Retirement is the time in your life where you can finally put aside your responsibilities and focus on what you like to do. It is a time for you to relax and enjoy the fruits of your labour for almost 70% of your lifetime. If you are thinking about retirement, here are three things you need to do right now to help you build a retirement portfolio.
Read also: Is Your Retirement Nest Egg Really Enough?
A common mistake that people tend to make with regards to retirement planning is skipping portfolio consultation. Imagine retirement as a lifelong journey that you are working towards. Without first understanding your current position in this journey, how can you decide what are the next steps to take?
Approaches to portfolio consultation
There are a few ways you can go about portfolio consultation.
Firstly, you can engage a freelance/independent portfolio consultant. He/she will assess your current financial health objectively. However, engaging a freelance/independent portfolio consultant will come with a cost (S$500 for a full portfolio consultation session).
Secondly, you can approach your financial advisor whom you bought your insurance with. If you do not have one, you can either ask your friends for a recommendation or email any life insurers and request for one. The only caveat that comes with portfolio consultation with a financial advisor is the potential sales pitch. If your financial advisor identifies any gap in your current portfolio, he/she will be looking to convince you to close a deal.
The third option is to do-it-yourself. If you are someone who wants to take control of your financial well-being, then DIY is your best approach.
How to do a portfolio evaluation yourself?
The whole idea of portfolio evaluation is to gauge your current financial status. Thus, the key output you want is to know from portfolio evaluation is: (1) How much spare cash you have to commit into your retirement portfolio; and (2) The kind of financial assets you need to start investing in.
To do a portfolio evaluatioin DIY, it only takes four simple steps.
- The first step is to dig out all the financial related documents you have, be it insurance policy, investments, bank passbook or house deeds.
- Next, assess what is there in your current retirement portfolio (if any).
- Then, if you have a retirement portfolio version 1.0, identify if there are any gaps within your current retirement portfolio. As a rule of thumb, you should have at least one life insurance and one health insurance in your retirement portfolio.
- Lastly, do an assessment on how much spare cash you have that can be used to build your retirement portfolio version 2.0.
2. Goal setting: What do you want in your retirement life?
If you are looking to retire comfortably, there are two things that you must do: Assess your current financial situation and set goals. Assuming that you have already completed your retirement portfolio assessment, the next step is to set a retirement target for yourself. There are three guiding questions you should ask yourself to help you set a retirement goal.
1. What kind of retirement lifestyle are you looking for?
Are you looking for a back-to-basics lifestyle where you and your spouse will live by the riverside, grow your own food and enjoy the peace of nature? Or do you want to travel once every month to experience how life is like in another city? Or are you the kind who will continue working to keep yourself active and energized? Each of these lifestyles indicate a different level of income needs during your retirement life, which will impact how much you need to save towards retirement.
2. Where do you want to retire?
Apart from the lifestyle, you also need to consider the location of your retirement. Retiring in Singapore or Scandinavia will cost much more than retiring on the beach in Bali or Thailand. Retirement in the suburb areas will also be a cost-effective choice. But you must be the sort of person that enjoys the peace and silence that nature offers. If you prefer the bustling city life, then you need to be prepared to have a fatter retirement portfolio.
3. When do you want to retire?
The timing of your retirement will determine how much time you have to build your retirement portfolio. If you want to retire in 20 years or less, you will need to invest aggressively in assets that generate higher rate of return. Otherwise, you can take things slowly and invest in less risky assets with a stable path towards retirement.
3. Learning what assets fit your goal
Once you have assessed your current financial situation and set a retirement goal for yourself, you need to start exploring ways to help you achieve your goal.
One important aspect of building a retirement portfolio is investing. As you know, the effects of inflation will dwindle the value of your savings. Thus, you cannot simply save towards retirement. Even if you have saved the dollar value that you thought you needed initially, you might end up falling short of your retirement goal because of inflation. You need to start picking up the art of investing to learn about stocks, bonds, property investing to complement your savings discipline and build your dream retirement portfolio.
Guides to help you achieve your dream retirement
Confident of achieving your dream retirement? If not, check out some of our guides to help you learn more about investing and achieve your dream retirement starting today:
- Beginner’s Guide To Investing Strategies
- How to Buy Your First Singapore Savings Bonds in 4 Easy Steps
- Investing with Your CPF Savings: A Quick Guide to Get Started
- Regular Savings Plan: Who Says Saving Has To Be In Your Savings Account?
- Beginner’s Guide: 3 Things You Need to Set up Before You Can Start Investing
- Beginner’s Guide To Choosing The Best Brokerage Account