Retirement Planning In A Nutshell

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If COVID 19 has taught me one thing, it really is not about how much assets you have, but how many sources of income you have, and whether they will be able to sustain the pressure of any external factors to continue to provide you with the monthly inflows regardless. This forms the fundamental principle of how we should approach Retirement Planning, which is to ensure that we have more than one passive income stream, made up of a mixture of guaranteed and non-guaranteed sources, that would make sure our monies come in every month despite unforeseen circumstances.

Here’s the core components of Retirement Planning In A Nutshell:

Retirement Planning In A Nutshell

Step 1: Determine your CORE expenses

Your core expenses will include anything that are essential for you to survive the month, such as:

• Day to day living expenses – food, utilities, transport
• Health insurance expenses – hospitalization, disability income, personal accident
• Medical expenses – any long-term medication that you may be on but not covered by health insurances

Given that your core expenses are the real essentials, you should ensure that the income sources that are responsible for these expenses are guaranteed.

Fortunately, the Singapore government has provided us with one of the best annuity schemes available in the market – CPF Life, which helps contribute to our CORE expenses. The only drawback of the CPF Life1 is that your Retirement age is fixed at 65 (or later), and you will likely have to depend on other sources of income should you wish to retire earlier. One could consider supplementing their CPF Life with Retirement plans that would provide a guaranteed income upon their desired retirement age.

Step 2: What sparks JOY?

Since we work so hard for the bulk of our lives, certainly, we want to be able to enjoy activities that spark joy. Travelling, staycations, an occasional treat at that restaurant your family loves, or even just getting that pair of leather shoes you’ve been eyeing are all grouped under this category.

Since we wouldn’t die if we don’t have these luxuries, we can take on a slightly more aggressive approach for the additional income stream that contributes to this category. I would recommend that you build up this portfolio using a variety of stocks and unit trusts, and to adopt a dollar-cost-averaging strategy to build up this passive income pool that you can draw upon to fund your joy during retirement.

“Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals. In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices.” (Investopedia ²)

Most individuals would have the bulk of their Retirement sorted out once you have covered Step 1 and Step 2. 

Step 3: GOALS

For the handful of individuals who have bucket list items at retirement, these would fall under the GOALS section. Some examples of GOALs that some of my clients have had includes retiring in another country, travelling around the world for 2 years etc. Naturally, these would mean that you need a certain amount of monies at that point in time when you want to actualise your GOALs. This part of retirement planning doesn’t entail a passive income stream, it would actually be a lump sum that you require at that point of your life ready to be spent.

Step 4: LEGACY

This portion of your retirement plan is about leaving a Legacy, and for you to be remembered many generations after. And nope, you don’t need millions to do this, every bit counts and you will be remembered by generations after.

CASE Study: Retirement Planning for myself using GoalsMapper Retirement Planning In A Nutshell

Goalsmapper is a tool that I use in my daily planning with my clients, and for myself. Based on the projection of my current assets and earning capacity, I would have a shortfall of $920,559 for my retirement from age 76 onwards assuming that I live till 90 (after taking into account all the passive income streams that I would have from my CPF Life and other investments).

Using the Affordability function of the tool, it is estimated that I can set aside an additional $25,942/year from now till age 60 from my surpluses into instruments that would generate a higher rate of return to help fund my retirement.

Would you be keen to find out if your current plans are working out well for retirement? Drop me a message now so that we can put your plans to the test and work together to further build up your passive income for retirement.

Retirement Planning In A Nutshell

Assuming that I set aside an additional $1500 per month for the next 20 years into an investment plan (assuming that it could generate 6% p.a returns), and then drawdown over 25 years from age 65 onwards, my chart would move accordingly and I would no longer have any shortfalls in my retirement.

Sources:
1 – https://www.cpf.gov.sg/Members/Schemes/
2 – https://www.investopedia.com/terms/d/