Most people do not think of their retiring needs until their age are closer to retirement age. For a Singapore citizen or Singapore permanent resident, in accordance with current Retirement and Re-employment Act ( RRA ), the minimum retirement age is 62 years.
Most of us know that retirement is something we must actively plan and save towards to. Why are we not doing it? If we start young, saving a large retirement nest is possible and make easier with compounding interests in addition to regular savings and investment returns.
Some was quoted as saying that “the key reason for this is that the importance of Retirement Planning is not clearly understood and felt yet”.
Research findings by renowned researchers like Daniel Kahneman, Israeli-American psychologist, a Nobel laureate for Economics, behavioural finance guru Richard Thaler and expert Shlomo Benartzi may provide some answers to the above observation.
Answer a question like “You’re told you are due a tax refund and you must make a choice as to how you would like to receive it – SGD 1,000 now or SGD 1,100 in 18 months’ time” will give us a clue. Delaying pleasure in favour of future benefits is not easy. Most people choose the earlier. They are tripping themselves over to a host of behavioural foibles.
- Wishful thinking The formation of beliefs and making decisions according to what might be pleasing to imagine instead of by appealing to evidence, rationality, or reality. It is a product of resolving conflicts between belief and desire , a quick cup of latte, a moment of pleasure and “Why bothers, it’s a small sum” attitude. The missed opportunity to save a few dollars each time, will adds up to a thousand dollars or more each year.
- Thinking of our future self as a different person Brain scan research shows that when people think about their future self, it results in neural activation patterns that are similar to the activation patterns associated with thinking about a different person. In other words, we are lacking that emotional connection of present self with our future self.
It’s hardly surprising that many people don’t bother saving money for their later years.
Most financial writers and planners will tell people about retirement planning to do the following:-
- Cut down on discretionary expenses, using Time-tested budgeting methods — Prioritizing, Tracking Expenses, and Cutting Spending.
- Maintain current lifestyle and monthly & yearly expenses even with increasing employment incomes, from salary increase through job promotion /and yearly increments. The outcome will generate an increasing net income and savings for investments throughout their working years.
- To start early in retirement planning or never too late even if you’re near to retirement age. The strategy is to put aside a portion of your money to a separate account for investing every month, without fail. Then, spend whatever is left. This way, you’ll be forced to save, and manage your spend more wisely.
They always add this piece of advice, “Retirement planning not just helps you maintain the desired lifestyle during your old age, it also offers financial security to you and your dependents”.
Sound good pieces of advice, right?
In reality, there are things that could jeopardise one’s retirement planning, such as being burdened with a high medical expense due to self / family member’s illness/accident or a loss of regular income due to job redundancy. Also, if the problem is associated with not being able to reduced spend on fixed costs, like Housing, health care, and education costs, for whatever reasons, what can a person do?
Serious questions, no easy answers.
The holistic approach is to integrate the solutions such that each problem is tackled individually with a solution but as a whole no stone is left untouched unless there is a resolution already in place.
The above advices on controlling discretionary expenses are still valid.
It is more manageable and cheaper to buyng accident, hospital or critical illness term insurances to cover an unforseen high medical bill to oneself or loved ones.
Buy essential and necessary stuffs in bulks or during promotion sales to lower the fixed cost spend.
and so on.
You have to select the best among the choices that appropriate to your situation.
We must take charge of our own wellbeing and be responsible for it. The choices you make each day, will determine how well you live in your retirement years.
If not now, when?
If not this, what?
If not you, who?
Hope the above is useful in your retirement planning. I wish you well!
Bye from now.
Reuben Ong
