Can we actually retire by the age of retirement?
September 19, 2009The average
by the time they retire. This grim prospect has been highlighted
many times in our local press the past year.
In The Sunday Star, 27 May 2007, it was reported that ONLY 5% of
Malaysians are prepared for retirement. Despite a growing awareness
for the need to prepare for one's retirement, many do not translate
their plans into action.
Those in their 20s think they are too young to think about
retirement, while those in their 30s and 40s tend to believe they
are doing enough because they have their EPF savings. By the time
they are 55, it is just too late.
The sad truth is that at 55, most people cannot retire with
financial security.
The Singapore Straits Times on 7 August 2009 has a similar news
report which I hope will serve as another reality check and wake up
call if you haven't prepared yourself for retirement.
Everyone of us needs a Plan B for our golden years! What's yours?
The Singapore Straits Times, 7 August 2009
Retiring without tears
By Lorna Tan, Senior Correspondent
More Singaporeans are facing the grim reality
of retiring later or
having to lower their lifestyle expectations when they do retire.
This is partly because they fail to plan early for their
retirement, if at all.
Recent surveys on retirement have indicated that the majority of
people are unprepared for retirement.
An annual Future of Retirement study from HSBC
- It's Time To
Prepare - has found that an alarming 91 per cent of Singaporeans do
not have any idea what their retirement income would be, and only 9
per cent are prepared for this phase of life.
In addition, while 39 per cent feel that they understand their
short-term finances very well, only 23 per cent can say the same
about their long-term finances.
Said Mr Sebastian Arcuri, HSBC
financial services: 'The lack of
understanding and knowledge of
long-term financial milestones like retirement could be intensified
by the current economic downturn,
which may have led more
Singaporeans to divert their attention to short-term survival needs
instead of their long-term goals.'
Last month, HSBC launched a free retirement
planning service for
its mass affluent customers who have at least $200,000 with the
bank.
To improve your prospects of a comfortable retirement, you cannot
afford to delay reviewing your retirement nest egg. Here are some
considerations.
1 Retirement age
For a start, it is important to determine at just what age you hope
to retire in order to work towards retirement goals, said Mr
Ho
Kien Hung, a manager at Alpha Financial
Advisers. The earlier a
person does this, the more time he has to plan, and to resolve any
hiccups along the way.
Failing to plan for a specific retirement age may result in a
person procrastinating over his retirement
plans and ending up with
not enough savings to retire comfortably, or having to continue
working even after reaching the desired retirement age.
2 Years of retirement
This refers to the length of time that you require your retirement
funds to last.
Of course, to some extent, this is in the lap of the gods.
But based on current statistics and the retirement age of 62, most
Singaporeans can expect to live a further 20 to 30 years after
retirement.
According to statistics from the 2008 World
Population Data Sheet,
the life expectancy is 78 for
You should also take your family's medical history into account.
Given advances in medical science, people are living longer and it
would be wise to make provisions for additional years of
retirement, said Mr Arcuri.
Mr Darren Lim, 78, wished he had done all this.
When he retired from his job as a tennis coach at 60, he never
thought he would live past 70. By the time he was 70, he had used
up his retirement nest egg and is now depending on his son for
monthly cash handouts.
3 Retirement lifestyle
A comfortable retirement means different things to different
people. Your expectations of just what a comfortable retirement
will look like affects how much you need to set aside for your nest
egg, said Mr Arcuri.
For instance, if you plan to travel around the world when you
retire, you are likely to need more income than someone content to
pursue hobbies and activities that are easier on the pocket.
The choice of which country to reside in is also a consideration,
as the cost of living in some neighbouring countries is much lower
than in Singapore.
Here are some questions you could ask yourself. Do you still plan
to work? Do you plan to go for an annual holiday? Would you
consider downgrading to a smaller car or even switching to public
transport?
Such retirement lifestyle requirements would help to determine the
bare minimum sum one needs for a retirement nest egg, said Mr
Albert Lam, investment director at IPP Financial Advisers.
4 Inflation
You cannot ignore the impact of inflation, which is the increase in
the general price level of goods and services. This is because
inflation adversely affects the purchasing power of your money.
For example, based on an average annual inflation rate of 3 per
cent, $1,000 today would be worth only $642 in today's terms in 15
years' time. As a result, a retirement income that is enough
to
sustain you in your first year of retirement may be insufficient by
the 10th year, said Mr Arcuri.
5 Financial commitments
Consider what your likely monetary commitments in retirement are.
With more people marrying and starting a family later, you need to
consider whether your house would be fully paid off by the time you
retire, and whether you still need to support your children in
their studies, said Mr Ho.
Other dependants may include aged parents, said Mr Arcuri. If so,
you would need to ensure that your retirement income also caters to
their needs.
6 Medical expenses
Studies have shown that medical expenses are substantially higher
in the last years of life. As they have the potential to put a
major dent in your financial security, medical
insurance plans that
can take care of health-care related expenses should be considered.
Mr Christopher Tan, chief executive of wealth
management firm
Providend, says that when working out your retirement income, take
into account the premiums of medical plans and other insurance
policies that you still need to pay beyond your working years.
7 Leaving a legacy
Be it a desire to leave an inheritance to the next generation or a
charitable bequest, your legacy plans would also determine how your
retirement portfolio is structured. In either case, a portion or
all the capital has to be left untouched, said Mr Arcuri. Hence,
you would need to make provisions to ensure that the earmarked
assets would not be drawn down to fund your retirement.
8 Existing assets and post- retirement income
When working out your retirement income needs, consider your
existing assets as well as future income streams. For instance, you
can project the values of assets, like your Central
Provident Fund
savings, insurance policies, unit trusts,
bonds, shares, properties
and even antiques, till retirement, said Mr Ho.
You may also receive post-retirement income in the form of
pensions, annuities or property rentals.
Posted by Pei Qin,
