Advances in medical science have led to people living longer. This increase in life expectancy makes retirement planning a lot more crucial. Furthermore, with better affluence, addititionally there is an increase in demand for a better lifestyle during retirement.
The aim of retirement planning varies depending on circumstances, and normally includes:
- Maintaining a self sufficient pre-retirement quality lifestyle
- Coping with increasing healthcare cost
- Protection of property and against personal liability
- Providing for dependents
- Estate planning
The process for retirement planning:
Step one 1: Overcome Obstacles
Step 2 2: Determine Goals
Step 3: Measurement
Step 4 4: Reference Point
Step 5: Overall Plan
Overcoming The Road Blocks
There is just a limited period of accumulation and a continuing period of consumption. The first step is to overcome the many obstacles hindering retirement planning. These include spending beyond means, unprepared for unexpected expenses (like repairs), inadequate insurance (like property loss, medical bills), tapping into retirement funds for other purposes (like upgrading house, holidays), etc.
(1) Try to save at least 10% of income and gradually increase it to 20% when it is nearer to retirement. https://seniorsmoneyonline.com/ accumulates towards the retirement funds and really helps to accustom to a retirement lifestyle within financial means.
(2) Establish a crisis fund of at least six months of income that is separate from the retirement planning fund. The will be useful for risk retention, covering for unexpected expenses without drawing on the retirement funds.
(3) Have sufficient insurance. A major crisis will be a huge drain on all of the savings, it is best to transfer this risk by being adequately covered.
(4) Saving for other specific purposes should be saved for separately. It'll derail the retirement plans due to the shortfall.
Determine Retirement Goals
With regards to the circumstances, the goals will vary from individual to individual. Some common areas to consider:
(1) Lifestyle.
- Housing: Same house, mortgage remaining, upgrade, downgrade, migrate.
- Leisure: Pursuit of hobbies like golf, yoga, charity or religious activities.
- Travel: Overseas holidays, car ownership.
(2) Age of retirement.
- The last day to possess to work or the last day to want to work.
- Early retirement because of corporate issues, health, care giving concerns, etc.
(3) Health.
- Coping with increasing healthcare cost.
- Health screening.
- Dental care.
(4) Estate planning.
- Passing on the wealth eventually.
(5) Looking after dependents.
- Physical or medical care for elderly parents.
- Providing for children not yet independent or siblings requiring aid.
Measuring The Finance Required
From the above goals, the mandatory amount must be quantified.
(1) Lifestyle and dependent expenses. An estimate is approximately 60% of pre-retirement income.
(2) Project the retirement. The statutory retirement age is 62 yrs . old.
(3) Health expenses. Total up the quantity of insurance premiums and health screening cost.
Furthermore, some assumptions ought to be made:
(1) Inflation rate. The common historical inflation rate in Singapore is about 1.5%.
(2) Investment returns. Depending on selection of investment, this varies significantly.
(3) Life span. A reference is definitely the natural death ages of great-grandparents, grandparents or parents. The common age is 78 for males and 82 for females, and this average is increasing.
Reference Point
The current position must be analyzed to be able to determine the strategies to achieve the goals.
(1) Current age. Period of time to accumulate funds before retirement.
(2) Current health. Deteriorating health will be more of an immediate concern.
(3) Financial position. Level of savings, assets, liabilities, current income, expenses.
(4) Existing plans. CPF, SRS, insurance and investments already set up.
Overall Plan
Depending on which stage on the retirement plan, the method of adopt will be different.
(1) Accumulation Period
The time when one starts to save lots of for retirement until about 10 years prior to retirement. The focus will be on the shortfall of funds necessary for retirement form the current reference point. The main strategy will be on saving to get. Investment will undoubtedly be covered in a later topic.
(2) Transition Period
The period about a decade just prior to retirement. As retirement draws nearer, the goals become clearer. It is very important review if the desired lifestyle can be achieved with the funds or if more savings is necessary. The funds accumulated earlier may also must be gradually repositioned into less risky investments.
(3) Retirement Period
This continues throughout since retirement. The funds will be used to create current income. Some considerations during this period:
- Purchase of Annuities (CPF Life)
To supply a guaranteed income forever. Recommended to get to cover for the minimum monthly living expenses required.
- Maximize use of property
Reverse mortgage, downgrading, renting out spare rooms can be considered for additional income.
- Work
To perhaps focus on a part time basis, as a consultant or run a business.
Much like all plans, it'll need to be continuously reviewed when personal circumstances change (just like a newborn or divorce), external market conditions affecting investments, or introduction of new policies (like change of statutory retirement age or CPF rules).