Wednesday, October 28, 2009

What it takes to retire well?

Everyone wants to retire. But the truth, retirement planning is often overlooked and let chance to take place. So how do we ensure the joy and the fund would last?

3 pointers to share with you.

1. When should I start preparing for my retirement?

Right now. It's always good and easier to start early. In Singapore, most would prefer to retire at an average age 54, although the "national standard" is suggested at age 65 to counteract longevity risk, i.e. the risk of living too long. Some population experts has expected the recent expectancy would last another 30 - 40 years after retirement age!

The earlier you start, the more you could have.

2. How much money will I need when I retire?

This is not too difficult exercise. Attached worksheet (Disclaimers applies) would be a useful tools for you to find out your gap. A general rule of thumb in planning for retirement income is about 2/3 of your last drawn salary just before your targeted retirement age, in order to maintain your current standard of living. The big-ticket items such as your home mortgages and your children's tertiary education fees might be reduced or finished, you need to have enough income to fund daily household expenses and medical costs before you calculate how much is needed for traveling and pursuing hobbies.

Retiring well needs good planning.

3. Isn't CPF enough for me to retire on?

Think again. Will CPF be enough after which you have serviced your mortgage loan and pay your children's tertiary education? Whether is it enough also depends on your desired retirement lifestyle needs. Usually, the CPF LIFE would provide approximately 30% of your last take home salary before retirement.

For example, based on $100,000, the "CPF LIFE Income" option would gives you S$700 (estimates) a month for during your lifetime. This is an non-refundable plan provides the highest monthly payout than the other plans but does not leave anything for your beneficiaries. To be relevant, information is available @ &

Longevity risk is something that cannot be ignored too.

Knowing what you want for your expected retirement lifestyle needs, fortunately, is a choice. Engage a Certified Financial Planner who gives quality and adhere to a holistic approach. You won't want to find out that you have not enough when the time arrived.

Monday, October 26, 2009

Reality Check - What have I done so far on my personal financial plan?

Recently, there is a lot "talks" on retirement, especially on CPF LIFE, CPF Lifelong Income For Elderly. Briefly, CPF LIFE will provide their members who are Singapore citizens and Permanent Residents an income for life. It is an improvement over the current Minimum Sum Scheme (MSS) where payouts only last about 20 years. Through this new scheme, members will receive a monthly income for as long as they live, the amount depending on the cash savings they have in their Retirement Account (RA). I welcome this initialization and getting Singaporean to enjoy their retirement future is challenging.

Unlike in the past, not too long ago, when I read magazines and come across prospects who think they are going to retire in 15 or 20 years with $250,00 or less in savings. Some even feel that it's not important at all. Wait and see is the most common norm. Whoa! These are something alarming and has to address these issues with immediate action and "care".

To keep things simple, the following questions might be a good pointers on how well you have been working on your personal financial plan.

[1] Can I retire comfortably at age XX?
[2] Will I have sufficient income when I retire?
[3] Will I have to alter my lifestyle when I retire?
[4] Will I have enough income to pay my medical expenses?
[5] Will my death or the death of my spouse affect our income?
[6] Will I be able to financially assist my parents/family members?
[7] Will I be able to help with the education for my children/grandchildren?

These seven questions are important questions that require your thoughtful answers and actions. Too often, as mentioned a numerous times, people brush them aside, thinking it will all work out fine. Putting things in perspective, these important inputs are critical elements to achieved your desired output, i.e. retirement funds that required a black box to process. One function of your black box would be your certified financial planner to ensure money is there when you've arrived.

Isn't it true that the only person who can take care of the older person we will be someday is the younger person we are today? And, whether we get to enjoy in our retirement, or we could retired from our enjoyment... it's a matter of choice.

Motivational Quote (ii)

Sunday, October 25, 2009

Accessing RISK/Return or RETURN/Risk...first?

It is important to know how risk and return interact and to understand what type of investments might suit your risk appetites.

So what is Risk & Investment Risk?

Risk can be thought of as the uncertainty something happening. In investing, it could be view as the "calculated" chance that money can be lost or made on any investment. It is often be view as variability in the returns of an investment. It is how much "below and above" the average return or the return expected by an investor. As such we use the VOLATILITY as a common yardstick to measure the speed and magnitude of price changes in an investment over a period of time. (In Physics, it's known as Vector quantity). If the movement is rapid over a short period of time, it has high volatility, whereas for low volatility, the price movement is very mild, like bank deposits.

Although risks pose a threat, they also pose an Opportunity and investors need to know the best way of mitigating risk so that they can also benefit from the potential returns. But in actual fact, the general consumers not only pre-occupied with their lives, they also might not have sufficient and essential information on the investments they are embarking on. So it would be wise to engage an investment-based certified financial planner. Let's us not be penny-wise and pound-foolish.

How about returns?

Often being said, low risk, low returns; high risk, high return. Likewise, the same is true for loss. But I always take the stand as low risk products will certainly and definitely gives low return, but high risk might not give you high return. It's the "managed" high risk approach that would gave the investors the "expected" high returns. This "return expectations" of an investors would depend on a few factors, such as the investors' risk appetite, investment type preferences, the committed investment amount and whether the products are suitable for the investors and other considerations that the investors might feel great importance and concern. These personal concerns that investors might have, need to be addressed first before they commit.

In reality, returns might not need to be managed. More often than not, investors are generally delighted when their investment are in the "black" and on the rise. Personally, the investors should use a yardstick to measure their expected performance on a certain time frame. In this way, the return objectives would be met. Therefore, an investor's financial goals and attitude to risk will be a guide to what types of investment will best suit them. We are aware that different asset classes have associated risk/return profiles.

In conclusion, although Risk and Return are at different side of the coin, however, they are like an identical twins and have to go hand in hand. They are inseparable because they are two different faces of the same coin.