Hence, it is important to share and exchange views with one another on this. A committed effort from both of you to adapt your lifestyle (e.g. giving up the car) could potentially go a long way to improving your retirement plans. Talking to your children, parents or even close friends can also provide you with fresh perspectives.
Retirement Planning Is NOT a Taboo Subject
There are some topics in life that are taboo. Retirement planning should not be one of these. It is something important and worth talking about.
The Central Provident Fund (CPF) Board has created a website called the CPF-BigRChat. It’s a campaign that encourages people to discuss about their retirement plans with their families and friends. Other related topics such as starting a business or having kids can also be accessed through the links provided in the website.
We leave you with a video that shows how an everyday conversation about retirement could be like. The video is shot in a candid, lighthearted manner. More importantly, it is something that all of us can relate to.
This article was brought to you in conjunction with the CPF Big R Chat, a campaign that serves to encourage Singaporeans to start discussing about retirement. All opinions expressed in this article are the independent views of DollarsAndSense.sg
Original Photos From Benjamin Lim