Retirement can be a scary word. That could be because it is so far off for many people, or that we just haven’t given it serious thought. We tackle some of the most popular myths and questions surrounding retirement.
It’s pretty tough to plan every detail of the life journey with a child involved because there are many things to consider. You need to be clear that having a child means supporting them till they are old enough (say 22 years of age) to start working and earning their own keep. Knowing this, you’ll need to be realistic about the age you actually can stop working, which may end up being a little later than you initially planned. For example, if you have a child when you’re 38, you’ll probably need to keep earning money till you’re 60.
If you start planning early (like now), there are financial and insurance instruments available that can help you build up your wealth. That way you might still be able to kick back and relax at a slightly earlier age.
Travelling has become a meaningful part of our way of life. The main concern is how we’re going to pay for all these breathtaking trips. To start, you need to have a clear travel plan.
Are you going to travel to the major city of every country you can think of? Are you doing more beach or city destinations? Will you be staying in hotels or will you be happy with shared apartments? Having an idea of the specifics around big ticket items like flights and accommodations will give you a chunky budget you can work towards. Make some of these decisions now — they’ll help with both your financial and adventure plans.
Many people are now taking career breaks so they fully enjoy and explore their “retirement” at different points in life. It does take some planning from the financial and career fronts, but those who have done it swear by how it is the best way to recharge and gain new perspectives.
Once you have a clear checklist of your dream retirement travel plan, see if you can check some of these off even before you hit retirement. You’ll need to ensure you have cash readily available when you are planning these breaks. Endowment plans or investment-linked plans are more suitable for long term saving or investment purposes (such as for your retirement needs). You may want to consider buying single premium endowment plans that mature in five, seven or 10 years, so you are steadily putting money away for when you are ready for a break.
Most financial experts advise that we should spend only 40 per cent of our salaries on essentials, put aside 20 per cent for savings, and use 40 per cent on non-essentials and variables. Money for travelling — during retirement or otherwise — needs to come out of the last non-essential 40 per cent.
Most people keep working in order to maintain a healthy mind and body, as well as ensure a healthy social circle. And, yes, for some income. However, it’s still important to plan your savings and investment as if you will actually stop working in your later years. Here are three reasons why.
You can’t count on receiving the same pay, even with the same job. While employers are required to offer re-employment up to the age of 65, there is no guarantee that they will not reduce your pay. It’s not ideal, we know. It’s best to brace for a pay cut of 20 to 30 per cent, as most people earn less as they get older.
In the event of an accident or disability, continuing to work may be out of the question. Even without such occurrences, some lines of work are unforgiving to the elderly. You need to be realistic about how long you can keep working because of the hours, skills that keep you relevant, and the fact that your body isn’t going to be young forever.
You need to decide how much you want to leave your children or grandchildren. If you have aspirations to pay for their university fees, for example, you may need more than a paycheck provides — even if you work past retirement. You might not have grand plans on how you’ll provide for kids or grandkids at this point, but it’s always good to know there’s an option to do so later in life. A simple insurance policy of a few hundred dollars a month can provide you with a much more comfortable retirement. And the earlier you get yourself started, the less you’ll actually need to put away each time. More importantly, if you wake up one morning at age 65 and decide you actually don't feel like working anymore, you'll have the option to do just that.
Putting a little away earlier is way better than saving more later. A recent study by Manulife in one of our markets shows that most Singaporeans start planning for retirement only around age 38. Perhaps as a consequence of this, only two out of five Singaporeans are confident about meeting their retirement needs. In truth, 38 is a late age in which to start retirement planning.
Consider the retirement fund of someone who starts saving at 38, versus someone who starts saving at 25. Assuming they both put away US$100 a month with a plan to retire at the age of 60 (assuming you want to retire at the age of 60).
The 25 year old, after building a retirement fund for 35 years, will have saved around US$42,000 by retirement. The 38 year old on the other hand would have amassed just US$26,400. With interest rate, this is a difference of more than US$15,600. This difference is due to the power of compounding interest. Notice that the interest earned increases each time. This is because it builds on (compounds) the previous end value.
There is also another reason to start planning for retirement early: if you’re ambitious, you may aspire to retire before the age of 60. Say you’re 25, and are disciplined enough to set aside a large part of your earnings. You manage to save US $1,000 a month for retirement over 35 years. By the time you reach 60, with the interest rate earned, you could potentially have up to half a million US dollars.
We know it can be challenging to start saving for retirement early. If you are not earning as much at the start of your career, even setting aside $50 a month can be a challenge. The point is even a small amount saved over time can make a big difference.