Retirement Planning Part 1: Why Is There A Need To Plan?

Christopher Tan

In this first instalment of our 7- parts series on Retirement planning, we share the importance of planning for our retirement.

You can find the link to the other parts here:

This event was conducted on 5th of May 2016 by Christopher Tan, CEO of Providend.

So, let’s say today, you have half a million-dollar nest egg as retirement. Don’t care whether it comes from CPF or cash, doesn’t matter. We keep it simple. Half a million of nest egg. And if you do simple math, you take half a million divide by 20 years on average, you will get about $2,000 per month to spend.

So, if this is your situation, you will have a lifestyle of about $2,000. But we all know it is not so simple because there is such a thing called inflation right?

So, if I include inflation and a bank interest of 0.5% because the bank interest has gone up. But let’s average it, 0.5%, and let’s say inflation is 3%, in order to still have a $2,000 per month lifestyle, now, half a million is no longer enough.

We need a larger amount. So, we need $650,000 thereabout. This one, quite easy to understand right? I don’t have to dwell too much on it right? Because it’s not so simple. There is this thing called inflation.

Now, however, if you only have half a million, if you only have half a million, you don’t have $651,000, you only have half a million then you cannot have a $2000 per month lifestyle.

Your lifestyle will be reduced to about $1,600 per month. And if you are fine with that then okay. That’s your lifestyle – $1,600. And I don’t mean 1 person. All these I’m using are for two people.

So, you think $1,600 is fine then actually, you don’t have to do anything at all. Just leave it in the bank. Let inflation eat up by a bit but you say, “It’s ok. I’ll just spend lesser.” Then you don’t have to invest money. You don’t have to take the risk. This is fine.

Now, but however, if you think that, “No no. $1,600 is not fine.” Then you have to do something about it.

So, let’s say you can get an investment return of 6%. Now, in the past 6%, seemingly is not a problem but increasingly going forward is getting harder and harder and harder to get 6%. But let’s assume that you can get 6%. Let’s assume that you get 6% a year. Not one time. And assuming inflation to be 3%. So, you invest, you get 6% but inflation will eat up 3% so your net about 3% only. If you still want a $2,000 per month lifestyle now you don’t need half a million, you also don’t need $650,000, you just need about $370,000.

So, if you invest $370,000 at 6% return, 3% inflation, that will give you about $2,000 per month for the next 20 years until 75 years old.

So, what is the message? The message is to go invest your money. Right? Now, if only it is so simple. Because we all know it is not so simple. Why?

Because based on whatever I have shown you earlier, your retirement is wholly subjected to the financial markets. And the financial markets as we all know it posts 2008 has been more and more volatile. It is a lot choppier now than before. So, if you invest everything into that 6% instrument and you depend on it for retirement, when the times are good you eat at a restaurant, when the times are bad you eat white porridge. Your retirement will be following the stock market, it’s very very volatile.

And what if you live too long? Because the assumption that I show you just now, assumes that you die at age 75. Now if you live beyond 75, it is not my fault. It is yours. Because you didn’t follow my plan. You are supposed to die at 75. But if you live longer than 75 years old, that plan doesn’t work because the money is only enough to last you until 75 years old.

And what if you overspend? Especially during the earlier years of your retirement right? Because usually when you just retire, you know you’re excited. We are all healthy, just into retirement and then finally we can start to travel and play golf you know and do all sorts of things. There is a chance that people might spend a bit more in the earlier years of retirement. What if they overspend, leaving insufficient for their remaining years? That model that I showed you just now, didn’t take into consideration that as well.

In the near two decades that we have worked with retirees, we understand one thing: Reliability of income is more important than return on investment at this phase of your life. As such, we have developed a proprietary methodology called RetireWell®, that can help you draw down strategically from your retirement nest egg.

Our Retirewell® methodology was featured in The Business Times every month for almost a year in 2017 and has 11 parts to it, namely:

• Part 1: Drawing Down Retirement Money
 Part 2: Offering Retirees Security and Peace of Mind
• Part 3: Low Cost, Consistent Results
• Part 4: Counting on low-cost Index Funds
• Part 5: Investment Philosophy for a Retiree Client
• Part 6: Ensuring a ‘Safe Retirement Income Floor’
• Part 7: Remain Invested Over the Long Haul
• Part 8: Purpose-Driven Retirement Planning
• Part 9: A Tale of Two Retirees And Their Fortunes
• Part 10: Stock Markets Always Rise Over The Long Term
• Part 11: Retirement – It’s About The Kind Of Life You Want To Lead

With Retirewell®, we will design a plan that will give you a safe and reliable stream of income for the rest of your life, with provisions for legacy in the event of demise, so that you can live up your retirement with peace of mind.

We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current investment portfolio, financial and/or retirement plan, make an appointment with us today.

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