Do you look to your golden years with a sense of joy or fear? What kind of retirement do you see for yourself?

BY: Robin Ann Rheaume

Many people reach retirement age without enough money to maintain a comfortable lifestyle. The situation is often worse for women who, on average, have much less in the way of retirement savings. So what are the pitfalls? Why do so many people in good financial health find themselves poor in old age?

1. Starting too late
Most people don’t start to think about retirement until they begin feeling their bones creak a bit. But in order to accumulate enough savings and investments to enjoy life for 20 to 30 years after retirement, you should really start planning 20 to 30 years before retirement! If you only start at age 45 or 50, you will not have much time to prepare for a retirement at age 55.

2. Relying on CPF
Most people’s CPF is tied up in property. What little is left upon reaching retirement age is often insufficient to meet much more than the most basic of needs. Worse off are the women who count on their husbands’ CPF and find out too late that his withdrawals leave her with little to live on.

3. Interruption of career
Many women leave their jobs on a temporary or permanent basis to take care of their children. But career interruption does not just afflict mothers – it is now increasingly common for men too. Competition from foreign and younger workers is forcing both men and women to either retire early or to find alternative employment before retirement age. A shortened career means less time to save for a long retirement.

4. Health crisis of family member and lack of insurance
When a loved one becomes ill, savings may be quickly depleted in an effort to meet medical costs. Insurance can sometimes relieve this burden. But more often than not, there is either no insurance or the insurance is insufficient.

5. Giving to children
Children are expensive. In addition to years of school fees and other child-rearing expenses, some children continue to require financial support as adults. These days, escalating costs of living have made it increasingly common for young adults just starting out in life to get a helping hand from mom and dad. Both parents are apt to help their adult children in need of financial assistance, though we have seen that women are more likely to do so to the point of threatening their own financial well-being.

6. Exposure to financial risk
From time to time, your investments will perform badly. Most of us can bounce back from these setbacks. But what if all your savings are put into a single investment that fails? What if you find your entire portfolio of investments crashing in value because of a global financial crisis just as you enter retirement? In these scenarios, you may not have the luxury of time to recover your nest egg. Many people are unaware that there are precautions that can be taken in order to protect their savings from these risks.

7. Failure to consider inflation
Of course the safest strategy is to keep your money in cash, in a bank. But inflation tends to outpace the measly interest rates offered by banks. At 2.5 percent annual inflation, the dollar you earn in 2011 will only be worth 61 cents in 2031 when you retire. So, unless you ensure that your savings grow in line with inflation, you are, in effect, losing money.

So, what is the solution?

OK here’s the secret! DON’T TELL ANYONE! Ready?

1. Have a plan.
2. Follow the plan.
 
There you have it! It’s simple really …! OK perhaps it’s easier said than done.

Well here are a few things to keep in mind to help you come up with your retirement plan:

• How much?
Determine your how much money you will need for retirement. Try this little exercise to get you started.

 
• How?
Next, work out how to get to that number. How much must you save each month? What kind of return do you need to earn on your investments?

 
• Expect the unexpected
The plan should include thoughts about insurance, the kids and emergencies.

 
• Hope for the best but plan for the worst
Married women without an independent source of income should also consider how their plans would be affected by their spouse’s premature death or in the event of divorce. AWARE receives many calls from women in their late 40s and 50s who are facing divorce or abandonment without a financial safety net. It is far better to prepare for the worst case and have a cushion if it happens, than to simply hope for the best and find yourself exposed.

 
• Review
Revise your plan regularly to make sure you are on track. And make sure that as you approach retirement age, you gradually move your investments from the relatively “high risk/high return” category to safer investments. This will help to keep your nest egg safe.

Ready to start planning? Yes? Great!

Robin Ann Rheaume is a trainer with AWARE and has worked in investment banking for 20 years. If you need guidance, information or would like the chance to talk to others also starting out on the road to financial health and wealth, consider AWARE’s three-part Financial Awareness & Confidence Training. More info here.

(This article was first published on AWARE and is reprinted with permission.)

 

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