Retirement Planning: What Are the First Steps?

When you’re new to investing and retirement planning, it’s difficult to know what the first steps should be.

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In this article, we delve into different aspects of determining how to proceed towards a healthy and prosperous retirement.

When Do You Want to Retire?

Everyone is different when it comes to retirement.

Some people wish to retire as soon as possible. They think that they have sufficient money and enough hobbies to keep them busy. Many are type-A personalities, which is how they got there in the first place. This makes it especially difficult to go from hyperactivity to minimal activity.

The rest of us are looking to retire at a traditional retirement age (65) or something close to it. The age is important because when needing to make your investments last longer, less should be withdrawn each year to avoid running out of money.

What Determines How Early You Can Retire?

It’s often thought that a higher income means you can retire sooner, and a lower income means it’ll happen much later. That’s only partly true. There are plenty of six-figure earners who still live paycheck to paycheck and rely on credit cards to survive a job loss.

It’s useful to appreciate that the average American has less than $1,000 in their checking account and most carry some form of consumer debt too. Having money to retire without a complete reliance on social security is unusual.

What determines how early you can retire is the savings rate as compared to what you spend (and also what you’ll be spending in retirement too).

For instance, when earning $59,000 (close to the average household income in the U.S.), how much you spend makes a huge difference. If you’re living in a low cost of living area, then it might be possible to get by on $2,000 monthly if you’re frugal. That leaves around 50% remaining to save (depending on your tax burden). Every year, you’ll be saving a year’s worth of future expenses. This puts you in a good position for the future.

Do You Want to Semi-Retire Instead?

One way to make retirement come sooner is to semi-retire.

Some people find it difficult to hold onto their job when they reach their 40s and 50s. Moving to a different, slower paced profession or switching to a role that just covers your expenses allows your retirement savings to grow on their own, untouched even when you are not adding to them.

This is known as BaristaFIRE, named after Starbucks workers. However, it’s possible to do any kind of work to cover your expenses while your nest egg grows. It’s not uncommon to find semi-retired people switching to freelancing or business consulting to keep busy.

How Much Is Needed to Retire?

Based on the Trinity Study and subsequent improvements, it was found that a 60/40 U.S. stocks and bonds portfolio mix lasted 30 years with annual inflation adjustments over every period studied during the past century.

Usually, 25 times the annual spending is required to retire but it depends on your expected investment returns, investment fees, tax rate, and how long you’ll need the portfolio to last.

To determine how much you’ll need, ask a qualified financial advisor for advice. Minneapolis financial planning is available from Berger Financial Group to figure out a precise retirement plan that will suit your needs.

Don’t be worried about taking the first steps to financial freedom. The sooner you get started, the easier it’ll be.

Know your Rights as an Investor!

Chew Hock Beng

 

What are my responsibilities and rights when investing?

First and foremost, select financial advisers that are regulated. Ask to see their name cards or licenses. Call the adviser’s firm to verify that the adviser is their authorised representative. You can refer to www.mas.gov.sg/directory for the list of financial institutions.

know-your-rightNext, work with your financial adviser to identify products suitable for your individual needs. Always provide accurate information about yourself, your financial situation and investment objectives to them.

Do not be enticed by gifts and promotions or promises of high returns. Remember that the higher the return promised, the higher the risk you have to bear.

Do not invest in products you do not understand. Do not invest in “hot picks” or “trendy stocks” just because others are buying them.

Read the investment documents thoroughly. Ask questions and take note of key areas including the risks involved, terms & conditions, fees & charges, and commission or distribution costs.

Especially for the seniors, always ask for assistance if you are not conversant in English or find it difficult to understand the information. You should bring someone who can explain the information to you when you meet your financial adviser. Do not invest in anything you do not understand. Say “NO” if you find the product is unsuitable for you!

For life insurance products, you may return the policy if it is not suitable and request for a refund within 14 days from the date the policy is issued. But if it is tied to investments, you may have to incur some costs.

For unit trusts, you can cancel your purchase within 7 days if you find it not suitable. But if it is tied to investments, you may have to pay for any loss incurred,if the investments suffered a downturn in value.

Lastly, always monitor the performance of your investments regularly to ensure that they continue to deliver the returns you expect and meet your needs.

We will share more on the retirement planning and investment asset allocation method in our upcoming event on how to construct and build your retirement portfolio without losing your sleep. Please register your attendance HERE as seats are limited.

See other event here. http://mystocksinvesting.com/events/

Read Before You Invest: Personal Investing Tips for Seniors

Chew Hock Beng

Before I could provide a few pointers on how to avoid common mistakes and making unwise decisions, I would like to highlight a few key areas that you should consider before investing.

WHY?

Because Personal investing for Seniors can be complex!

So should any seniors be investing?

Depends!

retirement-planning1However the following pointers might be helpful.

  • Know how much funds you have.
  • Know how much you need for your daily and medical needs and for any outstanding financial commitments you have.
  • Set aside funds for your basic needs before investing.
  • The less spare cash you have, the less risk you should take in investing.

So if you really want to invest, then you should seriously consider your options before investing. So before making any investment decisions, ask yourself this 3 critical questions!

  1. What do you WANT?
  • What is your investment objective?
  • How much returns on investment do you need to meet your objective?
  1. What do you HAVE?
  • How much do you have to invest?

 

  1. What can you LOSE?
  • How much are you prepared to lose?

 

Let me share with you what some of my seniors and mentors on their views on  personal investing.

Be aware and mindful that the more you WANT, the more you must be prepared to LOSE!!!

Allow me to explain further.  

Know your investment objectives.

For example, are you investing to earn a regular income? Are you investing to preserve your capital sum? Or are you investing to grow your capital?

Know your investment time horizon.

Simply put, ask yourself how much time do you have to invest to achieve your financial goals. Generally, the shorter your time horizon, the less risk you should take with your investments.  If you need your money in a short time, do not invest in products that will put your capital at risk or that will impose penalty charges for early withdrawal. If you have more time for investing, you may wish to consider taking up products with different investment periods so that you can have access to funds at different stages during your retirement years.

Know your risk profile.

How much fluctuation and risk can you tolerate in your investments as the market conditions change? This is known as market volatility. So do not place all your eggs in one basket.  And diversify your investments to reduce risk. Hence, set up an asset allocation based on your risk tolerance and preference is critical. One suggested portfolio for seniors who are Moderate Risk Takers could considered a 40% Equity and 60% Bond composition. Another option could be 20% Equity & 80% Bond asset composition. The reason for having the equity allocation in the asset mix is to counter the risk of purchasing power of the retirement dollars. It also take away some market risk. As for the Bond allocation, it serves to protect the principal. We need the money to outlive our life expectancy.

Personal investing for seniors is not simple and easy. It’s always at your best interest to engage someone who is qualified to advise you accordingly to what you want to do with your hard-earned monies! Always provide accurate information about yourself, your financial situation and investment objectives to them so that any appropriate retirement recommended are suitable to your individual needs!

One last thing, constant monitoring the performance of your investments to ensure that they continue to deliver the returns you expect and meet your needs.

I hope this sharing could benefit you.

We will share more on the retirement planning and investment asset allocation method in our upcoming event on how to construct and build your retirement portfolio without losing your sleep. Please register your attendance HERE as seats are limited.

See other event here. http://mystocksinvesting.com/events/