- Maximise employee benefits.
- Pay off debt.
- Assess your retirement spending plan.
- Maximise your CPF
- Consider an annuity
After devoting decades to your career, nothing is as exciting as the prospect of enjoying your achievements and what you have saved up for. But for some, the idea of losing a regular monthly income is a cause of many sleepless nights. Whatever the case, endeavour to plan your retirement carefully and cover the bases.
Don’t wait till it’s too late. Plan your retirement well with these 5 financial steps
1. Maximise employee benefits.
Set an appointment with your human resources department to find out what benefits are available to you. Anything that you can utilise, perhaps dental benefits, will bring you savings for the future.
2. Pay off debt. You don’t want recurring debts eating away your retirement fund.
If you have a long list, pay off the loan with a higher interest first.
Consider increasing your monthly repayment or paying in a lump sum. Simultaneously, talk to your lender to find out if you can restructure the loan.
For your credit cards, apply for an interest-free balance transfer loan from a bank. A balance transfer is, in essence, paying your old credit card bills with a new one that has a zero-interest rate for a period of 3 to 12 months. With this, you are no longer burdened with 19 to 26% interest per annum on your credit card.
A caution: interest rates are as high as credit cards once your interest-free period is over. It’s still important to pay off your loan on time and if possible, pay it in full during your interest-free period.
3. Assess your retirement spending plan.
The best way to wash away your worries over a loss of income is to take a hard look at your projected budget.
- List down all your guaranteed sources of income (pension and if any, rental income, and investments).
- Next, gather the past 6 to 12 months of your bills and tax payments.
- Using these documents, list down your fixed expenses across a 12-month spreadsheet. Fixed expenses consist of:
- Necessary living expenses: housing, food, utilities, transportation, clothing, healthcare
- Monthly dues: subscriptions, memberships, and any non-essential monthly or any recurring bills
- Periodic obligations: insurance premiums, property tax, home maintenance and repairs, emergency fund. Calculate the costs on a monthly basis.
- Assess your healthcare costs. Once you leave your job, you have to cover insurance premiums by yourself. Complement your Medisave with private insurance policies. As you shop for the best deal, remember to ask about coverage for eye care/vision, hearing, and dental plans.
- Add in the fun stuff, such as your hobbies and entertainment. How much will you spend for these per month?
- Determine the lifestyle you want and how you will be spending your time. If you wish to travel and devote more time abroad, how much would you need monthly to do so?
- Analyse your expenses.
- Sum up your fixed expenses.
- Now sum up your total expenses.
- Get the ratio of your fixed expenses vis-a-vis the total expenses.
How much of your retirement income will go toward fixed expenses? Is it time to consider downsizing and scaling down on the lifestyle you want? Can you still lower your fixed expenses to make way for the fun stuff? How can you add more to your monthly income?
4. Maximise your CPF
Consider building your CPF savings. Your spouse could also top up your account provided they have excess over the Basic Retirement Sum.
If still possible, consider transferring your CPF Ordinary Account into your Special Account (SA). Money inside your SA gives a minimum interest of 4% per year guaranteed.
5. Consider an annuity
An annuity is a type of life insurance policy which provides the insured with a regular monthly income payable upon retirement until their time of death. Annuities can be purchased using cash or through the CPF Minimum Sum Scheme.
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