One of the Best Retirement Planning & Strategies Singapore

After you had protected your income and wealth through Life Insurance and Income protection, it is time to start your wealth accumulation and retirement planning.

The key to financial freedom is to start before you are ready

What is the Retirement Planning?

Retirement planning is about having a product or a plan that will gives you a stream of guaranteed income when you retire, no matter where you are, what you do or what condition you are in. You have to plan according to your retirement goals, know you risk appetite, when you want to retire, type of assets you can invest in and types of retirement investment strategy you prefer. Retirement planning should include determining your time horizons, estimating expenses of your daily and lifestyle needs, adequate insurance cover for medical and post medical recovery expenses. It also involves in assessing your risk tolerance, and doing estate planning. Retirement plans may evolve through the years, as your retirement goals changes and inflation also have a big effect on cost of living in the future. Thus, your portfolios should be rebalanced accordingly. Below are some infographics that will help you understand retirement planning visually, click on them to view, or visit my Blog on Infographics on What is Retirement Planning and Examples.

Why Plan for Retirement Early?

With a stream of guaranteed income when you retired, it will give you the freedom of choice whether to work or not to work at your retirement age. You are in a better position to make that decision if you start retirement planning early. Starting early also give you more time to reap the benefits of compounding interest. How much of a difference does it make to start early, here are an example;

Example: John started saving $250 a month 30 years ago while May started saving $400 a month 20 years ago. Assume that their investments both grow at 4% a year:

Despite that John saving less per month and less in total than May. John ended up with a significantly higher amount of savings than May because he started saving earlier. That is the power of compounding in having time work for you.

Another example on why plan for your retirement early, let’s say you have a child, a baby girl, and at her age 18 you should expect her to go to university. Therefore, you will have 18 years to plan for it. That leaves you with two options, 1st option is don’t plan at all and on her 18th birthday you will pay a lump sum for his tuition fee. 2nd option is to save a little money all the way for 18 years till your daughter 18th birthday. As this will ensure you having a lump sum of money to fall back on, if your child do decide to attend university. Will you not prefer the 2nd option?

That will be the same with your time for retirement planning. I know I would like to retire at age 65, some of us, would prefer to retire earlier like age 55 or even age 45. Thus, if we do not plan for it, it will not be going to happen. Retirement means being able to receive an income every month to last you a lifetime. At this moment how is your progress coming along for that? How much have you planned so that for the rest of your life, no matter where you are, what you do or what condition you are in, can you comfortably provide for yourself or your family? Wealth accumulation takes time, it simply will not happen overnight.

With the right planning for your retirement, it will provide you with a peace of mind for your future, financial independence and early retirement.

When Should I Start My Retirement Planning?

Start as early as possible on your retirement planning. On an average our mortality rate is about 30,000 days, which amount to about 82 years old. And often from age 1 to 25 we spend our time studying and playing. From age 25 to 45, most often we will have a full-time career and earn our first income, purchase our first home, first car, got married and have our first child. From about age 45 to 65, we might be getting our second property as investment, get a new car, a higher pay career or start-up a business. From age 65 to 82 we start our retirement moments.

From age 1 to 25 (studying) and age 65 to 82 (retirement) we do not earn an income. Therefore, we might eventually leave with age 25 to 65, which is about 15,000 days to earn and accumulate our wealth and achieve all our goals. We may not have as much time as we thought we have in saving for our retirement. 15,000 days might sound a long time, but $15,000 do not sound a lot for retirement needs. What’s your number? How much do you need for your retirement? Even just start saving $10 a day, it will make a significant different in the long term.

What Can I Invest in for My Retirement Planning?

According to Dr. Snajay Tolani, in his retirement planning playbook, there are relatively only 5 types of assets classes in the market, and which to invest will depend on your risk appetite. Please seek help from the relevant qualified professionals according to your needs.

1. Property: It has been a popular asset investment, potential to combat inflation rate along the years. Volatility depends on market, like the supply of government and private properties available and government regulation of cooling measures.
2. Equities: Stock and share, also refer to ownership of a company and volatility often regarded as a higher risk investment.
3. Bonds: Issued by government or companies, generally consider lower risk than equities. Volatility depends on market, known to be giving a stable return.
4. Commodities: They are natural resources like food, energy (oil and gas), metal (gold and silver). Volatility often regarded as a higher risk investment.
5. Cash: It can be in the form of fixed-deposit or endowment plans, sometime consider as the safe haven from the volatile market. It provides either a guarantee or variable returns or both.

