Start Your Financial Retirement Planning Now!

With the economy on the decline, retirement may seem impossible. However, if you are concerned about the financial security of your retirement years, you have to be serious about financial retirement planning. Financial retirement planning is the first step to ensure that the lifestyle you’re dreaming of at retirement will have a better chance of … Continue reading “Start Your Financial Retirement Planning Now!”

With the economy on the decline, retirement may seem impossible. However, if you are concerned about the financial security of your retirement years, you have to be serious about financial retirement planning. Financial retirement planning is the first step to ensure that the lifestyle you’re dreaming of at retirement will have a better chance of becoming a reality.

No matter how old or young you are, it’s never the wrong time to think about financial retirement planning and start a retirement savings plan. However, the earlier you begin the better off you will be. Chances are you will have a larger nest egg at retirement if you begin saving at 30 years of age instead of 60. With more years to invest your investment will have a better chance of recovering from any drops or bump along the way. The longer your money is invested the better your chance of securing your future. By planning for your retirement needs, you’ll identify what you need to do in order to secure your future and be in a better position to deal with most issues that may otherwise confuse you and do damage to you financially.

The first consideration for your retirement savings plan will be where your investment money will go and for how long. As a basic strategy, you should invest some of your money in short term investments, medium-term investments and long term investments. The type of investment usually is determined by your time horizon. Generally, the more time you have before having to sell off the investment for cash, the riskier the investment.

If your time horizon is five or more years, which would be considered long term investments, you can choose investments that appreciate over time. Growth stocks and real estate are good long term investments if you have many years left before retirement. Volatile stocks or CDs are considered short term investments, investments that are held for a year or less, and should be reevaluated several times a year.

Times are different – you can no longer take the retirement planning advice of an investment adviser as gospel when it comes to financial retirement planning. You need to educate yourself and take charge of your money.

If you find planning for your retirement needs a daunting task, there are many retirement planning tools you can turn to for help. These tools include well-written books that can explain the difference between things like bonds and stock, etc. There are also individual classes and seminars that you can take to help you craft your retirement investment plan to reach the goals you set for your retirement.

You don’t want to find out too late that you don’t have enough money to cover your retirement needs. You must educate yourself to gain an understanding of what is possible with the money you invest. Generally, a balanced retirement savings plan should include investments in treasury bills, money market and savings account to provide accessible cash; stocks in small, medium and large companies for growth and appreciation; and other investments such as real estate for long term appreciation.

Your financial retirement planning should take into account the number of years you have left until you plan to retire. The more years you have to invest your money, the more risk you should take with your investment money. If you have only a few years before retiring, you should have more of your investment funds in readily available cash. You don’t want to be at retirement’s door with most of your money tied up in the stock market only to see a big portion of the money disappear in a market downturn, which can happen at any time.

If you do have many years before retirement, aggressive stocks and real estate can be a sound investment. Your nest-egg may growth faster with this investment strategy because the funds are shielded from certain taxes, and because real estate is a good hedge against inflation.

Financial retirement planning is not rocket science. It’s mostly common sense. Besides there are many retirement planning tools that you can use to help you create the best retirement savings plan for you. However, even the best laid out plan needs to be reviewed and adjusted with the circumstances. Review your retirement investment portfolio at lease once a year and make adjustments as warranted. Don’t let short term ups and downs in the market throw you off your path that leads to your goals. Ups and downs in the investment market are part of the normal cycle of investing. Stick to your informed long term plans and the bumps along the way should all even out over the years to provide for your retirement needs.

Personal Financial Planning – Retirement Planning

Advances in medical science have resulted in people living longer. This increase in life expectancy makes retirement planning even more crucial. Furthermore, with better affluence, there is also an increase in demand for a better lifestyle during retirement.

