Avoid retirement fantasies | Real sharing from retirees to help you!

Most use the 4% safe withdrawal rule, or 25x of current expense. It is the common formula for financial freedom and if you're unsure, read on this post.

Most just have fantasies on how much they need to retire (lump sum basis) and when they want to retire.

Some answers come up to be $1m by age40 so as to F.I.R.E (financial independence retire early) and go traveling every 6 months without worrying about money.

​#vanlife #goodvibesonly

Problem is if you go travelling everyday, your expenses will skyrocket but more importantly, as I'd share below, it's unrealistic...

Factor annual retirement expenses and NOT current expenses!

After speaking to a few retirees, I found something missing in our forum discussions.

There is a component in most retirement plans which most people tend to overlook or downplay it's significance.

The formula for retirement should be: "​Annual Retirement Expenses" multiplied by 25 instead of current ​expenses multiplied by 25 for financial freedom.

​Retirement Expenses multiplied by 25 is the basis of the 4% rule that basically says a retiree should withdraw 4% of his/her retirement portfolio/savings.

​This is combined with various investments (assuming returning 4% or higher), the money can technically last forever. 

Hence, the first key question is: "How much do you need to retire into the future lifestyle you want?"

This will directly impact the expenses you incur during retirement years, agree?

Below is a quick summary of TRAVEL, EATING OUT, CAR and BALLING costs (total of $850k)!

​in case you are wondering

Is $900,000 ​​Even ​Enough?

If you don't have a clear plan on how much, then retirement planning is what you really need.

There's ​a report by CNA that says $3,000 per month is reasonable for retirement!

​While it simply means ​having $36,000 per year, ​and if you multiply that by 25​, $900,000 needs to be saved up!

But this doesn't take into account of inflation.You will still draw down on your capital if all your investment is only generating 4% annually.

Yes, you will have $3000 monthly, but in reality, this ​$3000 is going to be able to purchase less and less things in future.

Retirement planning helps you have clarity on what large amounts of money is needed. More importantly, how you have to match the outcome (retirement lifestyle) with theinputs (amount of money).

If there is no match, you will experience nothing but uncertainty 10-15 years into your retirement and by then you do not have an income anymore and will lead to a lifestyle crash.

Proper retirement planning and management of investment needs time

As mentioned inputs (amount of money) is needed and that requires budgeting and projections.

Long term plans also needs ​a long time to be built.

If you are the right stage in life, you should have some savings. It isn't poverty of money but a poverty of time to complete this planning process. 

That is why we can help. (look for me contact below and calculators that can help you today!)

A part of retirement planning also involves building a proper investment portfolio. The investment portfolio needs management also which can be time consuming.

Many retirees I spoke to specifically mention this point.

Realities of retirement from people who can actually retire now

While I've worked for some years in the financial planning industry, I am only 30 this year. Having spoken to many retirees, they will tell you that retirement planning is more of an exercise of managing realities.

Realities are, if you do not have enough, do not overspend or you risk your money running out before you and eventually becoming a burden to your kids.

Realities are, health will be a major concern. On top of proper insurance, having a huge buffer in place to cope with illnesses and rising medical costs will be important.

Realities are, your kids may still require your help financially even when they are an adult.

​Realities are, if you decide to retire in your 50s or 60s, you stand a very slim chance of rejoining the work force if you need to.

​Realities are, if you lose a large chunk of your retirement portfolio, you ​might not have additional income anymore to add back into the money lost.

Photo Credit: Daniel Seidel

None of them mentioned anything about traveling annually or firing their boss. Actually, most of them decide to carry on working as a means to deal with boredom!

Quick Word on CPF

Throughout this article, there is no reference to retirement planning on CPF or CPF Life.

We have NOT forgotten about this major national social security scheme!

However, for brevity and as a starting point in retirement planning, ​you should first plan out a ​retirement lifestyle grounded in reality.

Then source of funding this retirement lifestyle can be determined.

Another reason why CPF should be approached with caution is due to it's frequent changes in regulations.

I still have 25 years to be able to withdraw a single cent from CPF, a lot can happen in that time that changes this. 

CPF payouts work as a supplement to my retirement income rather than the main source of it.

To our readers, we are writing an article on CPF and retirement, so stay tuned!​

Conclusions and our ​Retirement Calculator

The above is a brief, simplified version of steps to take for retirement planning.

​It is important to understand that ​not everyone's retirement lifestyle ​will ​be jet-setting, fine-dining. And that is okay. Most important is to be comfortable in your retirement.

Start planning your retirement at the right place and it will be easier to understand and achieve.

​This is part of our on-going series on retirement planning, you can read the previous articles here:

Start Your Retirement Planning at 40 & Forget About F.I.R.E.

Our retirement calculator:

To find out how you are doing, we have included a progress checker, do click here to download the spreadsheet.

The idea is to update this every year to see if you are increasing your retirement portfolio amount​.

​​After you have open the link, click the "download" button to download the spreadsheet for your own use.

To contact me, email to josh.tan@promiseland.com.sg 
or click on the WhatsApp button below

Click on WhatsApp button above or reach me on this page for comprehensive insurance planning 

Last updated on April 16th, 2020 at 05:18 pm

The Astute Parent

A parent who has a sharp acumen on sieving through 'alien' financial jargon to dish out bite size financial tips from a parent's perspective.

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