It is good to have a healthy mix of multiple asset classes as your retirement planning. Because a single asset class may not provide maximum gain or a cushion to fall back on. For example, you may already have some assets like properties, but as we grow old, those assets will inevitably become a liability. After 25, 30 or even 40 years our properties might get deteriorate (run down), and your tenant will request you on house repairs and renovation. Rental income will then continue to decline or dry up. Equities, bonds and commodities, might get hit by a sudden pandemic before they go back up when the situation recovers. Cash asset class had been much neglected as a good wealth accumulation tool, because it takes time, but it provides both guarantee or variable returns.

6 Sources of Income for Retirement

According to Dr. Snajay Tolani, in his retirement planning video, there are 6 sources of income for retirement. As mentioned before, it is good to have a healthy mix of multiple asset classes for your retirement planning. Every assets class has their own return and risk standard. Thus, property cannot be compared to stocks, and stocks cannot be compared to bonds, and bonds cannot be compared to fixed deposit, and fixed deposit cannot be compared to retirement plan, and retirement plan cannot be compared with CPF Life. Thus, we cannot compare them with each other, as each asset has their own uniqueness, and they would either be providing you a certain level of security or they would be providing you with a certain level of income streams.

Retirement plan, helps to act as a hedge to your overall portfolio. For example, property and stocks will be providing you a good returns in the bull market (market is doing well), and your retirement plan will provide you with a fixed guaranteed stream of income with higher variable returns. But during the bear market (market in bad, example during a pandemic) your property and stocks investment returns will be affected or collapses. But your retirement plan (or annuity) will continue to provide you with a fixed guarantee streams of income for your retirement. Property is just one source of income within your portfolio, it is good to have a healthy mix of multiple sources of income for your retirement planning portfolio, as each asset has their own uniqueness, advantages and disadvantages.

What is Your Risk Appetite?

Generally, our risk appetite is the highest when we are young, because if our investment does not work out, we still have the time to re-strategize. Thus, in general, our risk appetite decline as we aged. When we are in our 20’s, with a higher risk appetite, we probably will be more willing to invest in higher risk assets like equities, commodities. But in our 60’s or 70’s we probably want to convert them into cash, so we can have income for our retirement with a peace of mind.

Which Wealth Accumulation Strategy to Deploy for my Retirement Planning?

According to Dr. Snajay Tolani, in his retirement planning playbook, after knowing the available assets classes and understanding your risk appetite, you can start to consider which wealth accumulation strategy best suit you. According to Dr. Snajay Tolani generally, most people will invest in multiple asset classes, like equities, cash and property, depend on their available resources and risk appetite. Please seek help from your friendly relevant qualified professionals according to your needs.

4 Types of Investment Strategies for Retirement:

1. Aggressive: Equities, property and commodities
2. Balanced: Equities, higher risk bonds and property
3. Cautious: Lower risk bonds, cash and property
4. Defensive: Government bonds and cash

For example, when you are young and with available resources and has a higher risk appetite, you may want to deploy a more aggressive strategy for the next 5 – 10 years, before you change to the next strategy. As we aged, we will want something more liquid, less volatile and with a guarantee return, like cash asset class. For defensive strategy, on cash potion you may look into fixed deposit or retirement endowment saving. There are a lot of significant enhancement in recent retirement endowment saving plan, for example there is limited premium payment option, lump sum pay-out or provide you with a guarantee stream of income during your retirement age, some comes with additional variable to provide a chance to gain a higher returns (and this differs from product to product). Please be aware of your timeline, as cash strategy require a certain duration to accumulate your wealth as compare to other asset classes.

Illiquid assets in retirement becomes a liability. The true asset in old age is pure income.

One Last Thing

Retirement planning is about having a product or a plan that will gives you a stream of guaranteed income when you retired, no matter where you are, what you do or what condition you are in. While planning it should include your time horizons, expenses of your future lifestyle needs, adequate medical insurance coverage. Assessing your risk tolerance, there are 4 types of investment strategies. Just like how many glasses of water we should drink every day, 8 to 10 glasses of water are the rule of thumb for healthy living. But if you decide to only drink 2 glasses per day, that might affect your health in the long run. Same for retirement planning, the rule of thumb is saving at least 20% of your annual income. Therefore, if you save lesser or start your retirement planning too late, you will not be able to reach your financial freedom goal at your retirement age. Retirement planning takes time, please seek help from your friendly financial consultant to help you with your retirement planning when required, or contact me for a holistic Insurance and Financial Planning.

Note: Opinions expressed are solely in Mr. Chan Kong Meng’s personal capacity and neither express the views or opinions of Prudential nor represent any professional advice in Mr. Chan Kong Meng’s capacity as a PACS representative.