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Guide to Retirement Planning for Young Adults

For many people, retirement is regarded as a life event that's too far away to start planning for. However, there are many benefits to early retirement planning and this article will explain why. 

When should you start planning for your retirement? 

While it is never too late to start saving and planning for retirement, the best time to start is as early as possible, ideally from the moment you receive your first pay cheque. Find out why you need to plan for your retirement early here.

How do I start planning for my retirement?

1. Define your retirement goals 

At what age do you plan to retire? What kind of retirement lifestyle would you like to lead? Deciding on your retirement monthly income and multiplying it by the number of years in retirement would give you an estimate of how much savings you need. 

2. Adjust for inflation 

Once you have estimated the amount of savings you need based on your retirement goals, you should adjust the amount for inflation. To estimate the number of years it takes for inflation rate to double, you can divide 72 with the existing inflation rate1. For example, if current inflation rate is 3%, it would take 24 years for inflation rate to double.

3. Review current financial situation

Review your existing savings and determine how much savings you need to put aside each month to help you achieve your retirement goal. 

4. Diversify your retirement fund portfolio 

Apart from regular savings, it is also important to diversify your retirement fund portfolio. Once you have set aside enough funds for emergencies and regular savings, you can consider investing to grow your wealth. 

 

Tips for young adults who are planning for their retirement 

As you are young and cannot exactly predict what your future holds, it is important that you have some flexibility and control over your retirement plan. 

You can also consider getting an Investment-Linked Policy (ILP) which combines both life insurance coverage and investment components2. As you have a long-term horizon, it allows you to ride out market fluctuations to enjoy any potential growth in the long run. However, the value of unit depends on its prices which depends on the market performance, you should be aware that ILP does not have any guaranteed cash values. 

Case study 

Victor is a 25-year-old programmer at a local start-up. He has just started working after graduating from university. His take-home salary is currently S$3,000, and he spends about S$2,000 of it every month.

Victor decides to buy ManuInvest Duo, a regular premium investment-linked policy (ILP). He has chosen to buy an ILP as it helps him achieve both his wealth accumulation and protection goals.  For this plan, he sets aside S$200 each month for his monthly premium payment. 

Although he is committed to making monthly payments, he is not worried as his ManuInvest Duo plan offers partial withdrawal3 and premium flexibility4 benefits. This means that he can make withdrawals or pause his premiums in times of emergency.

After 5 years of working, Victor decides to take a sabbatical of 6 months to volunteer for a local charity organisation, a lifelong dream of his. His boss is happy to grant him the sabbatical after so many years of loyal service. As he will be living off his savings during his sabbatical, he pauses4 the premiums on his ManuInvest Duo plan for 6 months. Victor returns to work after 6 months. He returns to work and restarts payment of his ManuInvest Duo premiums.

Victor continues to enjoy steady career progress and is promoted to IT manager at the age of 36. Shortly after his promotion, his father meets with a traffic accident. His father’s medical insurance managed to cover most of his medical costs, but he will not be able to work for a year. The loss of income affected the family’s financial situation and Victor had to step in to offer financial support for the household. Victor decides to do a partial withdrawal3 from his ManuInvest Duo plan. This amount of money helped the family to tide through this period while his father focused on his recovery.  

The years go by, and Victor’s professional and financial life sees steady progress. At the age of 45, he is now IT director at a multinational company. He decides to do a fund switch to a dividend-paying fund to enjoy a steady stream of income. In addition, he is also having a peace of mind knowing that he and his family can be protected when unforeseen situations happen. 

 

Accumulate your wealth while protecting your lifestyle

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Accumulate your wealth while protecting your lifestyle

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    Footnotes

    1. https://www.moneysense.gov.sg/articles/2018/10/introduction-to-retirement-planning
    2. https://www.moneysense.gov.sg/articles/2018/10/understanding-investment-linked-insurance-policies
    3. From policy year 6, up to 20% of total basic premiums and top-up premiums paid in the previous policy year can be accessed at a low transaction fee of S$50.
    4. Premium Flexibility Benefit refers to the total amount of regular basic premium that can be missed without incurring a premium shortfall charge. This benefit starts from policy year 6 until the end of Minimum Investment Period, subject to a maximum limit of 2 years of annualised premium for 10 years Minimum Investment Period, 3 years of annualized premium for 15 years Minimum Investment Period, and 4 years of annualised premium for 20 years Minimum Investment Period.

     

    Important Notes

    ManuInvest Duo and its supplementary benefits are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No.198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs. Your investments are subject to investment risks, and you may lose the principal amount invested. The performance of the ILP sub-fund is not guaranteed. The value of the units in the ILP sub-fund and the accumulated income (if any) may fall or rise.

    This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.

    This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).

    We recommend that you seek advice from a Manulife Financial Consultant or our Appointed Distributors before making a commitment to purchase a policy.

    Information is correct as at 26 September 2022.


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