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RETIREMENT
Retirement Planning In Singapore - How to afford to live happily ever after
With the latest CPF changes, you can't count on having a ready-made nest egg anymore. So how do you start actively planning for your sunset years? Tay Suan Chiang explores the options.
Saving up for retirement has been an afterthought for most us. We took for granted that our CPF accounts were automatically and efficiently doing all that saving-up, presenting us with a neat little nest-egg when we eventually decided to kick back and retire.
With the latest CPF cuts coming into effect from October, the cracks in the egg are showing. Urgent worries of how to pay off that housing loan or afford that new flat threaten to crowd retirement-planning even further into the background. But itís even more important now than ever, to start planning for life after 55.
Many people think of retirement plans as for oldies. On the contrary, the earlier we start planning, the better our life will be when we stop work. It doesn't matter how much you are now making. Planning ensures that you can literally "live happily ever after"," says Alan Chan, associate financial planner with Phillip Capital.
How much money do I need?
There is no fixed amount that you need to retire comfortably. "Financial planners use several ways to calculate how much a person needs, but the general rule is, you need about two-thirds of your last drawn salary to maintain the lifestyle you are accustomed to," says Alan.
So it depends. Do you want to go thrifty (if taking a holiday in Malacca is your style)? Or live the yuppie dream (with shopping sprees in Sydney)? Or do you hanker for luxury (on a five-star cruise to Alaska)? No matter what you choose, you need to invest early and well.
And then there are the unexpected setbacks. For instance, if one or both of you lose your jobs. Be prepared that even the best plans can go awry.
Why it's important to start becoming savvy about investing your savings.
Personally I think that forced savings through the CPF Scheme is a good thing. As an example one of the biggest problems in Australia is that Australians are not saving enough for retirement (current contribution rate is 9%). However, clients can't put all their investments savings into CPF because funds in CPF are effectively locked away until retirement. This means that clients need to map out what are their 'pre' and 'post' retirement needs are first to understand how to allocate their financial resources.
With regards to the amount that people need to save, I have always asked the question, how much do you need to live on comfortably per year in retirement that will satisfy both your immediate needs and personal goals? These personal goals can be yearly overseas holidays, car replacement, upgrading furniture, etc. This means that I try to base the clients' retirement needs on their dreams and not their expenses or budget.
In my opinion to base a client's retirement goals on their expenses or budget is to 'perpetuate' their poverty.
A clients understanding of financial products and issues is very important to their financial success. I personally want a client to know the basic of what I know as an adviser. This educational aspect of financial planning is critical so that I can work with the client much more effectively and they can make 'INFORMED' financial decisions.
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