The goal of a comfortable retirement is challenging for many. Even those that plan ahead can fall victim to a number of pitfalls. To help consumers achieve their retirement goals, we’ve identified some of these mistakes and provided tips on how to avoid them.
Underestimating Retirement Expenses
Perhaps the most important factor in assessing the adequacy of one’s retirement savings is the estimated financial costs of retirement. One common mistake is to underestimate how much money one will require after retiring.
There are a number of reasons that people commonly make this mistake. First of all, individuals tend to ignore the impact of inflation on their expenses. Additionally, individuals may underestimate how much medical attention they will require later in life. Finally, many individuals have a hard time predicting how much money they will spend once they are not working. For example, many will have more free time for vacations than before their retirement. To avoid a financial crisis later in life, it is important to recognise the tendency to underestimate retirement expenses and plan a more appropriate retirement savings goal.
Related: How To Maximise Credit Card Rewards And Beat Inflation
Too Little Too Late
Another very common mistake is to put off retirement savings until later in life.
The line chart below shows illustrates how contributing to your retirement savings early is crucial. For example, in scenario A, an individual who saves S$500 per month from age 25 to 65 will accumulate approximately S$724,799 assuming an annual return of 5%. Meanwhile, in scenario B, an individual who saves S$750 per month starting at age 35 will have S$597,950 in retirement savings with the same annual return. Finally, in scenario C the individual that starts saving S$1,500 each month at age 45 will have S$595,187 at age 65, again assuming a 5% annual return.
This highlights the power of making regular contributions and of compounding interest over a longer period of time.
Related: How to Plan Your Finances for Short, Medium and Long Term Goals
Letting Personal Debts Grow out of Control
Accruing too much debt is another obstacle to retirement.
Personal debts are often useful (e.g. student loans, home loans) and sometimes unavoidable. However, left unchecked, these debts can significantly eat into your retirement savings. For example, while credit cards offer a great opportunity to accumulate rewards, if they are used unwisely they can quickly rack up debt, given that unpaid monthly balances face interest rates of 25-30% p.a. Therefore, it is important to pay down existing debts, especially those that come with high interest rates.
Related: How To Become Debt-Free in Singapore
Balance transfer and debt consolidation loans are two of the best options for borrowers in Singapore.
Balance transfer loans charge relatively high interest rates (20-30% p.a.), but offer interest-free periods of up to 12 months. This works well for borrowers that would be able to repay their entire debt within a short period of time.
Those that require more time to repay their personal debts should consider debt consolidation loans. These loans allow borrowers to consolidate a variety of debts to one loan, typically at a lower interest rate (7-9%p.a.) than many other forms of debt.
Related: 3 Tips on How to Get Rid of Your Piling Personal Debt and Credit Card Balance
Ignoring Investing Fees
Finally, when it comes to investing for your retirement, it is important to be aware of the fees associated with your investments.
Financial advisors tend to charge management fees of at least 1% of total account balances, often with a minimum fee of S$500 to S$1,000. While this may not seem like a lot, over the course of your working years, these fees will add up to a significant amount of money.
Meanwhile, there are less expensive options, such as investing on your own through online brokerages, that are able to charge lower management fees (0.3-0.8%) as you actively manage your own investment portfolio. Those that are well-versed in investing strategies can consider investing on their own in stocks, bonds or even low-cost ETFs.
Examples of Low Cost Online Brokerages
Moomoo
moomoo by FUTU is a great brokerage for investors who are looking for a platform that allows them to get the most bang for their buck.
Pros
- Lowest commission fees in Singapore
- Lifetime $0 commission for US stocks
- No minimum income requirement
Cons
- Commission free trades only apply to US stocks, does not apply to SG or HK stocks
- High margin rates
Tiger Brokers
Tiger Brokers is one of the cheapest online brokers on the market.
Pros
- Low cost trading fees
- Cheap trades on the HKSE
- Easy to use platform
Cons
- Limited market access
Key Takeaways
Depending on your circumstances, there may be a variety of factors that would prevent you from a comfortable retirement. However, some of these hurdles are avoidable with proper planning. This list presents a list of several key mistakes to avoid as you plan for your future retirement.
Read More:
- Simple Ways To Grow Your CPF Interest
- 5 Personal Finance Habits To Build Now To Retire Rich
- How to Optimise Your CPF Savings Now That The Special Account (SA) Is Closing
- How Can You Protect Your Wealth As You Near Retirement?
- An Essential Guide to Calculating Your CPF LIFE Payouts
Cover image source: Unsplash
This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation or endorsement by AMTD PolicyPal Group in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
Under AMTD Digital, AMTD PolicyPal Group consists of PolicyPal Pte. Ltd., Baoxianbaobao Pte. Ltd., PolicyPal Tech Pte. Ltd., and ValueChampion.