“I went to the market to get some onions, carrots. Tonight, I’m going to make some pancakes!” – said no-one-ever. It is common sense to decide on the dish that we will be making before getting the ingredients.
However, this common sense does not always translate the same in personal finance. A common trend I notice is that people focus on the financial instrument and neglect starting with a financial goal.
I had a 34-year-old client who had no real strategy when it came to her retirement planning. All she had were 3 saving plans that would collectively mature to pay her a lump sum by the time she’s 44. By the age of 65, she would only be drawing up to $2900/month mainly from her CPF payouts.
She was also under the impression that she would only be able to retire at the age of 65 years old, and had originally intended for the maturity sum of her 3 saving plans to be placed into a fixed deposit – unknowingly exposing herself to reinvestment risk.
It is defined by the possibility that an investor will be unable to reinvest cash flows (e.g. coupon payments or maturity proceeds) at a rate comparable to their current rate of return. Thus, ending up on the losing end.
Starting with a clear financial goal has clear benefits.
- It allows one to draw up a Realistic plan
- It promotes Accountability and Focus
- It forces one to Prioritise
Through my guidance, I customised an Investment and Deferred Annuity portfolio for her and the result was that not only will she be receiving more than twice the amount by 65, she can also partially retire at 55.
Another client of mine, a couple of 37 years old, were living from paycheck-to-paycheck with outstanding furniture loans and no emergency funds. Customising a financial plan, they were able to save a substantial amount on their existing insurance portfolio and I also structured a timeline for them to attain emergency funds.
Now, not only do they have emergency funds for a rainy day, they also have a steady stream of income that will enable them to enjoy their desired amount by the age of 60.
These examples are not a one-off. The reason for sharing these is to let you know whichever point you are in your journey towards Retirement, proper planning will result in providing clarity, assurance, and even help you to be Retire-Ready earlier than you might expect.
As the saying goes, “The best time to plant a tree was 20 years ago. The second best time is now.”
How well have you planned for your retirement?
