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5 steps to retirement planning

Learn how to make your retirement process easier. It only takes some planning

5 steps to help your parents plan their retirement

It is impossible to plan for every single thing in life, as surprises abound and things do not always go the way we expect them to. However, one certainty is that you will one day retire, decades of work giving way to a new life stage.

Since retirement is definitely on the horizon, it makes sense to plan for it just as you would for other milestones like a wedding, a first job or the purchase of a new home. Retirement is similar to all these goals, but typically takes a longer time to materialise. The longer time horizon allows more time for planning, but you need to develop a step-by-step approach for the best chances of success.

With sufficient planning and the discipline to follow through with your plans, you can make your dreams of a comfortable retirement a reality.

But how can you set yourself on the path to your desired retirement? Here are the 5 milestones you should take.

Step 1 - Start when you are young

When you are young, retirement might seem like a distant dream, but it is never too early to start preparing for it. In fact, the earlier you start, the more time you have to grow your money. That could translate to an earlier retirement or a higher standard of living when you do retire.

One common misconception is that should you wait until you have accumulated lots of savings, or put off retirement planning until after you have achieved certain milestones such as purchasing a home. In reality, starting small and early is better than waiting for the ideal conditions in which to begin retirement planning, as compound interest can make even modest amounts grow significantly over the years.

That being said, it is never too late to start, so do not be discouraged if you have reached a certain age and are still unprepared for retirement. There are numerous options and solutions available for those who start planning for retirement relatively late. (For example, you might be interested in our article on how to help your parents understand their needs for retirement and plan ahead.)

Step 2 - Picture your life after retirement

Picture your life when you stop working and make plans for life as a retiree in order to know how much money you will need to retire. What sort of lifestyle will you be living? What will your needs be like on a day-to-day basis?

Just like right now, you will incur certain expenses for necessities. This includes the cost of groceries, transportation, utilities and so on. When estimating how much you will need to spend when you retire, be sure to give yourself more leeway for higher costs in certain categories such as healthcare, caregiving arrangements and insurance premiums for certain types of policies.

Now comes the fun part. In order to estimate how much discretionary spending you’ll need, imagine the kind of retirement you’d like to enjoy. Think about the lifestyle you’d like to lead and how much you can realistically expect to spend.

While you could well hope to enjoy activities such as overseas travel and dining at nice restaurants when you retire, don’t forget to also factor in simple pleasures such as time spent with your loved ones and giving back to society through volunteering, which do not cost a lot of money.

Once you have an idea of the retirement income you’ll need, you can adjust the figure upwards for inflation, which raises the cost of living from year to year.

Step 3 - Review your investment options for growing your wealth

For many people, simply putting aside cash savings is not an efficient way to prepare for retirement as the purchasing power of cash is reduced over time by inflation. In order to counter inflation and achieve your objectives sooner, find ways to not just save but also grow your money over time.

One way to grow your money is to invest it. Some common ways to invest in Singapore include buying stocks, bonds, Exchange Traded Funds (ETFs), Real Estate Investment Trusts (REITs) and investing properties. But do take note of the risks involved when it comes to investing. It is always good to do more research and understand the instruments/options involved before you invest.

Nowadays, there are also numerous financial products geared towards helping you become retirement ready, such as retirement savings plans which serve the dual purposes of wealth accumulation and insurance protection.

Investing your money directly is not the only way to prepare for a brighter post-career future. For instance, don’t forget to invest in yourself by staying in good health and keeping your work skills sharp so you can boost your earning power.

Step 4 – Build your own retirement plan

After the previous step, you should be able to create your own retirement calculator and have a good idea of how much money you will need to retire at your chosen age. But how do you achieve your desired income for retirement? If you are a Singapore Citizen or Permanent Resident, you can factor in your CPF payouts as part of your future retirement income.

When drawing up a plan that will help you achieve your financial objectives, one of the first things to do is to decide how you should channel your monthly income into retirement. How much money can you afford to set aside every month and how are you going to grow this money for the future?

To cite an example, you might decide to pay a portion of your monthly savings into a retirement savings plan, and then invest any surplus in stocks.

In your zeal to put aside money for retirement, don’t forget to maintain an emergency fund of cash savings at all times. Your emergency fund can be used to pay for unexpected expenses such as health emergencies or non-routine home repairs. Having this cash on hand will prevent you from turning to credit card debt or personal loans which, due to high interest rates, can be financially detrimental.

Step 5 - Make it easy to stick to your plan

Sticking to a retirement plan for the next few decades might sound difficult, but it doesn’t have to be. After charting out your plan, you can make adhering to it almost effortless by automating your savings and investments. Thanks to automation, putting aside money for retirement does not have to require much willpower or create much hassle.

Regular premium retirement savings plans are one example of how you can automatically put aside money on a regular basis. You can select a plan with monthly premiums to ensure that you pay in a set sum every month.

Similarly, if you are investing in stocks or Exchange Traded Funds (ETFs), taking a dollar cost averaging approach by investing a fixed sum every month can simplify the decision-making process and help you slip into the habit of investing regularly.

Planning for retirement doesn’t need to be daunting if you break it down into easy steps. Manulife’s retirement savings plans can help you plan your finances for your future, while at the same time protecting you and your family with insurance coverage. Click here Retirement Saving Plans to find out more.

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