Pillars of personal finance

Planner Bee was designed around the three core pillars of financial planning.

Here we break down these concepts, one pillar at a time.

Guidelines to investing

Investing might sound like a scary concept to those who are unfamiliar with the topic. However in the current low interest rate environment, keeping your money in banks will subject your money to inflation.

1. Net investment assets to net worth ratio

This measures how much of your assets are used to grow your overall wealth. This should exclude your place of residence because you need somewhere to live. You can’t just sell your place to cash out your profit, and not have to buy another home, so your place of residence should be left out of the equation.

The caveat is there are situations where people pocket the profit when they make the change to downgrade. Otherwise, selling a home for high and buying another while markets are high does not make sense.

Calculation: Net investment assets to net worth ratio = Total invested assets / net worth

Recommendation: As a general guideline, a 50% ratio is healthy. As we approach retirement, we will lose our ability to earn a salary and active income, so we will rely more on passive income from investments. Naturally, this this ratio should increase as a person approaches retirement.

2. Regular investment ratio

Investing regularly is a good way to ensure we are constantly investing excess savings. This is also a good implementation of the dollar cost averaging strategy, which is a good way to reduce investment risk as a result of bad timing of investments.

Calculation: Regular investment ratio: Regular sum invested / income

Recommendation: Invest at least 10% of your income towards this.

3. Retirement readiness

Saving for your retirement should begin as early as possible so your nest egg can benefit from compound growth. Plus, inflation makes the final figure a moving target.

Assuming you have 30 years to work towards retirement, see how investing can help you achieve a retirement goal of $1.5 million with more ease.

A $1.5 million retirement fund will help to sustain a retirement period from age 60-95 with a monthly income of $4,000 based on today’s prices.

If you find it hard to meet your retirement needs, perhaps it’s time to review your current lifestyle.

Calculation: Retirement readiness: Future assets / retirement needs

• Future assets: Future value of current investments + future value of regular investments
• Retirement needs: Future value of the current cost of living expenses (excluding loans) x (life expectancy – retirement age)

Recommendation: A general 80% score is ideal and means that you are likely to be able to maintain your current lifestyle during your retirement.

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Frequently asked questions

Why should I invest instead of keeping money in the bank?

Cash sitting in a bank loses purchasing power to inflation, especially in a low interest rate environment where deposit rates trail rising prices. Investing puts your excess savings to work so your wealth grows faster than inflation erodes it, which matters most over long horizons like retirement.

What is the net investment assets to net worth ratio?

It measures how much of your net worth is actively working to grow your wealth (total invested assets ÷ net worth). Your place of residence is excluded, since you can’t sell it to realise a profit without needing to buy another home. A ratio of around 50% is considered healthy.

Why should the ratio increase as I approach retirement?

Once you stop working, you lose your salary and active income and must rely on passive income from investments. Building a larger share of invested assets before retirement means your portfolio can generate the income your salary previously provided.

How much of my income should I invest regularly?

Aim to invest at least 10% of your income on a regular basis. Investing consistently is also a natural way to apply dollar-cost averaging, which spreads out your entry points and reduces the risk of investing a lump sum at a bad time.

How much do I need to invest each year to reach $1.5 million for retirement?

It depends heavily on your annual return. Over a 30-year horizon, reaching $1.5 million requires roughly $67,449 a year at a 1% return, $54,197 at 3%, $43,204 at 5%, or $34,195 at 7%. Higher returns dramatically reduce how much you need to set aside, which is why starting early and staying invested matters.

How much retirement income does $1.5 million provide?

Based on today’s prices, a $1.5 million fund is designed to sustain a monthly income of about $4,000 across a retirement period from age 60 to 95. If your target lifestyle costs more than your projections can support, it may be worth reviewing your current spending.

What is the retirement readiness ratio?

It compares your projected future assets against your projected retirement needs (future assets ÷ retirement needs). Future assets combine the future value of your current and regular investments, while retirement needs are your future cost of living, excluding loans, multiplied by the years between retirement and life expectancy. A score of around 80% is considered ideal.

Why does starting early matter so much for retirement?

Starting early gives your investments more time to benefit from compound growth, where returns generate further returns. Inflation also keeps pushing your target figure higher over time, so a longer runway both lowers the annual amount you need to invest and cushions against rising costs.