After decades of working hard, we would all like to retire and live our desired retirement lifestyle. Planning ahead can help you achieve your goals and retire in comfort. It is never too early to start saving for your future.
Retiring requires a lot of careful preparation, but no one is perfect —sometimes we can make both financial and planning mistakes along the way. Dodge these common pitfalls and you can be more confident that you will have what you need to live the lifestyle you want.
1. Not Having Sufficient Retirement Savings
Not saving for our golden years is the gravest retirement mistake anyone can ever make. Retiring with little or no savings raises our risk of struggling and living in poverty. Many people who retire without savings have only their CPF savings to rely on.
However, CPF savings was designed to be a financial supplement for a basic lifestyle, not a primary lifeline.
The main reason people do not save is because of day-to-day expenses and the cost of living. When we are barely scraping by today, it is definitely hard to focus on building financial security for tomorrow. It takes most people decades to save enough to support their retirement – which means we simply cannot afford to put it off until a later time.
Therefore, if we cannot save a lot, save something. Putting aside $500 at a time is much better than not saving anything. With more time, due to compound interest, those small sums of money can grow substantially.
If you can’t see a way to save even a small amount, such as $500 per month, it is time to make changes. Either take steps to boost your income – such as asking for a raise, changing jobs, or getting a part-time gig – or find ways to lower your expenses, such as moving to a cheaper apartment and reducing your entertainment spending.
2. Saving Without a Plan
Many people make noble efforts to save for retirement. They pinch pennies, set aside money regularly, and have accumulated a sizable stash as a result. However, they are still at risk of a shortfall during retirement. In many cases, there is a significant difference between how much people need for a comfortable retirement and what they are actually saving.
The problem is that a lot of folks have no idea how much they will actually need. To reduce the risk of financial hardship during our retirement, developing a comprehensive vision of our retired life is essential, taking the following as consideration:
Average Lifespan. Considering the life expectancy helps us to gauge the potential length of our retirement. Singapore’s average life expectancy is about 84 (according to Consensus 2020). If we have to plan for our retirement, we can use the life expectancy as a gauge.
Preferred Retirement Age. Retirement age also helps determine the length of our retirement, how aggressive our financial plans should be, and by what point we need to develop a retirement nest egg. The latest statutory retirement age has just been revised to age 63 from July 2022.
Living Arrangements. Will there be others (such as our children) to share the expenses with? Or do you plan to stay in an assisted living community, eg Private Seniors’ Homes or HDB Community Care Apartment? We need an idea of our living arrangements to work out our living expenses.
Hobbies and Lifestyle. How do you plan to spend your golden years? Do you want to travel? Will you want to drive? Do you plan to work during retirement? Consider realistically how long you will be capable of working if you do not plan to completely retire from the workforce. On top of this, will you still be healthy enough to continue working?
Insurance and Health Coverage. Do you have adequate insurance coverage? Will we need or can we save enough money to pay for certain types of out-of-pocket care as we grow older?
Estate planning. Have you done your CPF and insurance nominations? Have you written a valid will and filed it with the Will Registry? Have you done up your Lasting Power of Attorney and Advance Care Planning? Have you given instructions to anyone who is trustworthy enough to take care of your final wishes?
It is okay to start with some vague assumptions and fill in the more specific details as we get closer to retirement.
3. Being Too Conservative In Our Investment
Making a commitment to save for your retirement is the first step. Next you must determine how to do it. Having our money grow during our working years is a priority – and a regular savings account isn’t an ideal place for adequate growth.
During years when interest rates are low, the returns we can expect to see from savings accounts may not keep up with inflation, much less outpace it. And if our money isn’t keeping up with inflation, it’s losing value.
We need to invest our money in a financial vehicle that gives us exposure to assets, such as stocks, which historically have outperformed savings accounts over the long-term.
4. Relying On A Spouse
Expecting to rely on your spouses is not a retirement plan – it is a gamble. Relying on someone else means we are making two risky assumptions.
First, we are assuming we won’t get divorced. Everyone likes to think they’ll be married forever, but statistics prove otherwise. Increasingly, people are getting divorced later in life when many probably assumed they were past the likelihood of a breakup. Divorcing later in life and being single during retirement raises our risk of not having enough funds for our retirement.
The second risky assumption we make by leaving our retirement to someone else is that our spouse may not be adequately prepared to care for two aging people. What if our spouse makes risky investments and suffers major losses? Or what if our spouse doesn’t save enough?
People commonly underestimate how much money they need for themselves, especially when it comes to healthcare, so they are even more likely to miscalculate when trying to plan as a couple.
To avoid making costly mistakes in your retirement planning, it would be prudent to discuss with professional advisers to fill in the gaps and work out the various possibilities so that you are adequately prepared for your retirement.