What not to do when planning your retirement

RETIREMENT plan­ning is not a topic that gets the heart beat­ing faster, and
sadly it is all too clear that Sin­ga­pore­ans do not want much to do with it.

 

,
it is equally clear that peo­ple here need to start plan­ning early for their
golden years.

 

 

No one can claim they have not been reminded of the need to start plan­ning
as such wake-up calls are con­stantly aired in Singapore.

And it is not as though Sin­ga­pore­ans lack finan­cial options. Many of these
were out­lined at the recent Sil­ver Indus­try Con­fer­ence and Exhi­bi­tion
(Sicex) at Sun­tec City.

The event explored oppor­tu­ni­ties for an age­ing Asia and tack­led issues like
how to make finan­cial plans for a long life.

It was apt that the inau­gural event was held in Sin­ga­pore, given the
urgency of the prob­lem fac­ing Singaporeans.

An annual AXA sur­vey found that Sin­ga­pore­ans lagged behind Amer­i­cans in
retire­ment prepa­ra­tion, with only about half of the work­ing peo­ple in the
Repub­lic prepar­ing for the time when they would have to stop work­ing. Those
who do start plan­ning, do so at an aver­age age of 34.

In the United States, 79 per cent of work­ing Amer­i­cans start their plan­ning
from age 30. In Asia, Fil­ipinos begin retire­ment plan­ning the ear­li­est — at
just 28.

Finan­cial experts at Sicex point out some of the key chal­lenges:
Sin­ga­pore­ans now live longer and have height­ened health and lifestyle
aspi­ra­tions; yet, most want to achieve finan­cial inde­pen­dence early.

It is all eas­ier said than done, so take note of these eight mis­takes to
avoid:

1. Not writ­ing out goals or defin­ing your dreams

HOW often do we hear of some­one whose idea of retire­ment plan­ning is to
toss some money into a cou­ple of invest­ments and hope for the best?

Such laid-back atti­tudes are com­mon among those who have not taken the time
to con­sider where they are headed.

Finan­cial plan­ner David Strege, who par­tic­i­pated at the Sicex, said peo­ple
need to under­stand why they are work­ing and what they want to accomplish.

Con­fer­ence speaker, Dr Robert Mer­ton, a Nobel lau­re­ate in eco­nom­ics, says
peo­ple should first focus on their life goals when they plan for their
golden years — how much they want to leave their kids and the qual­ity of
life they want in retirement.

Investors should diver­sify their port­fo­lios, mak­ing sure to keep costs
down, Prof Mer­ton said.

2. Not under­stand­ing where you are at

THIS means defin­ing your assets and lia­bil­i­ties and know­ing your cash flow
– income and expenses.

It is a basic step in money man­age­ment. You can­not plan for the future
with­out know­ing where you are now.

It also helps if you work out how to plug the gap between where you are now
and where you want to be in the future.

3. Not under­stand­ing how to man­age expenses

FOR most peo­ple, finan­cial inde­pen­dence starts from being able to man­age
their expenses.

Choos­ing to increase income or decrease expenses, for exam­ple, will yield
excess funds for invest­ing purposes.

4. Not invest­ing for the long term

WE ARE usu­ally our own worst enemy when it comes to invest­ing. When peo­ple
get ner­vous, they tend to fol­low the herd, sell up and exit the mar­ket. Or
often, they enter the mar­ket too late after a major rally — and pay the
price.

Research shows clearly that if you miss out on too many of the market’s
big days, you can severely dam­age your long-term returns.

So, it is no won­der experts believe that, for most peo­ple, the way to beat
the mar­ket is to stay invested instead of mov­ing invest­ments in and out in
a bid to time the ups and downs.

5. Not fac­tor­ing in accu­rate assumptions

WHEN work­ing out their retire­ment sums, peo­ple typ­i­cally make cer­tain basic
assump­tions about the higher cost of liv­ing and their longevity.

Mr Strege says many under­es­ti­mate the impact of infla­tion on their liv­ing
expenses.

‘If the infla­tion rate is 4 per cent, the cost of liv­ing will dou­ble every
18 years. This means that for some­one retir­ing at 65, it will be twice as
expen­sive to live when he turns 83 than at 65,’ he says.

And health-care costs typ­i­cally rise faster than gen­eral infla­tion, which
can hit retirees par­tic­u­larly hard.

Finan­cial plan­ner Ian Her­aud, the exec­u­tive chair­man of Australia-based
Her­aud Har­ri­son, says it is dan­ger­ous to assume that one needs to spend
less than they used to after retiring.

In con­ven­tional think­ing about retire­ment income, many assume that 75 per
cent of their last-drawn pay will be enough to sus­tain a com­fort­able
lifestyle in retirement.

This might be true for some peo­ple, but future health-care costs could be
higher than what most peo­ple assume.

Mr Her­aud says: ‘You shouldn’t aim too low when decid­ing on your nest-egg
goal. It is a lot more than peo­ple think.’

Another assump­tion is how many years one will live. Many peo­ple
under­es­ti­mate the num­ber of years and thus the funds they will need.

6. Not man­ag­ing your risks

A LOT of fac­tors can derail your best– laid plans, includ­ing pre­ma­ture
death, health con­cerns, prop­erty, loss of job, dis­abil­ity and liability.

The good news is that there are ways to man­age some of these risks, for
exam­ple, by trans­fer­ring them to a third party through insur­ance or by
hav­ing emer­gency funds for rainy days.

Experts typ­i­cally advise set­ting aside three to six months’ worth of
emer­gency reserves to cover unknown expenses.

7. Not review­ing your finan­cial plan periodically

MANY vari­ables affect­ing a finan­cial plan do not stay con­stant, such as
per­sonal goals, invest­ments, mar­kets and longevity.

Experts advise peo­ple to revise their plans once a year and make nec­es­sary
adjustments.

8. Not iden­ti­fy­ing the right finan­cial adviser

HERE are some warn­ing signs that you should be alert to when select­ing a
finan­cial adviser:

- He is not employed by or does not rep­re­sent a licensed advi­sory business.

- He does not iden­tify the client’s needs and goals and does not
ade­quately explain the complexities.

- He pro­motes a prod­uct with­out explain­ing the risks, while his costs are
hid­den in small print and not explained clearly.

And if you get an unex­pected call from a stranger sell­ing advice or
prod­ucts, be extra vigilant.