When and How should you start planning your Retirement?

Most of us think that retirement planning is a life event that happens in the later years of your adult life. In doing so, it hinders one’s goals for retirement. According to a survey by Manulife, 2 out of 3 retired participants regretted not planning for retirement at an earlier age. Many of them even felt unsatisfied with the amount of retirement savings that they had.

Most of us are alright with holding down a job and working from Monday to Friday. However, as we grow older, we tend to prioritize the time we get to spend with our loved ones over our career. Planning for your Retirement can be important as it provides us the option to retire at a certain age where we get to spend the remaining years doing the things that we would like.

Why do we need to plan for our Retirement?

Apart from the freedom to spend time with our families, the amount of money needed for a comfortable retirement is increasing. Due to the advancement in medical technology, we are all living longer. According to the World Health Organization, Singapore is ranked third in terms of life expectancy. Although it means that we have more time to spend, it also means that a larger sum is needed so that we have a stable income during that time.

Retirement planning would take into account the effects of inflation over the years. Simply earning and saving them into a bank with low interest may not be enough to counteract those effects anymore. Based on the 72 rule, an average inflation rate of 4% would double the cost of living in Singapore every 18 years. This means that the money we now own may be worth a lot less in the future. Thus, it is important to plan for your retirement so that you will have sufficient income to enjoy the later years of your life.

When should we start planning?

There is no specific age that one should start planning as every individual’s goal, circumstances and situations differ. With that said, it also means that there is no limit on how young you can start planning.

Many people tend to hold this planning off as they feel that it is still far away. However, many retirees suggest for individuals to start as soon as possible. Starting earlier means that you would have more time for your savings to reap the benefits of compounding returns. Planning for retirement is different for every individual and starting early would allow you more time to find out what works best for you.

How to plan for your retirement?

Step 1: Know you Retirement Goals

First and foremost, ask yourself what kind of retirement you would like to experience? To retire comfortably, you would need to consider your housing (Where would you like to stay?), lifestyle (what would you like to do or any places you would like to visit?) and even your current health (do you foresee yourself needing medical treatment for your current health?).

One would also need to take into account the age that you would plan to retire and an expected duration for the retirement period. This is important as it would indicate how much you need to save and how long you have to reach that goal.

Step 2: Understand where you stand

After knowing what you want, you need to assess where you are currently at. This means evaluating your current finances and savings. This would allow you to know how much further it is to your retirement goals. Reviewing your current finances should also help to figure out if you are on the right track towards your goals.

At this point in time, some people may find it hard as they do not know where to start. Should you ever feel uncertain, do not be afraid to seek help from your financial consultants and professionals. They can help you to analyze and review your current portfolio to figure out the next step.

Step 3: Consider and employ different options to help you reach your goal

There are many ways to grow your wealth and finances which can allow you to achieve your desired retirement plan. One of them would be to increase your savings and manage your spending. A simple way to keep track would be to calculate and review your monthly financial transactions and cut down on spending which is not necessary. This does not mean that your life should only consist of daily needs, it is alright for one to enjoy themselves through their journey to retirement. Just make sure you allocate a reasonable amount for you to spend and adhere to it.

Another way would be to invest a portion of your current income to increase your savings such as owning shares and obtaining dividends through investments. The reason that people advise individuals to start early is that the benefits of compounding returns is greater given more time. Another form of investment exclusive to Singaporeans is the Central Provident Fund (CPF). It is a fund set up by the government for Singaporeans to save up for their retirement. CPF offers higher interests with practically zero risks. On top of that, there is even an option for individuals to use funds in their CPF to invest and grow their savings.

It is important to note that even when you have reached your desired retirement goals, one should always prepare for the unexpected. This means that one should still continue investing or even receive a passive stream of income (such as rental income or dividends from investments) during retirement. This would ensure that your savings do not run out even as you age past the intended retirement duration.

Planning one’s retirement is also about preparing for unexpected situations and events such as falling ill or having enough money to tide over a rainy day. Therefore, your retirement plan should consist of insurance that provides appropriate coverage so that it does not use up your savings. Also, being insured means that your dependents can continue to sustain their quality of life even after you are gone.

Conclusion

Although having a retirement plan is an effective method to secure one’s future in later years, it is not perfect. Unexpected events and situations can occur during that time or when you are trying to reach those goals. It is also important to take care of yourself throughout the years by adopting a meaningful and healthy lifestyle.

As we progress into the later stages of our lives, we tend to think about what we can leave behind after we are gone. This includes reducing any unnecessary stress for the people around us. Planning for your retirement can help ensure that you are well-taken care of in the later years of your life. Ultimately, there is no better way for us to take care of your family than to account for one’s own well-being and situation.