The objective of retirement planning varies depending on circumstances, and normally includes:

– Maintaining a self sufficient pre-retirement standard of living
– Coping with increasing health care cost
– Protection of property and against personal liability
– Providing for dependents
– Estate planning

The process for retirement planning:

Step 1: Overcome Obstacles
Step 2: Determine Goals
Step 3: Measurement
Step 4: Reference Point
Step 5: Overall Plan

Overcoming The Road Blocks

There is only a limited period of accumulation and a continuous period of consumption. The first step is to overcome the many obstacles hindering retirement planning. These include spending beyond means, unprepared for unexpected expenses (like repairs), inadequate insurance (like property loss, medical bills), tapping into retirement funds for other purposes (like upgrading house, holidays), etc.

(1) Aim to save at least 10% of income and gradually increase it to 20% when it is nearer to retirement. This accumulates towards the retirement funds and helps to accustom to a retirement lifestyle within financial means.

(2) Establish an emergency fund of at least 6 months of income that is separate from the retirement planning fund. The will be used for risk retention, covering for unexpected expenses without drawing on the retirement funds.

(3) Have sufficient insurance. A major crisis will be a huge drain on all of the savings, it is best to transfer this risk by being adequately covered.

(4) Saving for other specific purposes should be saved for separately. It will derail the retirement plans due to the shortfall.

Determine Retirement Goals

Depending on the circumstances, the goals will vary from individual to individual. Some common areas to consider:

(1) Lifestyle.
– Housing: Same house, mortgage remaining, upgrade, downgrade, migrate.
– Leisure: Pursuit of hobbies like golf, yoga, charity or religious activities.
– Travel: Overseas holidays, car ownership.

(2) Age of retirement.
– The last day to have to work or the last day to want to work.
– Early retirement due to corporate issues, health, care giving concerns, etc.

(3) Health.
– Coping with increasing health care cost.
– Health screening.
– Dental care.

(4) Estate planning.
– Passing on the wealth eventually.

(5) Caring for dependents.
– Physical or medical care for elderly parents.
– Providing for children not yet independent or siblings requiring aid.

Measuring The Finance Required

From the above goals, the required amount needs to be quantified.

(1) Lifestyle and dependent expenses. An estimate is about 60% of pre-retirement income.
(2) Project the retirement age. The statutory retirement age is 62 years old.
(3) Health expenses. Total up the amount of insurance premiums and health screening cost.

In addition, some assumptions need to be made:

(1) Inflation rate. The average historical inflation rate in Singapore is about 1.5%.
(2) Investment returns. Depending on the choice of investment, this varies significantly.
(3) Life expectancy. A reference will be the natural death ages of great-grandparents, grandparents or parents. The average age is 78 for males and 82 for females, and this average is increasing.

Reference Point

The current position needs to be analyzed so as to determine the strategies to achieve the goals.

(1) Current age. Number of years to accumulate funds before retirement.
(2) Current health. Deteriorating health will be more of an immediate concern.
(3) Financial position. Amount of savings, assets, liabilities, current income, expenses.
(4) Existing plans. CPF, SRS, insurance and investments already in place.

Overall Plan

Depending on which stage on the retirement plan, the approach to adopt will be different.

(1) Accumulation Period
The period when one starts to save for retirement until about 10 years prior to retirement. The focus will be on the shortfall of funds required for retirement form the current reference point. The main strategy will be on saving to invest. Investment will be covered in a later topic.

(2) Transition Period
The period about 10 years just prior to retirement. As retirement draws nearer, the goals become clearer. It is important to review if the desired lifestyle can be achieved with the funds or if more savings is required. The funds accumulated earlier will also need to be gradually repositioned into less risky investments.

(3) Retirement Period
This continues throughout since retirement. The funds will be used to generate current income. Some considerations during this period:
– Purchase of Annuities (CPF Life)
To provide a guaranteed income for life. Recommended to purchase to cover for the minimum monthly living expenses required.
– Maximize use of property
Reverse mortgage, downgrading, renting out spare rooms can be considered for additional income.
– Work
To perhaps work on a part time basis, as a consultant or run a business.

As with all plans, it will need to be continuously reviewed when personal circumstances change (like a newborn or divorce), external market conditions affecting investments, or introduction of new policies (like change of statutory retirement age or CPF rules)