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How to start planning for retirement

Tan Ooi Boon on 06 Dec 2020

The Straits Times


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Do you know how much money you need to maintain your lifestyle every month?


Few people can answer this question straight away because it can be a tedious exercise to take note of every dollar that goes out day after day.


As long as most of us have enough money, we usually don't bother to jot down our expenses because we are already busy enough trying to keep up with our jobs and so on.


But if you are keen to get an accurate picture of how much money you will need for retirement, you should perhaps do a one-month experiment to collate your actual expenses.


The reason is that most of us would like to maintain our existing lifestyle and to be able to do that, we need to know how much we actually spend. To do this accurately, you need the support of your spouse at least to take part, since retirement usually involves a couple's expenses.


An effective method is to ensure that you collect receipts for all kinds of expenditure such as groceries, casual shopping, petrol, parking charges, monthly car instalments, home maintenance, and telco and utility bills.


Also note the money that goes out from your bank account via Giro payments such as insurance premiums, as well as cash payments for domestic helpers and other expenses.


But you can disregard the payment for taxes (since you will not be working after retirement), expenses for children (who would have grown up) and mortgages (unless your loan tenure is very long).


After adding up all the usual expenses, you should still top up the figure with an additional sum that can range from $500 to a few thousand dollars.


This sum is meant to act as a buffer for unexpected expenses such as repairs or medical bills, as well as to factor in certain annual expenses such as holidays, birthdays and anniversaries. The final figure should come as a bit of a shock to most people because their first reaction is likely to be: "How am I going to afford this if I stop working?"


The good news is that after the initial shock, the realisation should prompt you into thinking how you should start planning and manage your future expenses better. This is necessary because the OCBC survey shows that those who do not plan are likely to be short by as much as 30 per cent of the money needed for their lifestyle.


For instance, you should start by taking a closer look at all your insurance policies and see which ones to keep or cash in when you retire. This will lessen your premium expenses by a lot.


Retirement does not mean the end of getting any income; you should also check how you can rely on CPF Life, your other investments as well as cash savings to give you sufficient funds from 65.


Knowing what you are up against will allow you to start doing something today, such as diverting more money to your retirement kitty while cutting back on some of the non-essential monthly expenses.


A good start is to see how you can cut short your mortgage tenure with lump sum redemption.


At the very least, you should reduce the use of Central Provident Fund to service your mortgage as money out from CPF means you will have less for retirement.


Once you get into the habit of keeping tabs on your money, you will have taken the first step to having a good retirement. After all, you will most certainly think more about saving and think twice before you spend the next dollar.


Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.



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