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Why A Lack Of Retirement Funds

>> Tuesday, April 26, 2011

Many have dreams about their retirement, picturing it to be perfect: Traveling around the world, playing golf, watching the sunset lazying at the beach. Whatever it may be, so long as it does not involve working hard. However, most of those dreams do not materialize and you find yourself having to carrying on working without a choice?

1. Starting Too Late
Planning for the this phase normally does not take priority until it is too late. After all, there is no hard and fast rule that one has to retire at 62 and MUST start planning at age 45. Although most "financial planners" advise to start early to allow for compounding returns, it may also be impractical as the idea of retirement would be too far fetched for those who started working and are in the midst of just starting a family. Short term needs will out weigh their commitment to save long term. However, keep procrastinating too long and time will be to your disadvantage.

2. Investing Too Conservatively
Being too risk adverse, and worrying about the big "what if I urgently need the funds?", most Singaporean style is to save in Fixed Deposits and let the banks rip them off by giving a miserable return that does not even overcome inflation. Just for the comfort to know that their funds can be withdrawn without any lost of capital when needed, which most often, never came and the sum kept rolling year on year with negligible returns. Funds for emergency needs to be sat aside in FDs, agreed, but the majority of the remainder needs to be invested to at least beat inflation or its value will be eroded. Risk is part and parcel of life, face it, manage it.

3. Relying On Government
Having CPF save on the behalf is comforting and let's leave the planning to the government, they know best. However, most CPF funds are being channeled to service HDB mortgage loans that are 30 years or even longer. There will be very little remaining unless one downgrades the property or do something to realize the value of the asset that the government has promised to endlessly appreciate.

4. Incorrect Insurance Protection
When quizzed about insurance, the response of most Singaporeans will be that they are over covered. They have bought dozens and dozens of it already. A closer look would reveal mainly PA plans, ILPs, company insurance and endowments with little useful coverage. I believe the correct phrase would be over paying not over covered. Most might not even have a proper shield plan, disability income or a basic high coverage term plan covering CI. As a result, when unforeseen events happen, retirement savings are wiped out as none of their "over coverage" can be used.

5. Giving In To Children
With the rising cost of living, coupled with the higher living expectations, it is getting difficult for the younger generation to have a head start in life without help from their parents. Tertiary education needs, wedding needs, property needs, most of which require high capital upfront even though they only just started out. Not wanting to disappoint their beloved children, parents spare nothing for themselves to help them.

6.Lack Of Proper Advice
Nowadays, the financial planning industry is so competitive that even the Post Office sells insurance. And the banks are also bugging everyone to buy General Insurance. All these commission driven sales has shaped the industry to provide "advice" focused on selling, selling and selling. There seems to be little avenue if one wants to seek genuine proper advice and the noise drowns sincere advisers creating a negative image overall.

Dreams will remain just that, unless you take action to realize them. Of course some may not wish to retire, but note the difference of having a choice to retire if one wishes versus having no choice due to a lack of funds.

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