6 retirement planning mistakes to avoid
When it comes to retirement planning, there is no one-size-fits-all plan. Retirement has a different meaning for each one of us - in fact, retirement aspirations have evolved with time.
While the earlier generations may have seen themselves working as a loyal employee in a stable company until the day they retire, the younger generation seems to have a different idea. Our millennials are more optimistic about their retirement - the Manulife Investor Sentiment Index showed that 83% of millennials interviewed expect to maintain or improve on their current lifestyle after they retire, compared to just 56% for those above age 50.
Although financial planning will have to cater to individual wants and needs, the necessity of having enough to live comfortably in our golden years however, remains the same.
When working on a plan for retirement, it is thus important to keep these 7 common mistakes in mind to ensure the end results meet your retirement goals.
1. Starting too late
A recent study by Manulife shows that most Singaporeans start planning for retirement only around age 38. You might think that 38 years old is early for retirement planning, but the fact that in this group, only two out of five Singaporeans are confident about meeting their retirement needs shows age 38 is in fact too late.
Amidst the other ongoing financial commitments you might have in your 30s - mortgage, car loans, building a family, saving for retirement and paying insurance premiums - it seems impossible to put aside an extra few hundred dollars per month for your retirement fund. But it all comes down to good budgeting and having a solid financial plan. When in doubt, check in with a financial planner that can help you figure out how to build your retirement portfolio.
2. Underestimating the retirement amount you need
Whether you are in your 20s, 30s or 40s now, you may feel that you don't need a lot of money to live in Singapore. Food is cheap, you have access to subsidised healthcare and you hardly feel the pinch of your mortgage because your CPF is doing the job. You can even afford a number of overseas trips a year, thanks to all the budget airlines!
But the fact is when you are not drawing an income, things become different. During your retirement years, you are likely to be living entirely on your savings and CPF retirement fund and they are, unfortunately, finite. This is why proper financial planning requires a conservative estimate which takes into consideration contingency measures.
Your retirement portfolio not only needs to have a good estimate of how much you need to maintain the lifestyle you want, it also needs to take into consideration the effects of inflation, as well as cater to any healthcare expenses you might incur in the elderly years.
3. Putting all your retirement savings in the bank
When it comes to saving money, it not not unusual to put them into a savings account at the bank. After all, that's where you have easy access to cash. Additionally, you get paid a minimal interest as well.
While a deposit account may be practical for everyday transaction purposes, the low interest rate does not make a good long-term instrument for saving. In fact, your money is slowly losing its purchasing power as the effects of inflation overpower the interest rate you are getting.
4. Neglecting protection
When we talk about retirement planning, an overwhelming amount of attention is put on saving enough money. Many neglect the fact that having a good protection plan is also part of smart retirement planning.
According to the Global Burden of Disease Study 2015, Singaporeans typically spend an average of 8 years out of a lifespan of 82 in ill-health. That's about 10% of our life; being in sickness does not only cause us to suffer, it can put a huge burden on our family and care-givers as well. The time spent in ill-health may also coincide with our retirement years, causing us to be unable to enjoy life as we hoped to, and also taking a toll on our finances when we aren't working anymore. Therefore, an insurance plan that can protect against an increased likelihood of medical and care expenses is of utmost importance.
5. Fear of investing
Other than ensuring that your money is put into inflation-beating financial instruments, you might want to consider investing as part of your retirement portfolio strategy as well.
Investing when you are younger allows you to take more risk and earn higher potential returns for your future use. As you move nearer towards retirement age, you may not want to risk your retirement savings in risky assets since you'd have more reliance on the funds.
6. Not reviewing your retirement plan regularly
Our financial situation and life circumstances change all the time, which is why it is important to review our retirement plan once a year. Reviewing your portfolio include, balancing your portfolio to keep up with market changes and ensuring you are on track in meeting your retirement goals. . Doing this will help to keep you be assured of your future and keep you both physically and emotionally at ease.
Need help in getting your retirement planning in order? Speak to one of our friendly financial representative from Manulife Singapore.
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This article is for your information only and does not consider your specific investment objectives, financial situation or needs. We recommend that you seek advice from a Manulife Financial Consultant before making a commitment to purchase a policy.