Advances in medical science have led to people living longer. This increase in life expectancy makes retirement planning a lot more crucial. Furthermore, with better affluence, addititionally there is an increase popular for an improved lifestyle during retirement.
The aim of retirement planning varies based on circumstances, and normally includes:
- Maintaining a self sufficient pre-retirement standard of living
- Coping with increasing healthcare cost
- Protection of property and against personal liability
- Providing for dependents
- Estate planning
The procedure for retirement planning:
Step one 1: Overcome Obstacles
Step two 2: Determine Goals
Step 3: Measurement
Step 4: Reference Point
Step 5: Overall Plan
Overcoming The Road Blocks
There is only a limited amount of accumulation and a continuing period of consumption. The initial 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) Try to save at the very least 10% of income and gradually increase it to 20% when it's 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 the very least 6 months of income that's separate from the retirement planning fund. The will undoubtedly be useful for risk retention, covering for unexpected expenses without drawing on the retirement funds.
(3) Have sufficient insurance. A significant crisis is a huge drain on all the savings, it is best to transfer this risk by being adequately covered.
(4) Saving for other specific purposes ought to be saved for separately. It'll derail the retirement plans as a result of shortfall.
Determine Retirement Goals
Depending on circumstances, the goals will vary from individual to individual. Some common areas to take into account:
(1) Lifestyle.
- Housing: Same house, mortgage remaining, upgrade, downgrade, migrate.
- Leisure: Quest for 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 desire to work.
- Early retirement because of corporate issues, health, care giving concerns, etc.
(3) Health.
- Coping with increasing health care cost.
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- Dental care.
(4) Estate planning.
- Passing on the wealth eventually.
(5) Looking after dependents.
- Physical or health care for elderly parents.
- Providing for children not yet independent or siblings requiring aid.
Measuring The Finance Required
From the aforementioned goals, the mandatory amount must be quantified.
(1) Lifestyle and dependent expenses. An estimate is approximately 60% of pre-retirement income.
(2) Project the retirement age. The statutory retirement age is 62 years old.
(3) Health expenses. Total up the quantity of insurance costs and health screening cost.
Furthermore, some assumptions ought to be made:
(1) Inflation rate. The common historical inflation rate in Singapore is approximately 1.5%.
(2) Investment returns. With respect to the selection of investment, this varies significantly.
(3) Life expectancy. A reference could be the natural death ages of great-grandparents, grandparents or parents. The average age is 78 for males and 82 for females, which average is increasing.
Reference Point
The current position should be analyzed to be able to determine the ways of achieve the goals.
(1) Current age. Number of years to build up funds before retirement.
(2) Current health. Deteriorating health will be more of an instantaneous concern.
(3) Financial position. Amount of savings, assets, liabilities, current income, expenses.
(4) Existing plans. CPF, SRS, insurance and investments already set up.
Overall Plan
Based on which stage on the retirement plan, the approach to adopt changes.
(1) Accumulation Period
The period when one starts to save lots of for retirement until about a decade ahead of retirement. The focus will undoubtedly be on the shortfall of funds required for retirement form the existing reference point. The main strategy will be on saving to invest. Investment will undoubtedly be covered in a later topic.
(2) Transition Period
The period about a decade just prior to retirement. As retirement draws nearer, the goals become clearer. It is important to review if the required lifestyle may be accomplished with the funds or if more savings is necessary. The funds accumulated earlier may also must be gradually repositioned into less risky investments.
(3) Retirement Period
This continues throughout since retirement. The funds will undoubtedly be used to create current income. Some considerations during this time period:
- Purchase of Annuities (CPF Life)
To provide a guaranteed income forever. Recommended to get to cover for the minimum monthly living expenses required.
- Maximize use of property
Reverse mortgage, downgrading, renting out spare rooms can be viewed as for additional income.
- Work
To perhaps focus on a part time basis, as a consultant or run a small business.
As with all plans, it'll need to be continuously reviewed when personal circumstances change (just like a newborn or divorce), external market conditions affecting investments, or introduction of new policies (like change of statutory retirement age or CPF rules).