How to Prepare for Retirement

retirement

Retirement, despite being inevitable, feels far away to many. As a result, most won’t pay much attention to it until they reach middle age.

A poll of 1,000 respondents by market research consultancy Blackbox from June 2020 found that 62 percent of Singaporeans feel they are not saving enough for old age. This figure rises to 74 per cent among households earning less than S$2,500 a month.

The poll also found that 43 per cent of respondents said they were counting mainly on their CPF as a source of retirement funds, while 38 percent said they were saving up, while a smaller 17 percent said they were reliant on investments.

There are ways to plan ahead for your golden years, to ensure your financial liabilities are kept minimal.

Clear your mortgage

Of course, the main idea is to ensure a roof over your head that isn’t weighing you down. It is advisable to repay all mortgage loans on your home before you reach your retirement age. Renting is not ideal as rental rates are dependent on economic situations. Plus with inflation, you may not have a foolproof plan in ensuring that your retirement pot will be sustainable amid future uncertainties.

Be insured fully for medical costs

Part of aging includes increased risk of diseases and accidents. This naturally means higher medical bills and possibly the need for long term medication. Ensure that huge medical bills will not bankrupt your retirement savings by having adequate medical insurance.

In Singapore, this means you should be covered by an integrated shield plan, based on your preferred type of hospital, restructured or private. Regardless of the type of plan you take up, ensure that the annual claim limits are adjusted with inflation. Note that Singapore’s medical inflation rate is one of the highest in Asia, at 10% in 2018.

Have a lifelong income stream

Ensure your lifestyle is sustainable. Your lifelong income stream can come in both fixed and amounts that vary.

Examples of fixed income streams are annuity insurance plans and state-run retirement schemes such as CPF Life. In Singapore, CPF life scheme provides the residents with a monthly income. The amount is determined by the size of your savings in your CPF .

Examples of Fixed Income StreamsExamples of Varied Income Streams
Annuity insurance plansDividends from investments
CPF-lifeRental income
Cash savingsChildren
Government bond couponsOther non-guaranteed investment profits

Quantify your retirement lifestyle as accurately as possible

Whenever we speak to people about their retirement planning, the common mistake that most make is underestimating how much they’ll need to survive comfortably in the future.

Be aware of lifestyle inflation. While your earning capabilities increase exponentially in your early working years, don’t let your expenses follow too. Cutting back on an expensive lifestyle that you are used to is much harder than preventing yourself from increasing your wants and random buys to “reward” yourself.

We recommend tracking your expenses as a good start, so you have a quantifiable basis of comparison every year.

Do this simple exercise:

Determine your essential expenses such as food and transport, and figure out how much you spent on leisure activities such as holidays and hobbies. You could do it by looking at your previous credit card and bank statements, and by using the Planner Bee app to determine your monthly expenses for each category of expenses automatically.

Then put the numbers into this retirement calculator, to see how much money you’ll need to upkeep your lifestyle. The calculator takes an additional step by calculating the amount of savings you should set aside to reach your desired retirement lifestyle.

If the sum turns out to be unrealistic, it’s time to either increase your income or reduce your expenses.

Remember: To be able to retire, you will need to be debt-free, have sufficient medical insurance, ensure your residential property is fully paid up, and sort out a steady stream of income for as long as you live.

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