There are some common misconceptions about how and when one should plan for retirement. It would help if you started planning for retirement at mid-career or earlier.

 

In this article, we'll discuss some of the common mistakes people make and why you should start planning your retirement as soon as you start working.

 

If you don't plan your finances and are planning to retire early, you may miss out on a lot. Young working adults need to understand that retirement planning isn't just about waiting till you have a sizeable amount to invest for returns. In fact, your duties and financial commitments may change as you get older. 

 

Your expenses would generally increase when you start a family or have elderly parents to take care of. These costs may affect how much you can save for retirement. If you have yet to plan your finances and are planning to retire early, you may find yourself having lesser funds for retirement. You are setting aside money to invest in your retirement by planning ahead. 

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Common Myths about Retirement

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Myth 1: I have to earn more before I can have the surplus to save and invest

 

You may be looking forward to this bonus or promotion, thinking it will free up excess money for your savings and investments. As the matter of fact is, the more you earn, the less likely you will change your spending habits.

 

Bonuses are generally spent on big-ticket items such as vacations, as a form of self-reward for your hard work. Furthermore, when your salary goes up, your lifestyle is likely to change as well. You might find yourself frequenting expensive restaurants, indulging in shopping or even purchasing cars. By planning ahead, you set aside a fixed sum of money for saving, investing, and spending. This reduces the chance of you spending beyond your ability.

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Myth 2: Retirement is over 30-40 years away, so why start now?

 

The power of compounding means you can reach your retirement goals with less capital if you start early. Here's a simple illustration: if you're 25 and plan to retire by age 65, you'll be able to multiply your initial investment over 40 years.

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If you invest $10,000 today and your annual return is 3.5%, by age 65, you will have $39,592.60. This is 3.95 times your initial investment and you can achieve this decent return through an investment that is compounded yearly.

 

As you can see, the key to achieving your retirement goals is to start planning early. Even if you are rich with assets (ie. real estate), diversifying the asset class would allow you to protect your current wealth. You could try not to put all your eggs in one basket by diversifying.

 

Some questions you will need to ask yourself when planning for retirement are:

• How much is needed for your retirement to support the kind of life you want?

• How do you achieve goals and goals through investment?

• How will inflation affect your retirement plans?

• How do you protect your property before retirement or during retirement?

 

In summary, having an all-around retirement plan may help you invest or save as much as possible, and also protect your existing property and achieve pension goals.

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By Desmond Lin

Representing Prudential Assurance Company Singapore (Pte) Ltd Reg. No. 199002477Z

 

 

Disclaimer:

• Please refer to the list of disclaimers at: https://www.prudential.com.sg/FC-info

• Approval code: 352/11Apr22

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