Rojak in Malay means mixture. In the Singapore context, it refers to a salad dish tossed with fruits and vegetables that reflects cultural diversity in Singapore.
When we use 'Rojak' to describe something in Singlish, it often means a mixture that is done without order or structure, on an any how basis.
So a 'Rojak' approach to retirement essentially means accumulating funds for your retirement without a clear strategy. Often this means a very reactionary approach.
To give an example of how some people do this, they take up investment or saving instruments from bankers in banks, buy from insurance agents at roadshows or through a cold call and potentially also buy some on their own via Roboadvisors or trading platforms. Some richer ones might even incorporate property into this mix. It can be all over the place to the point if you ask them what they have, they sometimes can't remember what they bought or how the solutions they took up work.
why is this approach a problem?
Before we get into why a 'Rojak' approach is problematic, if you have not read Why Most People Are Doing Retirement Planning Wrongly, please read it first. The article covers the first step in retirement planning which is knowing your actual retirement goal.
Another relevant article: Your Retirement Number - Pitfalls to consider
A 'Rojak' approach is problematic because of the following reasons:
You are essentially your own financial advisor
If a person takes up instruments from all over the place, every provider who transacts with this person will essentially be selling them on the features and benefits of the product instead of discussing how the instrument fits into their big picture plan. So more often than not, the one taking up the instrument has to have a clear picture how this instrument fits into their overall plan.
Here's the problem: Most people can't tell you precisely how an instrument fits into their retirement strategy except that the new instrument sounds like something attractive.
If you meet a financial advisor who can't provide you with a strategy to get from point A to B, you will judge them as a lousy advisor. When the consumer function as the advisor to their own strategy without clarity, now they become the lousy advisor!
There is no thought put into how you will spend your retirement money in future
A lot of people think that retirement planning simply means accumulating as much money as reasonably possible while they are working, so that they have money to spend when they stop working. This thought process is too simplistic!
How one intends to spend the money in terms of whether they will drawdown from their total savings or whether they expect to only spend from the income they create will require a different money management approach while they are still working!
Drawdown
Take for example, if you intend to drawdown your monies, you might need to think in terms of how long you will live (longevity risk).
You will also need to consider your psychological comfort level while watching your money deplete as you spend down (drawdown risk).
Will you cater for sufficient retirement funds but end up not daring to spend as your money depletes?
Income
When it comes to creating income streams, most of the time the rationale for doing this is so that consumers need not spend down their capital.
Often this means you need a larger sum of capital to generate the necessary income you need to fund your lifestyle!
Take for example, if you have $500,000 and you intend to spend $50,000 per year, drawing down the money would last you for 10 years. If you intend to create $50,000 of income for spending at a 6% income rate, you will need $840,000.
The good news is, as long as the income perpetuates, it will mean you won't need to touch your capital. In other words, longevity risk won't be an issue as long as your money can sustain your lifestyle even with inflation. Your capital can serve as your back up in case you need more money.
What happens when your approach is 'Rojak'?
Imagine you have some Singapore Savings Bond/endowments maturing at a random age of 60, 63, 70. Then imagine you have some equities in the stock market that is a few hundred thousand paying you some dividends. Then maybe you have a Condo that you are contemplating if you should downgrade to a HDB to free up some monies. Of course you have your CPF payout...
How will you decide how much you can spend for your retirement optimally? Based on the dividends you have or the lump sums coming out? Maybe you might be thinking - 'spend the income first and when not enough, dip into the lump sums'. Ever wondered how much can you draw each time you dip into the lump sum?
Most likely you won't starve but deciding how much you can spend every month can't be based on your mood. (you might overspend and run out of money!) This is especially challenging when inflation stayed close to 2% pre-covid for many years and suddenly shot up to 4-5% in recent years.
Will you end up living your ideal retirement lifestyle or a compromised one? Will you be worry free during a market downturn or would your lifestyle suddenly need to go into austerity measures?
The truth is, humans are adaptable and however your retirement portfolio look like, most likely humans can adapt. But, do you want to be forced to adapt?
How a clear strategy for retirement helps you!
The power of coming up with a clear retirement strategy provides you with clarity.
You know how much of your funds is allocated to needs that will cater for your lifetime regardless if another Lehmann Brothers crisis happens or if another Covid hits.
You also know how much of your funds can be your play fund so that you can agree to any spontaneous holidays your friends asks you to go for.
You even know when to say NO to attractive instruments because they don't fit into your retirement strategy.
You have confidence to put in more resources and commitment to instruments that brings you a better quality of life for your retirement and potentially early retirement.
So if your current approach to managing your wealth is 'Rojak', then instead of just reacting to another solution, maybe it's better to sit down and ask yourself questions like:
what's your retirement goal
how you do you intend to spend your money
This way, you will know how to move forward effectively with the rest of your resources for your future!
After reading this article, you might find retirement planning too complicated to do on your own and might be keen to have a discussion on retirement planning with me. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about retirement planning.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning. I am also building a team of financial advisors who are committed to help responsible individuals attain their goals without misallocating their resources. Do reach out if you would like to explore a career with me.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
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'.