More and more Singaporeans are facing the grim reality of retiring later or lowering their lifestyle expectations when they call it a day. This is because they have not planned or failed to plan early enough for their retirement.
The fact is a majority of Singaporeans are unprepared for retirement. And ignorance is not bliss here.
Here are some factors to consider when planning for your retirement:
1. Retirement age
For a start, determine the age you hope to retire. The earlier you do this, the more time you have to plan and to adjust to or accommodate any hiccups along the way. Having this number in view is important as you can then project the savings you need at the start of retirement.
2. Years in retirement
Life expectancy has increased. In Singapore females have an average life expectancy of 83 years and men 78 years. You should also take your family’s medical history into account. The longer we live, the more resources we will need. The worse scenario is to outlive our resources and have no one to depend on.
Most people think they will spend much less during retirement. But with plenty of time on your hands, you would not be sitting at home and not be doing anything. This is after all your golden years and you want to be able to enjoy the fruits of your labour. Giving yourself a retirement income that is 70 per cent of pre- retirement income is reasonable. To go any less would mean that you have to live a simple, even frugal lifestyle.
4. Consider inflation
Inflation is the increase in the general price level of goods and services. It can affect the purchasing power of your money. For example, with an inflation of 3%, $1,000 today will only have a value of $642 in 15 years’ time. Do not overlook this as you would not want to suffer from a shortfall during retirement.
5. Financial commitments
Consider what your likely monetary commitment would in retirement. Would your house be full paid off by the time you retire? Would you need to support your children in their tertiary education? Are your parents dependent on you? Thinking through would enable you to have a clearer picture of your retirement needs.
6. Medical expenses
High medical costs in your later years can leave you financially drained, jeopardizing your retirement. Therefore, it is highly advisable that you consider a comprehensive medical insurance plan. In this respect, when working out your retirement income, do remember to include the premiums of medical plans and other insurances that you would be paying beyond your working years.
7. Leaving a legacy
If you wish to leave an inheritance to the next generation or bequest an amount to a particular charity, this would also affect the way your retirement portfolio is structured. In either case, you would need to make provisions to ensure that the earmarked assets would not be drawn down as your retirement income.
8. Existing assets
Consider your existing assets and any future income streams when working out your retirement numbers. You can, for instance, project the value of your CPF. When in doubt, be conservative in your projections.
Investing in equities is still the preferred option to beat inflation. Equities tend to produce positive returns over the long term. Another instrument that you can consider is annuity which provides a constant stream of income for life.
Two things to remember when investing for your retirement:
- Never put all your eggs in one basket.
- Do not risk more than what you can afford to lose.
