Tips to Consider When Building a Retirement Fund
Updated: May 9, 2022
Wondering how to plan for retirement?
There's CPF Life, of course, but most of us know that we realistically need to supplement it.
That's why building a retirement fund should now be a top priority.
However, most people tend to put it on the back burner, often because they're not sure how to start on it. By the time most of them do begin, they start very late.
Fortunately for you, we have a list of tips today that should help you figure out your retirement plans. The sooner you get started on these, the better!
It's never too late, yet never too early.
This means that it's best to start building your retirement fund as soon as possible.
Whether it's through a retirement investment plan or a savings account, the power of compound interest will serve you better the sooner you begin.
That being said, you also shouldn't despair if you're starting out fairly late here. It's never too late to invest in your future.
It just means the situation isn't optimal, but it's still feasible to build up a decent retirement fund even if you only start in your late 30s.
So, when people ask when to start planning for retirement, we say ASAP. However, we also believe that you can never be "too late to do it".
Thus, we still encourage people to do it even if they only get the thought of starting late in their careers.
Automate your savings for retirement.
If saving is part of your retirement plans (and it generally is), you should think about automating your deposits. Most banks offer this service now anyway.
For one thing, it ensures that you can't forget to "make a payment to yourself".
For another, it reduces the likelihood of you diverting that money elsewhere. Taking temptation away is half the battle!
Consider your time horizon.
This refers to the amount of time you have before you reach the age when you'd like to retire.
Having this in mind is critical in how to plan for retirement. That's because it guides your strategy.
Let's say you have a long time horizon left before retirement - 30 years, for example.
In that case, your retirement investment plan can tolerate a fair bit of risk because you have enough time for it to rebound if things go awry.
As such, most of your money should be in stocks, which are high-risk but high-reward.
What if you had a shorter time horizon, though?
In that case, you'd want to put more money in stabler investments that have lower risks as well… Like bonds, mutual funds, etc.
That's because you don't have a lot of time to allocate to recovery if the value of your investments crashes.
Hence, your retirement investment plan will be focused on preserving capital and lowering risk.
Calculate the post-tax returns in your planning.
It's advisable to work out your retirement investment plan in detail.
But don't forget that your calculations have to factor in taxes.
Most investments are taxed, so the returns on your retirement investments may well be smaller than you're planning for. That may throw off your plans!
A good solution here is to do calculations using the post-tax rate of return instead of the crude rate of return. That should make your figures more realistic and help you plan better.
Consult a financial advisor who specialises in retirement planning.
Finally, give thought to asking a financial professional for help.
The truth is that most of us have neither the time nor the ability to act as the stewards of our own retirement funds.
As such, there's no shame in either engaging someone else to manage them for us or to give us critical advice on how we grow our nest eggs.
To that end, we can help you.
Get in touch with us and we'll link you to financial advisors who have built their careers on helping people build retirement funds.
That way, you can stop worrying about how best to provide for your own future - since you'll have expert help in your corner!