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Updated: May 7, 2017

Easy Tips for Financial Planning


Before creating a financial plan, there are some things you don't want to overlook. As long as you remember the following, planning for the future will be a breeze:

1.     Remember the cost of living will increase

If you want to retire on $2,000 a month in today's money, you will probably need over $4,800* a month in 30 years. That's because things get more expensive with time (remember when satay sticks were a few cents?)  

In 30 years, you will probably need over $4,800 to buy the same amount of goods you could buy with $2,000 today. Our calculators below will account for this inflation; but if you're wondering why you need so much to retire, this is the reason.

 *Assuming three per cent inflation per annum over 30 years. Required amount = amount x (1+ inflation rate) ^ number of years

 2. Account for the cost of replacing and maintaining your things

 Before deciding how much you need to retire, do remember that things will break. You may have to repair your plumbing, replace a broken phone, buy new furniture, and so forth. As a rule of thumb, assume these expenses will make up 20 per cent of your costs every year.

For example, if you want $30,000 per annum to spend upon retirement, you should enter a desired amount of $36,000, to account for these added expenses.

3. Consider if your house will be used as a retirement asset

 Are you willing to downsize your home to aid in your retirement? This is an important consideration to make early on. If you are willing to sell your home and buy a smaller one, you may not need quite as much in your retirement fund (depending on how well the property market does at the time).

 On the other hand, if you would be uncomfortable leaving your family home, then you will have to raise your retirement contributions.

 4. Will you have dependents upon retirement?

 Will you be required to support anyone else on your retirement fund? Examples include a spouse, close relative, sibling, or children / grandchildren who require financial aid.

 It is important not to go overboard here. Most people will not be able to support, say, their grandchildren's overseas education while also providing for themselves. However, consider the most basic needs of any other dependents (e.g. a sibling who cannot work), and work out the costs before making your own retirement calculations.

 5. Does retirement mean completely stopping work?

 Most people do not completely stop work when they retire. It's common for them to do their own business, provide consultancy services to their old employer, and so forth.

 This could mean that your income will not come to a complete end the moment you retire. You might find you are still earning, even past your actual retirement date. This could mean you'll need less to retire than you imagine.

 To be safe, do not assume this is the case (a medical condition might stop you working, for example). But don't be intimidated by the large amount you apparently need to retire; you can find ways to supplement your lifestyle later.

 6. Will you be retiring in Singapore?

 The inflation rate in developing countries tends to be higher than those of first world countries, such as Singapore (in general, most first world countries will have an inflation rate of about three per cent per annum, whereas developing countries can have double digit inflation).

 This is an important consideration, as you may find a "cheap" retirement destination is no longer affordable after a decade or two. You can speak to one of our expert retirement planners, if you need help on retiring abroad.

 7. Focus more on the amount of your contributions than your returns

 A common mistake is to focus too much on the returns of your retirement assets. However the amount you contribute matters more than the returns.

 Say you contribute $100,000 on year one, and get a phenomenal return of 10 per cent that year. The spectacular returns still only impacted your retirement fund by $10,000 - but the contribution impacted your retirement fund by $100,000.

 You should spend more time finding ways to increase your contributions, rather than switching between assets to derive higher returns.

 That being said, a "safe" rate of retirement should be between three to five per cent (at least matching the rate of inflation).