In just a whirlwind, two decades flash by and you find yourself struggling to keep up with the bursting passion and energy from your kids, as the dreaded month arrives with you blowing four large candles on your favourite cheesecake to mark your mid-life crisis.
Have you been working hard to climb the corporate ladder, while juggling to take care of your child’s expensive tuition fees and pay for your home loan for the past 20 years, that you haven’t had any time to sit down and look at your retirement plan?
If you are wondering whether you are saving enough or have enough time to hit your savings and retirement goals, it’s not too late for you to start on it yet! After all, your 40s is considered the most important decade to start preparing for retirement.
Here are four main tips that can help you to build on your retirement plan today:
Calculate how much you need for retirement
First, look at the amount that you are earning and estimate your monthly expenses. Make sure that you are not spending more than you earn. Ask yourself if there’s any unnecessary expenses that you can cut on and make adjustments (e.g. setting aside the monthly $200 for drinks to your retirement fund instead). Then, count the total amount of your savings for each year and multiply the number of years to your desired retiree age.
For example, Daniel is currently 45 years old and has an annual savings of up to $20,000. As Daniel looks to retire when he is 60, he shall have at least ($20,000 x 15 years= $300,000) worth of savings. He expects to live another 20 more years, which totals up to 80 years old. This means that Daniel will have at least $300,000 for his next 20 years and his future monthly allowance comes up to ($300,000 / 20 / 12 = $1,250). Based on simple calculation without considering inflation.
Compare your current monthly expenses against the future monthly allowance that you shall have when you retire. Decide if your future monthly allowance is enough to last you for at least another 20 years. If not, you might consider looking at generating passive incomes or assets if possible.
P.S. Log on to https://www.aia.com.sg/en/campaigns-promotions/retirement.html if you would like to have a detailed plan on how much you need for your retirement.
Build passive income
There are two types of life insurance coverage; term insurance or whole life coverage. Term insurance is generally a lot more affordable, but only protects you for a fixed period of time (e.g. the plan will expire after 20 years). On the other hand, whole life coverage is a lot more expensive, but provides you with cash value returns and covers you for life.
With life insurance, you can then leave a considerable amount of money for your kids without worrying that you don’t have enough left for your retirement and end up compromising on your current lifestyle.
For example, Rita has $2 million worth of savings and wants to allocate $1 million to her retirement savings. She hopes to be less of a burden to her kids, but at the same time, she wishes to give her children more to prepare them for a headstart in life and is willing to sacrifice her retirement savings. However, this might not be the case! If Rita uses $300,000 to purchases a life insurance with a death coverage of $1 million (that will be an intended inheritance for her children), she can get an additional $700,000 to either sustain her retirement or provide for her children.
Another type of insurance that many in their 40s and 50s are often encourage to purchase is an endowment plan (a type of savings plan). Endowment plans may come across as an attractive low-risk investment, but it requires commitment, as the average lock-in period lasts between 10 to 20 years. We’ll suggest going for an endowment plan only if you’d prefer low-risks and can afford to keep your money locked-in for a great number of years.
Also, you might give thought to purchasing appropriate insurance to cover future medical expenses, especially when you are getting older in age.
Take on risks that are aligned to your age
Younger people tend to be able to take a higher risk as compared to older people. The younger you are, the more time and energy you have to recuperate your capital (should you lose them). You should also diversify your portfolio by investing in different services, companies or countries to eliminate the risk of huge losses as much as possible.
Still not sure on what you should do for your retirement plan? Take the time to do more research and be financially literate. Consider talking to an experienced friend, someone who has gone through retirement, or a professional Financial Consultant to provide you with the next best step today: https://gtgroup.sg/contact-us/