WE have been taught since young that retirement life means we no longer having to work and should start enjoying our lives and realising dreams that we have planned but have yet to fulfill.
Many people are aware about the needs of having a retirement fund but they do not spend enough time to ponder about how much they actually need to fund their retirement.
Putting a figure for retirement can be difficult especially when they need to put a number to their expected lifespan when calculating the retirement fund.
Some people are sceptical to talk about putting an end date for themselves. They would rather just keep working hard and save money than facing the reality of the actual amount that they need for retirement.
If we don’t have proper retirement planning, we might have to give in to the shortfall by having to downgrade our lifestyle when our retirement fund is exhausted faster than we expect.
Hence, we have to continue working after retirement if there is no financial support from our family members.
Setting retirement goals and working towards the goals is for you to save and grow your money to an amount that will allow you to maintain your current style or your desired lifestyle even after you stop working.
It also means that, if you want to continue to work past the retirement age, it is because you want to, not because you must.
So, how do we know how much we need for our retirement?
Firstly, ask what is your desired retirement lifestyle? You may need to sit down to write it down or discuss with your life partner on the types of retirement life you want to have because your aspirations and dreams will lead to how much you need for your retirement.
Next, you need to identify the expenses that you can avoid and expenses that you may need to incur during your golden years. Besides focusing on your personal expenses, you may want to put healthcare cost and household maintenance cost into considerations.
Always factor in inflation
Set up an estimated budget for your annual retirement expenses and to work out the total expenses that you need for retirement life. For example, if you plan that your expected lifespan is 85 years old, the total retirement years from age 55 until age 85 is 30 years.
This figure has not factored the inflation rate yet. At least you know how much retirement cost you need and start working on how to achieve the figure.
The fundamental of executing a proper retirement planning is to have savings and investment. Let your money work for you by leveraging the compounding interest.
A healthy cash flow will help you to cultivate good saving and investment habits. I will share more tips about savings and investment for retirement in the next article.
In a nutshell, it is never too late to start working on your retirement planning. Do not live your retirement planning by chance but by choice. Don’t just make do with what you have but make an effort for what you want. – June 5, 2022
Vivian Chow, CFP is a certified member of the Financial Planning Association of Malaysia (FPAM) and also a licensed financial planner with FA Advisory Sdn Bhd.