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Planning Your Retirement: Here's Your Guide!

May 9, 2022Roshel Rebello
An old man happily celebrating his birthday with family after having planned his retirement.

To lead a comfortable retirement life and maintain a good standard of living, it is vital to create a plan for your retirement. Retirement planning is a process that involves analyzing your retirement goals, determining your spending habits, planning your savings and knowing the time by when you want to reach your retirement goals. This helps in taking the necessary actions and decisions to achieve those goals. With the right investment strategy, you can save enough money to build a retirement corpus that can help in comfortably funding your future.

Investing funds in the right avenues will not only help save money but also enable it to grow. With the estimate of future cash flows, you can gauge how and when the retirement income goal can be achieved. As retirement planning is a lifelong process, the earlier you start planning and saving, the better it will be to reach your retirement goals.

Factors Involved in Retirement Planning

Below are some of the factors you should consider while planning your retirement:

Time Horizon

Retirement planning can start by chalking out your retirement goals, retirement income plans and the amount of time that you have to meet these goals. The first step to this process will be to keep in mind your current age and the expected retirement age.

  • If you are a young working adult (aged between 21 and 35), then you can choose to invest in high- to medium-risk investment avenues for the long term (more than 10 years). The longer the time you have for retirement, the more time you will have to build your portfolio.
  • If you are in your early midlife (aged between 36 and 50), then along with the other financial obligations you might have, you must make it a point to save for your retirement as well. Try to invest in medium- to low-risk investment avenues during this stage.
  • If you are in your later midlife (aged between 50 and 65), your investment strategies need to remain conservative (fixed-income securities and high-yielding savings accounts). You can choose to invest in short-term, low-risk investment avenues.

Retirement Spending and Expenses

Creating realistic expectations about post-retirement spending habits is important to define the approximate size of a retirement portfolio. Even though people might feel that during their retirement they might only spend a small percentage of the amount they would have spent before retirement, it may not be true as the cost of living, health care expenses, etc., are increasing every year. Also, retirees tend to travel more and engage in various activities and programs, thereby increasing their yearly spending. Having a realistic estimate of the retirement spending goals can help in creating an ideal portfolio that can fund your future expenditure. Make sure you check and update your portfolio at least once a year so that you can stay on track while creating a secure retirement portfolio.

After-tax Rate of Returns

After you have defined the expected time horizons and retirement spending requirements, you need to calculate the after-tax rate of returns on your investment. This helps assess the feasibility of your retirement portfolio and helps you understand if you need to save more or invest in other avenues. Investment returns are usually taxed, depending on the income-tax slab you fall into. Hence, when you are calculating the actual rate of return on your investment, you must consider the returns on an after-tax basis. Having a fair idea of your tax status when you begin to withdraw funds can be an important component of your retirement-planning process.

Risk Tolerance Vs Investment Goals

Whether you like to plan your retirement portfolio by yourself or take the help of a wealth manager, it is important to know your risk appetite. Markets are volatile, so the returns on your investments may fluctuate as well. Also, all investments involve some type of risk. It is important to evaluate the amount of risk that you are willing to take, especially when you are close to retirement.

Insurance and Estate Planning

Along with saving and investing, you must also make sure that you have appropriate term, life and health insurance policies, both for you and your family. This insurance amount can act as a financial cushion should something unfortunate happen. Also, these insurance policies can shield you from dipping into your savings if you meet with an accident or might have to undergo an operation. Estate planning, on the other hand, is another important aspect that helps create a well-defined retirement plan. For this, you might need to take the assistance of various professionals, such as lawyers and accountants. With a proper estate plan and insurance coverage, you can make sure that your finances are on track and that your loved ones will not experience financial hardship, in the event of unforeseen circumstances.

Planning for retirement should be a priority for everyone. One of the most challenging aspects of retirement planning is to create a comprehensive retirement plan that strikes a balance between realistic return expectations and the desired standard of living. Also, you need to make sure that you build a flexible retirement portfolio that can be updated regularly so that it can be modified according to the changing market conditions, retirement goals and retirement objectives.

Frequently Asked Questions

When should I start planning for retirement?

There is no rule of thumb as to when you should start planning for retirement. However, the earlier you start, the better it will be to build a secure portfolio that can provide constant income to you throughout your retirement years.

What are the 3 types of retirement?

Retirement can be classified into 3 categories – traditional/permanent, semi-retirement and temporary. Traditional or permanent retirement is quitting your job at a certain age and relying on savings and sources of income that do not need you to work actively. Semi-retirement is when you may choose to reduce the working hours or workload so that you can enjoy various leisure activities. Temporary retirement is when you choose to take a break from work for a period of several months to a year to travel or pursue your hobbies. This method requires more complex financial planning.

What does retirement planning include?

Retirement planning includes building a corpus or a plan today so that you can continue to enjoy a stable income and be able to meet all your goals post retirement. Retirement planning in Singapore and around the world includes the basic steps, such as creating your retirement goals, estimating the amount of money you will need and investing funds regularly to grow your retirement savings corpus.

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