Somewhere in the middle of last year, I met up with a friend of mine.
Over coffee, she lamented, “Hey, Yong Cheng, you know I have been wanting to speak to my husband about planning for our retirement. We never got the time to sit down and talk about it because of our busy schedules. Our savings could have gotten us somewhere by now. How I wish we had started it earlier.”
To put things into context, my friend is in her late-30s. Her husband and herself have 2 children of their own.
I think their situation is not too different from a lot of other parents.
In my course of work, I have advised a handful of couples, so I do empathize with their situation. As I happen to be a father myself, I perfectly understand that many parents hardly have time to spend with one another, let alone talk about money and a big topic like retirement.
But before you know it, you would probably feel like… it’s too late.
I believe for a couple, the earlier you initiate the retirement conversation with your spouse, the earlier you can start saving for it. And by doing so, you can channel more of your disposable income to other aspects of your life yet achieve the same results as a couple starting late.
However, we should also acknowledge that retirement is much more than just dollars and cents.
I hope through this 3-part article, I am able to nudge more parents to start this discussion with each other as soon as possible.
Part I: Thinking about retirement now allows you to create possible future scenarios. This exercise will help you gain clarity and empowerment to change.
In the past, retirement planning for our parents’ generation tends to focus more on the goals. They set future goals, then save and invest towards them. Whereas, we see the current generation taking two slightly different approaches towards retirement planning.
The first approach is F.I.R.E, which stands for Financial Independence, Retire Early. For this approach, people are required to increase their income and keep their spending to the to allow them to save aggressively (typically up 70% to 80% of their income). A very high level of determination and discipline are prerequisites for adopters of this approach.
Most people, especially parents, have a natural inclination towards the second approach, where people are focused on achieving their future goals while ensuring that they also live a purposeful life now. The adopters for this second approach believe that there is no point devoting resources to the future if they cannot live their life now. Therefore, from a financial planning point of view, it is important to learn how to balance their current needs and future goals.
Parents, whom I work with, often have these questions in their mind:
- Can the family afford to have the wife stay home to look after the children now or in the near future?
- If yes, what will be the impact on their finances and retirement?
A couple, whom I worked with a few months ago, requested for me to work out some scenarios for them. After the birth of their second child, they want to explore other lifestyle options.
- If the couple continues to have a dual income, when can they both retire?
- If the wife plans to stop working next year to take care of the children, how will it impact their current lifestyle and if so, when will the husband be able to retire?
- If the wife plans to stop work until both their children are in secondary school, how will it impact their current lifestyle and if so, when will they both be able to retire?
After working out the sums and taking into consideration that the husband does not mind retiring at a later age, all three options turn out to be feasible for them.
By taking the first step to discuss finances and explore alternatives to their current lifestyle, they gain better clarity of their financial health status in order to achieve their future lifestyle options. They are also now empowered and have the flexibility to make the switch in lifestyle as and when they need to.
If you are thinking of taking time off to raise your kids but have clear financial and emotional factors to consider, come and talk to us.
We can help translate your desirable futures into concrete action step by step.
Now that you have pictured the lifestyle aspect of your retirement planning, in the next article, I will share with you why there is a need to take action as soon as possible.
This is an original article contributed by Loh Yong Cheng, Client Adviser at Providend, Singapore’s Fee-only Wealth Advisory Firm.
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