Retirement is a definite event. There will be the day we stop work and not have an active income. It has always been my vision for all my clients to have a fairly comfortable life now and a secured retirement in the future where they can do something they truly enjoy instead of sitting at home facing the four walls everyday because they want to prolong their finances.
What is a Retirement Plan?
A retirement plan is an endowment plan where you set aside cash on a monthly to yearly basis for x number of years and it can come with or without an accumulation period where you do not need to put in money but wait while the money compounds and finally pays out on a monthly basis for a stipulated period of time or for a lifetime depending on what option the client chooses. On most instances, clients will usually opt to save for as long as they can, then allow a short accumulation period till their retirement age and then enjoy a payout ranging from 10-20 years. On very rare instances, some clients will choose a lifetime payout option because in order to enjoy a more meaningful payout for a longer period of time, you need to put in more money at the start. Retirement plans typically pays out monthly and the payout is made up of a guaranteed and non-guaranteed portion. Most of the time, retirement plans have the highest guaranteed payout as compared to other endowment plans. The biggest drawback of retirement plans is the lack of liquidity prior to the payout period.
Why is getting such a plan useful?
There are only two ways to retire. You either have sufficient savings you can take and spend till you are no longer around or you have a stream of income coming in which can replace your expenses. If you achieve either option you are retired.
The biggest issue with having a lump sum to manage are these:
you might over spend, thus leaving you with insufficient retirement funds for your lifetime
your money might depreciate while you are not utilizing it. which means that you may have sufficient money for a full kopi and toast set now but may only be able to buy kopi no toast 20 years later for the same dollar value
if you have a lump sum at 55 or 65, you might encounter reinvestment risk. most short term plans have unattractive yield and if you choose to invest the money, you face market uncertainty. personally, I'm not sure how much risk appetite a person is willing to take at retirement age
A retirement plan basically gives you a certain level of predictability of how much income you are going to receive. It also ensures that if you overspend this month, you still have money coming in next month, as though you are receiving a salary. The guaranteed payout throughout the lifetime of the plan is much higher than the total capital you put in. On top of which, there's still additional non-guaranteed payout. For some of my clients, because they start early enough, they need a relatively manageable amount to set aside to cover their current lifestyle even after factoring inflation rate after 65.
Why do I feel we should all at least have one retirement plan?
Put it this way, for most of us sensible people, we all have our own way to plan for retirement. In most instances only hindsight is 20/20. We may choose to retire using instruments like REITs, property, stocks, ETFs and even possibly Singapore Savings Bonds. I'll say it's good to have those and I have them too!! However, there will be uncertainties which are unpredictable. What if it's 2008 again on the year you retire? Will you want to draw out your retirement funds at 30-50% deficit? To me, having one retirement plan merely acts as a safety net to offer some form of predictability. I treat it as part-time income without having to do the work. If I'm more conservative, I might have more than one retirement plan. If I'm super gungho, I'll just have one plan, just in case. The fact of the matter is, having a guaranteed income is always good. You need to eat, you need to pay bills. You can't say oh it's the recession year, so I live on air and please tell PUB to keep the water and lights going while the market recovers.
To find out more about retirement plans specifically which ones suit your exact needs, please speak to a trusted adviser. You can also drop me a message as I specialize in retirement planning and income replacement strategies.
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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'.
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