Your retirement years are the time to enjoy the fruits of your labour. After working tirelessly for 35 to 40 years, you can finally wake up late, enjoy relaxing meals, see the world, and spend quality time with family and friends. However, it is essential to note that this scenario is only possible if you prepared well for your golden years. Otherwise, you may end up working beyond retirement age and asking your adult children for money.
The key to a comfortable retirement is proper planning. Unfortunately, many Singaporeans fail in this area. A recent poll by a wealth management group found that nearly half of Singaporeans think they do not have enough savings for the retirement lifestyle they want. You can prevent yourself from suffering the same fate by working on a solid retirement plan. While doing so, it is advisable to be aware of the following common retirement planning mistakes and how you can avoid them.
1.Not Having an Idea of How Much Retirement Funds You Need
Although it is impossible to ascertain precisely how much money you need to live comfortably in your retirement years, there are ways to make an informed estimate. Do not make the mistake of guessing blindly, as you may end up regretting saving too little.
There are many ways to gauge how much funds you will need to finance your golden years. For one, you can use the income replacement ratio method wherein you aim for at least two-thirds of your current annual income. Multiply your income goal by the number of years you expect to be in retirement, and you will get your estimated needed retirement fund amount.
You can also estimate using your current level of expenses. But make sure to consider years in retirement and the appropriate inflation rate. If you want a hassle-free way to calculate your needed retirement fund, you can use the CPF retirement calculator and similar financial tools.
2.Waiting Until the Last Minute to Save
Another common mistake that many Singaporeans commit is waiting until the last minute to start saving for retirement. If you plan to start your retirement fund in your late 30s or older, you may lack time to accumulate enough funds to live your desired lifestyle later.
The ideal age to start saving is as early as possible, hopefully before you reach 30. Planning and saving while you are still young allow you to experience benefits from the effects of compounding interest. When you start late, you have less time to make your money grow and work harder for you.
Did you know that despite saving less money, you can end up with a considerably greater nest egg if you started saving thirty years ago than somebody who saved a higher amount but started saving ten years later than you? That is the advantage of compounding interest and time.
3.Failing to Consider Additional Protection
Thinking that retirement planning is all about saving money for living and leisure expenses is another immense oversight. Perhaps it is easy to forget that life is not always smooth sailing when one is young and healthy.
Whether you realize it or not, securing a sound protection plan is an integral part of retirement planning. The last thing you want is to empty your retirement savings when something unfortunate happens.
Instead of merely hoping that all will be well, you must have a separate emergency fund and purchase the right insurance plans to be ready in facing life’s emergencies. For instance, you may want to consider buying an Integrated Shield Plan (IP) to boost your medical coverage and a life insurance policy to protect your loved ones financially if you pass away unexpectedly.
4.Not Thinking About Existing Debt
Many Singaporeans struggle in their retirement years because they are still paying off mortgages and other debts. Make sure that you do not face the same difficulties by including debt repayment in your retirement plan.
Keep in mind that being debt-free gives you more financial control and more money for your retirement savings. If you are having a tough time improving your debt situation, you may want to adopt prudent financial habits as early as now.
Track your income and spending to see what expenses you can cut back and allot for debt repayment. You should also review all your outstanding loans and make a plan on how to pay each one. Start by settling debts with the highest interest rate first and work your way to the others. If you need professional advice, try getting in touch with Credit Counselling Singapore, a non-profit organization offering financial counselling, education, and debt management assistance.
5.Failing to Make Wise Investments/span>
Although saving money in the bank is convenient, it is not the most effective way to build your retirement fund because of the low interest rate. Instead of putting all your money in the bank, you should take advantage of investment opportunities that can help your money grow.
Do not worry if you are uncomfortable with taking risks. There are different investment types for risk-averse people like you, such as fixed deposits, CPF top-ups, and savings plans offered by insurance companies.
Building a retirement plan requires time, careful assessment of your circumstances, and enough attention. The process also includes learning and avoiding other people’s mistakes to increase your chances of achieving your retirement goals. Keep in mind that while planning for your golden years is challenging, the rewards are well worth it.