How good is your financial plan - Wealth Management (Part-II)

"Building wealth is a marathon, not a sprint. Discipline is the key ingredient"

This is the 2nd part of the two part blog. In the first part, I covered the aspects of the risk management. We will look into the wealth management aspects in this post. 

We all aspire to retire early, but the reality is most surveys indicate that the majority fall well short of the requirement. We can get away without any risk management plans in place, if we are lucky, but no getting away from the future expenses like Kids education or Retirement. We all have plans in place , but more often than not, it will be one of those plans which would have lost relevance due to inflation within 10 years, leave alone servicing the retirement period of 25-30 years. We lack the same discipline when it comes to a retirement plan compared to paying off EMI for a property.

It's never too early to start planning, be it for Kid's education, Retirement or Enhancing your legacy. Let's look into the aspects that require some discipline so that our retirement life would be peaceful. It's always easier to stretch myself to earn more now or maximize my investment returns with smarter investments at 40 than having to stretch myself beyond 60, just because we haven't saved enough. 

Retirement Planning :

Simple arithmetic says :

Eg - Singapore

Monthly Requirement : $5,000  (@Retirement age)

Duration                      :  25 years 

Expected inflation       : 3% 

investment return        : 5%, 

Corpus Rquired           : $1.17M

India :

Monthly Requirement : Rs 200,000 (@Retirement age) 

Duration                      :  25 years 

Expected inflation       : 7% 

investment return        : 10%, 

Corpus Rquired           : $4.2 Crores

There are huge advantages of starting early and making the money work smarter. Person who starts at 30 years, requires to set $996 and $2,778 per month respectively if your investment returns are 6% and 0%, The same goes up by 80% if you start at 40. Which is easier? Save $1,000, spend time and look to earn investment returns of 6% or increase the savings to $2.800 per month? For more details on the actual amount for different ages and returns, do look here

I believe in focusing on two options for retirement planning. One is steady passive income, like rentals, dividends, annuities which are adjusted to inflation and the second part is corpus. Sometimes, we might have passive income which will be more than adequate, but it may not help in case of any unforeseen major expenses post retirement. It's difficult to have such lump sum corpus, but ideally at least work towards 50-50. So plan for $500K at least in lump sum if your requirement is $1M and the passive income could provide $2,500 per month.

SRS is definitely a compelling option for those who are working in Singapore. For more details do check here

So what are you waiting for? Do the calculation on your needs and act on it immediately. Longer the wait, higher the amount you need to set aside.

Kid's education :

I don't think the concept of saving for kid's education even existed during my studying days. We all used to take a loan for overseas education or even for NIIT fees 20 years ago :), spend the first decade of your career trying to clear off the loans and then think about savings only in late 30s. Times have changed and also the expectations of the kids. Earlier you start planning for the same, lower the amount you need to set aside per month.

Approximate current cost of tertiary education,

$50,000 (Singapore)

$200-300K (For US/UK)

India isn't getting any cheaper compared to 10 years ago.

Potential Inflation : 6%

Start early so the power of compounding could work in your favour.

Emergency Savings :

This is often overlooked because we don't expect things to go wrong. We are living in an era, where in most places, 10 years of service in an organization creates huge insecurity than loyalty. It's extremely important to set aside at least 18 months of your monthly expenses in liquid assets, as that would give you the much required breathing space, in case you prefer to take a sabbatical or a sudden job loss. It not only provides peace of mind but could be a good beginning for retirement corpus, if all goes fine.

Simple rules for enhancing your investment returns

• As a starter, please use the maximum investment possible with tax rebates, as there is no instrument which provides better and guaranteed returns than tax savings, globally. 
• Do not get into investment which you aren't much aware of.
• Diversify your portfolio as much as possible, across asset class and currencies, so no single failure sets you back by few years.
• It's extremely important to sit with your financial consultant and quantify your various financial needs. Just knowing the numbers would help us understand the gaps and keep reminding us that we need to do something about it. 

Should you have any queries, please feel free to reach me.

Cheers

+65 8113 3272