It’s never too late to start retirement planning

Kenny Tey, Group Director of Pathwise Advisory Group reassures those who worry they might have missed out on their retirement planning by highlighting 4 steps to help you achieve the retirement lifestyle you desire, no matter what stage of life you start planning for it.

The best time to start is now (if you haven’t already done so)

Many experts advise us to start retirement planning as early as possible to enjoy the longest possible runway and the advantages of compounding interest. While that is good advice, it doesn’t have to trigger the panic button even if you have not done so and find yourself middle-aged or beyond. Based on my experience helping clients achieve their retirement dreams in my two-decade long career, I know it’s never too late to start because there is always room to plan ahead for tomorrow.

By starting later, you need to climb a steeper slope to reach your goal. However, late starters may be in a stronger financial position, such as having accumulated a bigger savings account that can accelerate their returns. Some may have finished paying off their home or other major loans, leaving them debt-free.

In my previous article on retirement planning, I touched upon the 3 progressive phases of retirement, namely Active, Relax and Steady. In the Steady Phase (Phase 3) a.k.a. the dignified golden years when most retirees cherish the serenity of family time and home life, you can still work on different aspects of retirement planning such as how to leave your legacy to your loved ones. So stay positive and act now!

A 4-step guide to kickstart retirement planning for those in their 40s and 50s

1. Have a financial goal

When you approach your middle years, it’s best to clearly visualise your retirement lifestyle, then work out the exact quantum necessary to support it. With this figure, you can chart your path towards it. Going into retirement planning without any goal in mind would be like an aeroplane flying around aimlessly without a destination; soon it will run out of fuel and be forced to land, but probably not where you want it to.

2. Enlist the help of a trusted financial consultant

A financial consultant is equipped with the expertise and objectivity to translate your vision/goal into actual dollars and cents by mapping out a concrete plan that addresses your resources, needs and preferences. Don’t leave it to chance. In fact, I don’t think it’s a good idea to DIY my own retirement planning with the benefit of hindsight. I outlined the reasons in my previous article. Leave the hard work to a professional with the skill sets, experience and commitment to secure your nest egg.

Clear your debts

Debt is a double-edged sword. When used correctly such as through appropriate investments, it can help you reach your goal faster. On the contrary, unhealthy debt can derail your retirement plans.

The important issue here is to understand your debt situation. The biggest debt incurred by most Singaporeans is their housing loan. A recurring question from my clients is if they should pay off their mortgages or continue to pay the interest rates charged for the loans. The answer is simple: if the amount of cash that you intend to pay off your loan can earn you a higher return than the interest rate the bank is charging you, then there is no point paying off the loan. However, if that amount of money is just sitting in a savings account, earning the miserable interest that is practically zero if not negative (due to bank account fees and other charges), then it’s advisable to pay off the mortgage.

Create more income streams

We work hard to earn money, our money should work just as hard for our retirement. On top of our active income stream typically from our salary, we should build assets that will generate passive income during our retirement. With another 15–20 years to retirement, I recommend investing in unit trusts to accumulate assets because of these key benefits:

  • professionally managed by fund managers who are experts in the specific assets under management
  • start investment with a smaller amount of money (unlike assets like real estate)
  • unit trusts holds a basket of securities which significantly diversifies away idiosyncratic risk of a single security
  • multiple types of funds are available depending on individual risk appetites, e.g. equities, bonds or combination of both
  • a portfolio of unit trusts can be constructed to focus on growth or to generate a steady stream of income
  • unit trusts are relatively liquid to sell off if one has a sudden need for funds

One simple way for beginners to start is by investing in a Managed Account where professional fund managers actively managed the number of units of funds to buy or sell for the best returns. Entrusting such complicated and time-consuming decisions to the professionals simplifies our investment journey.

Case Study: Successful retirement planning at 60 years old

My client, Madam Yeo dedicated her life to the civil service and only started thinking about planning for her own retirement when she retired. Helping her achieve her retirement dreams even though she started planning at age 60 is one of the reasons why I find my career as a financial consultant so fulfilling.

Two things worked in Madam Yeo’s favour. First, she retired on a pension scheme which guaranteed her a lump sum of money. Second, she quickly sought professional help to set up her retirement finances when her pension kicked in.

While she was unsure of how to manage her pension, she was very clear that she wanted to leave a financial legacy to her children. After several rounds of heart-to-heart discussions to fully understand her priorities and quantify her goals, I customised a financial plan that split her pension funds into 3 portions to address her retirement objectives while ensuring her own financial needs were secure so she could enjoy a comfortable lifestyle.

By allocating her pension into different investment vehicles, Madam Yeo managed to extract much more financial value from the same pension. She has been living a blissful life in the 18 years post-retirement, without a single financial worry. Her confidence is further boosted knowing that she will be leaving behind a financial legacy for her kids as per her original intention.

Pension fund Investment vehicle Benefits that target retirement needs
1st portion Unit trust Generate passive income for daily expenses.
2nd portion Universal life policy Sum assured equivalent to the amount originally intended as legacy for her kids
3rd portion Cash To enjoy retirement during Active Phase & Relax Phase freely

Embrace the risks, enjoy the rewards

For clients who have a bigger risk appetite in their wealth building journey towards retirement, one of the investment instruments can be leveraging through premium financing. By taking out a loan (through leveraging), the payout from the endowment can be much higher than the upfront amount payable. This option suits those who can service the loan i.e. tolerate higher interest rate risks and continue paying the interest which come with premium financing.
As I mentioned earlier, another option is to invest in managed funds to grow your assets, then convert them to a passive income stream as you approach retirement. There are many managed funds out there targeting different asset classes, geographical sectors (local vs global), risk profiles etc. I will be happy to explain in greater detail for your consideration to help you make an informed decision you are comfortable with.

There are countless ways to structure a retirement plan depending on what you value in life. I believe in practising what I preach—and I’ll be happy to share with you my own investment plan. However, every individual’s retirement planning is unique, find a trusted financial consultant to plan with you. Any time you feel like having a chat to find out more about your personal financial planning, reach out to me at SG Alliance.

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