If you are in your late 50s - 60s reading this, $2million might be enough.
If you are any younger, it's likely not going to be enough for a robust watertight retirement.
In this article, I explore 4 often overlooked considerations when people calculate their retirement shortfall.
1 Holiday Budget
Holiday budget is often an under estimated consideration. Very often, when clients go through their expenses and stop at holiday budget, they think they will only travel once a year. The truth is, if you speak with most financially comfortable retirees, they travel an average of 2 - 4 times a year (mixture of long and short trips).
Why do working adults think they only travel once a year?
Because they can't take leave for long trips. Their current living expenses are high due to high childcare cost like their children's enrichment classes, tuition, childcare centre expenses, etc. So they cut out holiday expenses to manage their living expenses like any responsible family should.
Hence, it is difficult to envision what life will look like when we take all these limiting responsibilities away.
Holidays are a good time consuming recreation
Your kids will grow up and they might not have as much time for you. You will have full control over your time 7 days a week when you retire. There will be a bucket list of places you wish to explore and things you wish to do (if you can afford it).
A year passes really quickly when life is hectic or exciting. A year crawls by if it's mundane and boring. Very often, if you interact with retirees who planned their retirement well, they will tell you they dedicated their life to their work, their children, their family, they now want to dedicate their retirement to themselves. This means experiencing different aspects of life which they didn't have the opportunity, earlier on. (Go talk to some financially free retirees if you don't believe me)
Retirement is the stage when one has time and if one plans it well, they will also have money. Once retired, there's no further reason to ration the money and not pamper yourself unless you don't have enough resources.
Your friends are also retired!
Another thing people overlooked is that their friends are also retired! What this means is they will also have grown up children who don't have time for them. They will also be looking to pass time. If they have money, they will also want to fulfill their bucket list which they didn't have time to fulfill when they were working.
Especially in the initial few years, your friends might also be looking for travel kakis to see the world together. Just because you didn't travel with your friends when you were working, doesn't mean you won't travel with them when retired. Your time was finite and very precious when you were working! The same usually doesn't apply during retirement.
It's a wise thing to travel as much as possible when you have travel kakis during retirement because when everyone enters the golden period of their life, you never know whose expiry date comes first. At some point, you might have money to travel but a lack of travel kakis.
2 Hobby Budget
Another blind spot people have is the inability to envision how retirement looks like. They simply think retirement means an exactly similar life minus the need to work.
When Singaporeans were stuck at home during circuit breaker or the entire 2 years during the Covid 19 Pandemic for that matter, many people developed mental health issues. Humans need a meaningful life to be happy. We often overlook the social support system that a working life provides which includes different people to talk to and something purposeful to do. What we don't like about working life is the stress and accountability.
When retired, we simply have to substitute these social needs through other forms of purposeful activities. These include volunteering, mentorship, meeting up with friends and learning new skills. All of these need money.
Yet it's common during retirement discussions that clients are often stumped when asked how much they would like to allocate for such needs. Which also means, if you are calculating your own retirement, chances are you might omit this as a consideration.
3 Thinking your expenses will drop after a certain age
"I don't need so much money after 80 because I won't have the energy to travel and go out as much..."
Assuming this is true, then it means your mobility, your health may not be in as good condition. Which also means that if you don't have a maid now, you might need one in future to help you with the household chores. It may also mean you need more health supplements or medication (Cholesterol, high blood medication all cost money) to keep your health in order. It might even mean you may take more taxi or grab since you are less fit. You may also need to see the doctor more often for check ups and these are not covered by insurance. If I wish to be a little more pessimistic, I can also float the idea you may need mobility aids.
Let's be practical, most of us give up travelling and cut our social life because of circumstantial reasons. Which means if it really comes down to it, we will have other expenses incurred due to our changing needs.
Frankly at the very old age, if you planned your retirement well, some retirees have expressed a desire to stay at top class retirement villages where there is nursing care, amenities, and recreational activities to cater for active aging even for those in their 80s or more. You just need to cater for sufficient resources to give you that freedom of choice.
4 You might outlive your spouse
For some couples, one half of the pair takes care of all the financial planning. A lot of people simply assume they are taken cared of because this is the case all their life. A lot of times, this assumption is accurate as long as the spouse taking care of everything is around.
For example, a high income husband may have allocated sufficient retirement income for himself and his wife. If the husband is around, the couples' needs are fully taken cared of. However, husband did not do any will/estate planning and the couple have 3 children. When husband dies, his estate is split 50% to his spouse and 50% to his children. Suddenly, the wife may not have sufficient resources to continue the same quality of retirement lifestyle because of the following reasons:
Assets might be liquidated at unfavourable values especially if the children want the money.
Some assets like stocks might require decision making which the wife may not be competent in.
50% of the assets depending on whether they generate sufficient income may not be enough for the spouse. (Eg: an annuity plan/property provides an income, exercising the death benefit of the plan or selling the house requires the beneficiary to find a new instrument to put the cash proceeds in, if not there's no income)
The children then becomes part of the retirement plan. (You better make sure you raised your children up well if you are betting on them to take care of you)
Summary
To sum things up, when you factor all these considerations into your retirement planning, your retirement shortfall is likely to be more than $2million SGD. I've done enough retirement planning with a wide spectrum of clients to stress test this.
So if you need a recap of the 4 considerations, here they are:
Holiday Budget
Hobby Budget
Thinking your expenses will drop as you age
Outliving your spouse and neglecting estate planning
After reading this article, you may have some questions or may want to find out more about retirement planning through a conversation 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.
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'.
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