So, Singapore has been ranked as the most expensive city in the world. While that doesn’t come as a surprise, this also means we need to plan our finances carefully in order to have a stress-free retirement.
If you’re anything like me, your retirement years are probably some hazy vision in the distant future, something you don’t have time to really think about. However, experts say this is one of the biggest (yet most common) mistake to make. By putting off planning for your future, you’re just going to end up with a smaller pool of resources by the time you’re ready to quit work. Here are some of the top few retirement mistakes you can avoid:
1. Starting Too Late
Perhaps you think there are too many other things to spend on right now, for example, buying a car, getting married, travelling, and so on. However, the reality is, you need to start on retirement savings as early as possible. The later you start, the more you have to pump in, and by that time, you may have even more financial obligations (car loans, a mortgage, children to support), which adds to the stress. Bottomline: start planning your finances and brushing up on your financial education NOW.
2. Underestimating How Much You Need To Retire Comfortably
According to a recent Manulife Investor Sentiment Index Survey, Singaporean investors commit three major misjudgments when it comes to planning for retirement. First, they misjudge the actual duration of their retirement, followed by the cost of living during retirement, and their ability to work during retirement. So while most investors expect to retire by the age of 61; in reality, they continue working up to 70 years old.
Consider this – with so much free time on your hands, you would probably take this opportunity to indulge in hobbies such as travelling or socialising. This already takes up a bulk of your savings. Add that to rising healthcare and insurance costs, as well as other unforeseen situations, and you may find the initial amount you set aside per month to be far too little.
A general rule of thumb is to plan for 50 to 70 percent of your current monthly living expenses during your retirement. That is, if you want to maintain your current comfortable standard of living (which I’m sure you do)! However, pure savings alone is not going to cut it. Why? Say you’ll like to retire at the age of 60 and you expect to live up to about 83 years old. That gives you 23 years of income to save for. If you’ll like to live on about $3,000 a month, you’ll need to accumulate $1.2 million by the time you’re ready to retire!
(To calculate how much you’ll need to live your retirement years comfortably, check out this nifty interactive retirement calculator from CPF.)
A more prudent solution is to diversify your portfolio so that you can have several streams of passive income during your retirement years. This brings me to my next point …
3. Not Diversifying Your Portfolio
In a previous article, I shared four crucial tips on being a savvy investor. In essence, you need a good mix of low-risk and medium-risk investments in your portfolio. The riskier investments provide you with higher returns, while the safer ones help offset any losses.
Another mistake to avoid is, thinking you can sell your house and live off the profits. First, the property market can be capricious – there’s no guarantee you can sell your house off at a good price. And even if you do, you’ll still need somewhere to live. There’s no way to predict how much it will cost to buy a new house at that point in time, even if you opt to downgrade to a smaller one. Hence, it’s wiser to invest in other asset classes apart from your house.
I hope reading this hasn’t made you feel gloomy about your retirement prospects! The point of the article is to demonstrate to you that with careful planning and research, you will be able to live out your golden years comfortably and even happily.
About The Author: Vanessa Tai is a founder of Material World who has previously worked on magazines Simply Her and Cosmopolitan Singapore. Now a freelance writer and a full-time contributor to this website, the 26-year-old dreams of attending every single major music festival before she turns 30. Follow her on Twitter @VannTaiTweets.
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