Retiring with Grace?

A Singaporean reporter Lorna Tan did a story on "Retiring without Tears".

It is a very practical treatise and we should all read it with reflection.I have paraphrased wherever required to capture the gist of her arguments.

" 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.Truly sad....

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.

HSBC Singapore's head of personal financial services, Mr Sebastian Arcuri remarks: '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.

Thus, to improve the prospects of a comfortable retirement, one cannot afford to delay reviewing one's retirement nest egg. Here are some considerations. [listed out by Lorna.]

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. [Oh,sure!]

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 Singapore males and 83 for females.

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.[This is a cheeky one!]

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."

So after reading all these points and arguments,how many of us can really retire with grace?