Everything You Have to Know About Retirement Planning

Retirement is a time of relaxation since many of us have worked for more than half of our lives and we can finally enjoy a moment of tranquility with friends and family during the golden years, which generally begin at the age of 65 and beyond. However, if you don’t have comprehensive retirement planning, your retirement may lead to anxiety.

To enjoy your life to the fullest, even at the later part of your life journey, it’s very important to build a financial cushion through better retirement planning, which evolves over time according to your needs at different stages and the ever-changing market.

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How much do I need for my retirement?

There is no blanket rule applied to everyone in terms of retirement planning since it depends on many situational factors, such as accessing your time horizons and risk tolerance as well as estimating expenses, annual incomes and the age when you plan to retire. 

According to the 2019/20 Household Expenditure Survey and the Rebasing of the Consumer Price Indices conducted by Census and Statistics Department, there are four household expenditure patterns divided by quartile expenditure group, and four of them spend between $10,000 and $60,000 monthly based on their different lifestyles. 

Having said that, some may take the extreme saving approach, which saves up to 80% of monthly salary, while others take a relatively relaxing approach by using the 4% rule, during which retirees spend no more than 4% of their retirement savings each year. 

Stages of Retirement Planning

Set a clear retirement goal

As the saying goes, “good planning is the halfway to success”, it’s always ideal to plan ahead and come up with a comprehensive retirement plan, which is adorable to be iterated over time at different stages and in the ever-changing market, like high inflation and recession.

Therefore, it’s never too early to plan ahead even if you still have a long way to go before retirement. For retirement planning, you need to calculate your monthly/ yearly savings, and whether those can offset your monthly/ yearly spendings, which include the possible exponential medical expenses.

Also, some may consider moving to a cheaper country for retirement, you need to gauge the possibility and feasibility of living abroad.

Make a savings and investment plan and stick to it

It's always good to start saving when you are young. Even if you may not have a lot of money free for investment now, your youth is the greatest asset to let the investment plan/portfolio mature over time.

Instead of saving money, you can capitalize on the principle of compounding to allow interest to earn interest. The tip is the more time you invest, the more interest you will earn. For example, if you put aside $50 a month, it will be worth three times more if you invest it at age 25 than if you wait to start investing until age 45, because of the power of compounding.

Apart from rolling your savings, compounding interest also helps you mitigate wealth-eroding factors, such as increases in the cost of living, inflation, and reduced purchasing power.

In addition, it's very important to choose the right financial products and strategies according to your risk tolerance, time horizon, and capital to maximize the gains.

Review your savings plan regularly

Check on your investments from time to time and make periodic adjustments. It's always a good idea to make any changes whenever there's a change in your lifestyle and when you enter a different stage in your life.

When you have a detailed investment plan that you can follow, don't forget to review it periodically to make sure that you are on the right track to head towards your goals. In addition, you also need to adjust your financial plans due to circumstances.

If your personal circumstances change, it also indicates that your financial plan will be changed accordingly.

If you look back on the last 5 to 10 years, it is likely that they have significantly changed during that time. Your income should be different, as should be your expenses, in addition to the changes of your health condition as well as your family situation.

That's why it's a must to always review your investment portfolios which suit best your needs at that time.

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How can I earn regular income after my retirement?

Risk tolerance refers to the level of risk that an investor is willing to or is able to withstand for investment, and they are normally classified into three main categories: aggressive, moderate, and conservative. 

Typically, the closer you get to retirement, the lower your risk tolerance will become because you make less money when you enter your golden years, that's why you want to stay away from the volatile market. 

For retirees, the relatively conservative investment products are dividend stocks, which are stocks of companies that make regular distributions to their shareholders, usually in the form of cash payments. 

Another investment alternative is a fixed deposit, you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. 

Or else, people aged 65 or over can also buy the silver bond, which is a 3-year bond whose semi-annual interest payments are linked to the average annual inflation rate, subject to a minimum interest rate. The principal will be repaid at maturity. Although there is no secondary market for the bonds, investors may sell the bonds back to the Government before maturity by requesting an early redemption. 

Last, the annuity is also an option for people over 60 who are guaranteed a steady stream of monthly annuity payments after paying a single premium.

Frequently Asked Questions (FAQ)

When should I plan for my retirement?

Although there is no blanket rule applied to everyone in terms of retirement planning, the general rule of thumb is the sooner you plan, the better, especially for the power of compound interest, which can be more evident when you start investing at 25 than at the age of 45.

How do I calculate how much I need for my retirement?

You can take the aforesaid four groups of household expenses as a reference. But, again, there is no rule for all since it depends on many situational factors, such as time horizons, risk tolerance, annual incomes and retirement age. That's why some may take the extreme saving approach to save up to 80% of monthly salary while others take a relatively relaxing approach by spending no more than 4% of their retirement savings each year.

What kind of investment products should I invest in after retirement?

Typically, the closer you get to retirement, the lower your risk tolerance will become, so the relatively conservative investment products are dividend stocks, fixed deposit, silver bond, and annuity.