6 retirement planning mistakes to avoid

6 Retirement Planning Common Mistakes

1. Starting to save when it's too late

Amidst the other ongoing financial commitments, you might have in your 30s such as mortgages, car loans, building a family, it seems impossible to put aside an extra few hundred dollars per month for your retirement fund. But it all comes down to good budgeting and having a financial plan. In fact, you should consider saving money for retirement as part of your entire work life, just like paying taxes.

The average life expectancy Singaporeans is 83¹, while the retirement age in Singapore is 63². Hence one can expect to spend quite a significant number of years in retirement and it is important to ensure that you have enough funds to do so. When in doubt, check in with a Financial Consultant that can help you figure out how to build your retirement portfolio.

2. Underestimating the retirement amount you need

When you are not drawing a regular income, your financial situation becomes very different. During your retirement years, you are likely to be living entirely on your savings and CPF retirement fund and they are, unfortunately, finite. Also, not forgetting the effects of inflation which will decrease the value of a dollar over time.

3. Putting all your retirement savings in the bank

When it comes to saving money, most will think of putting money into a regular savings account at the bank. After all, that's where you’ll have easy access to cash. Additionally, you get paid a minimal interest as well.

While a deposit account may be practical for everyday transaction purposes, your money might be slowly losing its purchasing power as the effects of inflation overpower the interest rate you are getting.

Consider insurance endowment plan which is a hybrid of a life insurance policy and a savings plan³. For example, get 100% of your capital return, upon policy maturity⁴ with Manulife GrowSecure and be covered⁵ against death and terminal illness.

4. Neglecting protection

When we talk about retirement planning, an overwhelming amount of attention is put on saving enough money. Many neglect the fact that having a good financial protection is also part of smart retirement planning.

Singaporeans’ average life expectancy is 831 and according to statistics⁶, Singaporeans’ healthy life expectancy (HALE), which is the average number of years that a person is expected to live in good health, is 73.9 years. Therefore, there is an average of 10 years which could be spent in ill-health, and it may also coincide with our retirement years, causing us to be unable to enjoy life as we hoped to, and causing a strain on our finances as well. Therefore, an insurance plan that can protect against an increased likelihood of medical and care expenses is of utmost importance.

You can consider getting a retirement insurance savings plan that will not only give you regular payouts, but also cover you financially in the event of life’s uncertainties. For example, RetireReady Plus (III) offers you the option to receive Guaranteed Monthly Income⁷ for life, or over choice of 5⁸, 10, 15 or 20 years. Plus with loss of independence income benefit^9,10, you receive up to an additional 100%⁹ of your Guaranteed Monthly Income⁷ depending on the severity. 

5. Fear of investing

Fear of investing is normal as all investments come with some form of risk. However, that does not mean you should avoid it completely as the loss of spending power through inflation may happen if you hold too much cash over the long term¹¹.

Instead, investing when you are younger allows you to take more risk and may earn higher potential returns for your future use. As you move nearer towards retirement age, you may not want to risk your retirement savings in risky assets since you'd have more reliance on the funds. Another benefit of investing early is that you will be able to allow the process of compounding to work to your advantage¹².

For those who are more risk-adverse, you can also consider investment-linked policies (ILPs) which combines life insurance and investment components.

For example, Manulife InvestReady (III) is a whole-life regular-premium investment-linked plan that offers access to a diversified suite of funds – including dividend-paying funds for a stream of potential income.

6. Not reviewing your retirement plan regularly

Our financial situation and life circumstances change all the time, which is why it is important to review our retirement plan once a year. Reviewing your portfolio include, balancing your portfolio to keep up with market changes and ensuring you are on track in meeting your retirement goals. Regular financial review will help to keep you assured of your future and keep you both physically and emotionally at ease.

Footnotes:

1. https://www.singstat.gov.sg/find-data/search-by-theme/population/death-and-life-expectancy/latest-data
2. https://www.mom.gov.sg/-/media/mom/documents/press-releases/2021/1101-rraa---twg-ow-infographic.pdf
3. https://www.dbs.com.sg/personal/articles/nav/protection/endowment-plans-types-features?pid=sg-dbs-pweb-nav-featured-protection-accordion-others-endowment-plans-to-boost-savings
4. Not applicable to policies that have been altered.
5. Please refer to the Product Summary and Policy Contract for more details.
6. https://www.moh.gov.sg/news-highlights/details/global-burden-of-disease-2019-study-findings/
7. The Guaranteed Monthly Income (GMI), less any policy debt, will start one month after the policy anniversary immediately after the life insured reaches the selected retirement age and to the end of his/her selected income payout period.
8. Not applicable to policies with single premium and 5 years premium payment term.
9. If the life insured is not able to perform any 2 out of 6 Activities of Daily Living, the Loss of Independence Income Benefit payable is equivalent to 50% of the GMI, capped at a maximum of S$2,000 per month per policy. If the life insured is not able to perform at least 3 out of 6 Activities of Daily Living or diagnosed with Irreversible Loss of Speech, Deafness (Irreversible Loss of Hearing) or Major Head Trauma, the Loss of Independence Income Benefit payable is equivalent to 100% of the GMI, capped at a maximum of S$4,000 per month per policy.
10. Please refer to Product Summary for more details on the Loss of Independence conditions.
11. https://www.dbs.com/digibank/in/articles/invest/fear-investing
12. https://www.investopedia.com/articles/younginvestors/09/college_finance.asp#:~:text=By%20investing%20consistently%20when%20you,and%20as%20share%20values%20appreciate

Important Notes

These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid.

Your investments are subject to investment risks, and you may lose the principal amount invested. The performance of the lnvestReady Fund(s) is not guaranteed. The unit prices and any income accruing to it may fall as well as rise. The Fund Managers shall have the absolute discretion to determine whether a distribution is to be made in respect of the lnvestReady Fund(s) as well as the rate and frequency of distributions to be made. The intention of the Fund Managers to make the distribution and the distribution yield for the lnvestReady Fund(s) is not guaranteed, and the Fund Managers may review the distribution policy depending on prevailing market conditions. Distributions may be made out of income, net capital gains and/or capital. Past distribution yields and payments are not necessarily indicative of future distribution yields and payments. Any payment of distributions by the lnvestReady Fund(s) may result in an immediate decrease in the net asset value per unit. You should read the prospectus and the product highlights sheet and seek financial advice before deciding whether to purchase units in the lnvestReady Fund(s). A copy of the prospectus and the product highlights sheet can be obtained from a Manulife Financial Consultant or our Appointed Distributors.

This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.

This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).

We recommend that you seek advice from a Manulife Financial Consultant or our Appointed Distributors, or visit any DBS/POSB Branch before making a commitment to purchase a policy.

Information is correct as at 26 September 2022.