In these challenging times, it is not uncommon to encounter individuals who exhibit no or little urgency in retirement planning. Well, “What’s the fuss about planning so early?” some may say, or “Why should I plan now when I am still young?” Meanwhile, others may simply shrug off the thought of it and opt to remain passive to the topic of retirement planning.

Regardless of the individual’s choice, some glaring realities about our obligations cannot be avoided. We are earning dollars based on our cost of living today and saving some to be spent 30 to 40 years later. So, if we subject our savings to an inflation rate of about 3% per year, then the cost of what we pay for today will surge to over 2.4 times its current value in 30 years. Moreover, in 40 years, the cost will escalate to over 3.2 times its present amount! Have we really figured out how we are going to finance this increased living cost?

We need to think about how we are going to manage and invest our funds throughout the rest of our lives. If we do nothing about it or decide to manage it ourselves, one day we will be a 70 or 80 year old individual managing our own retirement funds. It’s like asking our aged parents today to manage our investments.  

So, the most crucial question you need to ask yourself in retirement planning is “What are my financial needs when I retire?” Plus, you will need to understand that your needs will change as you grow older.

Next is to know how much you will need for retirement every year, and how it will change over the years due to inflation and changing lifestyle. Do a cash flow analysis to have a better understanding of your spending patterns. Working out a lump sum figure for retirement planning does not help too much.

Subsequently, consolidate what you have accumulated so far to know how much you can draw down from there annually.

Some important tips you must be mindful of in retirement planning:

• Planning is crucial

Things will change over time, your priorities, your goals, your outlook, and certainly, your expenditure. Does this imply that planning is unnecessary because our circumstances are expected to change? Absolutely not. When you plan, you proactively shape your future path, allowing your goals and intentions to guide you, rather than being at the mercy of unpredictable events.

• Be patient

Things don’t change overnight because you start working on it. They take time to evolve and grow according to the plan. Achieving results from your plan requires you to be patient, as impatience often leads to unwise investment decisions. Risks are often taken unnecessarily in the quest for faster results, especially when influenced by others’ success stories. If you are impatient, then we suggest you start your plan earlier. Remember retirement planning is a long route. It does not end when you reach retirement age. It ends when retirement years are over – until the end of life.

• There is no free lunch

Like it is often mentioned in investment, our investments in our retirement plan are no exception. If you hope to achieve a higher return or achieve your investment goals earlier, then you must be prepared to subject yourself to the risk that you will not achieve the returns desired. Simply put, your retirement goals may not be achieved in the given time you set.

• Never put all your eggs in one basket

Diversification is often seen as a discerning strategy in any investment decision. Given that we live in a volatile global economy where global peace and stability do not often last very long, diversification is often seen as the best answer for long-term investments.

• Never purchase or invest in any instrument you cannot understand

Attempting to invest in investment instruments that you fully understand is almost suicidal even if it is sold by a close friend or reputable financial institution. Consider the numerous instances of financial instruments marketed or distributed by large financial institutions that have failed. Therefore, it is prudent to only invest in instruments that you can fully comprehend.

• Be prepared for unforeseen circumstances

Often because we fail to anticipate and protect ourselves against such unforeseen circumstances, a significant portion of our hard-earned savings will be eroded when such events pay us a visit. Long-term disability, long-term illness, or even death are so easy to protect against with the wide range of solutions available in Singapore, and yet many failed to act on it. Only those who missed the opportunity will know how painful and upsetting it can be.

Most unfortunately, retirement planning is not a topic that can be covered in an article or even a book. The right thing to do now is to look at the pointers I have covered with reference to your circumstances. Examine clearly what you have done for retirement planning and speak to one or two professionals who can help you develop a personalised plan, work with you in the long run patiently in accordance with your priorities and capabilities, and most of all, not one who is just interested in selling you a product.