Recently, this question was posed to me, "if my retirement is settled, I can spend the rest of my money freely right?"

In a way, it's true provided your retirement is really settled!

More often than not, the so-called settled retirement is either too idealistic or too simple I highly doubt people will be happy living it. Maybe, they will grow to be contented with it but it might also leave one with regrets.

In today's article, I touch on the key considerations of retirement planning and offer 3 scenarios to improve your present retirement assuming your basic retirement is really settled!

Key Retirement Considerations

For starters, what is retirement planning? Retirement planning basically means having enough money to last you till you are no longer around after you stop work. The sooner you achieve this, the sooner you can retire. If you can never stop work, then obviously you can never retire.

Whenever I speak to people about retirement planning, a common observation is how people will do their best to convince me they don't need a lot of money to retire. Lifestyle and expenses will be either downgraded or maintained many will tell me. Perhaps, most people really believe this. Almost only 1 in 20 will tell me they think their lifestyle will be upgraded.

My question to most people is how realistic is this belief system? I've seen individuals who believe they can save their way into retirement through deposit accounts because 'they don't spend a lot'. Yet, every 20 years basic expenses doubles due to inflation. Does your purchasing power double every 20 years?

I've also heard people tell me because they have been travelling a couple of trips during their working years, they foresee they won't travel much during retirement because they have seen it all already. Please lah... if you have been eating restaurants and cafes all your life, you seriously think you will suddenly enjoy eating hawker food and cooking at home because you stop working? Let alone stop travelling when you have tons and tons of free time...

I also don't want to get started on insurance. Most people don't have sufficient insurance but they always think they have enough. It's weird because this can be mathematically calculated. You don't even need a financial calculator... if you suddenly have to spend a lot of your savings you spent your whole life hoarding to take care of yourself, and you don't die... you will feel insecure everyday.

Okay, another popular belief system is that it isn't the luxuries in life that makes people happy. It's proven that relationships make us the happiest. As long as we have our loved ones and friends with us, we really can spend all our lives in Singapore and probably still be happy. However, how do you know if you won't outlive all your friends and family? If you do, won't you need to find new friends? I have even seen older couples who suddenly complain their spouse are 'one kind' and prefer hanging out with new friends. Socializing costs money. It may not be exorbitantly expensive, but you still need to factor in this increase in cost.

Finally, it's increasingly common I hear people telling me their retirement are all done. Trust me, 9/10 completed retirement planning have gaps. Sometimes, very big and glaring gaps. In one instance, the person thought retirement planning simply means ensuring that in the event of illness, they are taken care of and only very basic retirement costs have been factored in. Imagine what happens if this person decides retirement is done and spend most of his/her money?

We can't seriously expect to live our entire retirement (20-30years) as though we are in lockdown during COVID19 right?

In another instance, a person committed a substantial amount into their retirement planning but protection coverage is so minimal. This person is only in the early 30s. What happens if something major happens that prevents this person from working? The funds expected to be committed to retirement planning would cease, the solutions might be terminated and obviously retirement would come early with no funds to rely on. What happens then?

Assuming, you are the luckier minority who have really done up your retirement and is wondering what's next... I've 3 scenarios for you to improve your retirement.

1. Bring Your Retirement Earlier

Skeptics will say that financial advisors just want to promote plans hence are constantly trying to find ways to sell new solutions.

If you have a choice to retire earlier, you mean you will opt out?

Retiring simply means having a choice not to work. It does not mean forcing you to stop working. Most people plan to retire at the national retirement age of 65. However, there are many times when people have communicated their preference to retire earlier if they can, ideally at 55. I'm sure this preference is not limited to the people I meet.

If your retirement at 65 is taken care of, you might want to work towards ensuring you can stop work earlier should you wish to or become forced to (either due to retrenchment or health reasons).

2. Give you a more quality retirement

As mentioned earlier, most people plan their retirement with the intention to either downgrade or maintain their lifestyle. Many may not fully factor in inflation even. Honestly, I personally think this is overly idealistic. For most mid to high income individuals, retirement expenses increase not decrease. For this group of individuals, retirement expenses decrease mainly due to insufficient funds rather than by choice.

A common miscalculation a lot of people make is that they forget that things become more expensive even after they retire.

In this illustration, you can see that the cost of inflation continues to go up even when our income stops growing at 65. We potentially might have no income. A lot of times people calculate their retirement based on the inflation rate at 65 but overlook the need to ensure that the funds are sufficient to meet rising costs from 65 - 99.

If you feel that you have adequately planned your basic retirement at 65, then further retirement planning can be meant to give you a better quality retirement. For example, most people factor in their fixed expenses and some small luxuries here and there during retirement. An improved retirement might give you a representation of life closer to what you are currently experiencing. If you go holiday every quarter during your working years, you might want to continue doing so after you stop work. If you have been going out for dinners and brunches while working, you wouldn't want this to change post retirement.

Additionally, we have a lot of hobbies we may have wished we had time to pursue. After retirement we may wish to pursue some of these hobbies. My mom for example is learning how to play the piano now. This means that there's a fixed cost of piano and monthly fees to hire a teacher. If you have more than one hobby, the cost would simply go up. Ultimately the purpose of retirement planning is to empower us to live the life we want when we have abundance of time. It's a little meaningless if we have time but no money to pursue hobbies. Then might as well work right?

3. Legacy Planning

Very often, retirement planning is done with the view of taking care of ourselves. Most of the time people take the simplistic view of ensuring they can take care of themselves and any residue left would be for their children and loved ones. What a lot of people are unaware of is the possibility of ensuring that their resources are not depleted in the process of looking after themselves.

There are a lot of financial solutions around in the market that can provide retirement income while preserving the value of wealth for the next generation. This form of financial planning is often overlooked and given too little weightage because very few people touch on the above topic.

Hence if you feel your basic retirement needs are already taken cared of, this form of enhanced retirement might be of value to you.

Summary

Retirement is a very important topic for all of us. No matter we are healthy or sick, rich or poor, we need to plan for it. In the event we are prudent with our financial planning, we may have gotten started on basic retirement planning. In such instances, excess resources can give us certain luxuries our peers may not enjoy. These are:

• The ability to retire earlier than 65.

• Improving the quality of our retirement so that we can upgrade our lifestyle and pursue unfulfilled hobbies.

• Retain the value of our assets to give our loved ones a head start in life while not compromising on our old age.

If you would like to explore your retirement planning options, please speak with a trusted advisor. You can also drop me a message if you would like me to help you with it.

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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.