5 retirement planning mistakes you need to avoid

More than half of Singaporeans worry that once they retire, they can't afford an adequate standard of living.

When it comes to retirement, slightly more than half of Singaporeans surveyed by Aviva in its 2014 Consumer Attitudes Survey say they worry that once they retire, they can’t afford an adequate standard of living. This could be because close to half also said they have not started to plan for retirement yet.

And as that saying often attributed to Benjamin Franklin goes, "If you fail to plan, you are planning to fail!"

If you're one of those who are also worried about your life after retirement, take a look at these five mistakes that you should not make when it comes to planning your finances. 

1.  Not starting early

According to the survey, 54 per cent say they are not saving for retirement yet because they are focusing on other priorities or concentrating on clearing off existing debts.

However, by not creating and saving money into a retirement fund early on, you are losing out on the benefits of compound interest. Compound interest is essentially the interest that your principal amount earns. However, what makes this magical is when you add in the time factor.

Take for example a 20-year-old girl, Adeline, who decides to save $1,000 in an account that will earn her 3.05 per cent interest per year. If she does not touch that account for 42 years, her $1,000 will grow to $3,531.96.

However, if Robert decides to start saving $1,000 in that same savings account only when he turns 40, he will have only $1,936.67 after 22 years.

So don't waste time. No matter how old you are, start socking away money – and take advantage of the magic of compound interest – now. 

2.  Not knowing how much is needed

Some people just guess at the amount they actually need in order to retire. This could work both ways: If your estimated amount is too little, you could be enjoying now and suffering later; or scrimping and saving too much now only to realise that you could actually live on much less when you've retired.

While the second scenario is better to imagine and could give you peace of mind now, there is also a way to strike a balance between the two. Instead of just guesstimating, you can make use of online financial calculators such as Aviva's Retirement Planner to help you gauge how much you may actually need.

For a more accurate calculation, sit down with a financial adviser representative who can help you do a proper analysis of your financial needs and help you determine a goal to work towards. This way, you will know better how much you need, how many years you would need that amount to last you, as well as how inflation will affect your nest egg. 

3.  Not diversifying

With the myriad of options out there, it is best to avoid putting all your eggs in one basket. This way, you can hedge your bets to avoid losing all your money in case something goes terribly wrong in one investment.

There are different ways to diversify: One of them is termed asset diversification, which means dividing your investments across different types of assets such as stocks, bonds, cash, and more. You can also diversify further within assets as well. For instance, you can spread your money out across different stocks within your stock holdings. 

4.  Not regularly reviewing your retirement plan

While you may have already planned for retirement earlier on, do not neglect to review this plan regularly. It is inevitable that your lifestyle and needs will change over the years so it is important to bear in mind that your financial plan will need adjustments as well.

Check that your asset allocation for your retirement savings is still meeting your financial objectives and risk appetite. Likewise, if there are any market changes, you may need to shift some assets around to rebalance your investment portfolio.

It is also important to update your insurance coverage to reflect any changes in income or lifestyle, or when you have people who are financially dependent on you. 

5.  Not factoring in cost of medical expenses or long-term care

Of the respondents to Aviva's 2014 Consumer Attitudes Survey, 58 per cent of Singaporeans say the top concern when it comes to their finances is 'serious illness'.

However, many still make the mistake of not factoring in this cost when they plan for retirement. Some also forget to factor in the cost of their health insurance premiums into their financial planning.

Long-term care will also be needed if one encounters an accident or illness that leaves one unable to take care of oneself. This could entail hiring a domestic helper or a professional nurse, or staying in a nursing home or a hospice. As this kind of care is costly and will be over a prolonged period of time, one must make provisions for this – just in case – when it comes to planning finances. 

So if you want to ensure a rosy future ahead of you, avoid these mistakes and start planning now. With longer life spans, rising inflation, and low interest rates, it may seem daunting to reach your ideal retirement goal.

However, if you plan and act now, there is still hope. Sit down with a financial adviser representative to help map out a  financial plan that suits your needs. While there's no guarantee to success, you may have a better chance at hitting your goal with some professional help. 

This article was first published on AsiaOne on Sep 24, 2014
Source: AsiaOne © Singapore Press Holdings Limited. Reproduced with permission

Avoid these retirement pitfalls and speak to a professional

Leave us your details and we'll be in touch.

Thank you for your submission. 

Please enable javascript on your internet browser in order to use this form

By clicking "Start planning with us", you consent to Aviva and Aviva related companies contacting you to provide you with information concerning Aviva and Aviva related companies' products and services. You also consent to Aviva using, disclosing or transferring your personal data in this form to Aviva related companies, third party providers or intermediaries, whether located in Singapore or elsewhere, for the above purposes and for research, audit, regulatory and compliance purposes.

For details of Aviva's Data Protection Policy, please refer to https://www.aviva.com.sg/en/pdpa/. To withdraw your consent at any time, please call Aviva at +65 6827 7988.

Receive monthly updates

Subscribe to Money Banter to receive useful tips and guides on insurance and offers on products and services.

Thank you for your submission. 

Please enable javascript on your internet browser in order to use this form

By clicking “Submit”, you consent to Aviva and Aviva related companies contacting you to provide you with information concerning Aviva and Aviva related companies’ products and services and special offers which may be of interest to you. For details of Aviva’s Data Protection Policy, please refer to https://www.aviva.com.sg/en/pdpa/. To withdraw your consent at any time, please call Aviva at +65 6827 7988. 

Important Information

Money Banter (the "Portal") is for general information only and does not take into account the specific investment objectives, financial situation, health condition and needs of any particular person. The contents of this Portal are intended merely for educational purposes and should not be construed as the giving of advice or the making of a recommendation. Nothing contained in this Portal shall constitute a distribution, an offer to sell or the solicitation of an offer to buy. We recommend that you discuss any specific matters with your financial adviser representative or legal adviser before making any decision. You are responsible for your own medical care, treatment and oversight, and any health-related content on this Portal, including, text, treatments, dosages, outcomes, charts, profiles, graphics, images, messages and forum postings are strictly information to promote general understanding of certain health topics only, do not constitute the providing of medical advice, and should not be relied upon as a substitute for professional medical advice, diagnosis or treatment. Always seek advice from a physician or other qualified health care provider regarding your medical condition or treatment and before undertaking a new health care regimen. This Portal may include information sourced from third parties and links to third party websites. We are not responsible for the accuracy or completeness of, and do not recommend or endorse such information or third party websites nor recommend or endorse any specific tests, physicians, products, procedures, opinions or other information. While we have taken reasonable care to ensure that the information on this Portal has been obtained from reliable sources and is correct at time of publishing, information may become outdated and opinions may change. Except to the extent prohibited by any law, we are not liable for any loss (including direct, indirect and consequential loss, loss of profits, loss or corruption of data or economic loss of any kind) that may result from the access or use of or reliance on the information on this Portal.  | Terms of Use | Privacy Policy

Protected up to specified limits by SDIC. This advertisement has not been reviewed by the Monetary Authority of Singapore.