From Investment Planning to Retirement Planning
Eric, 32, Treasury Manager at a private fund management firm
Eric is a client I’ve known since his national service days. He subsequently studied accountancy and worked as an accountant for a number of years before making a career switch to be treasury manager in a private equity firm. He always had a keen interest in investing yet kept a balanced outlook by making sure his risk management is done sufficiently.
He trusted me to plan his insurance and risk management while he does his own investing to build his portfolio. As such, in the regular financial reviews, I’ve played the role of a “trusted second opinion” when it comes to his investments, offering advice only when asked.
In a recent review, I brought up the topic of retirement planning. I asked him when he intends to start “converting his assets to income”. He was not sure what I was talking about. He thought that investing is retirement planning.
I explained to him that retirement planning is about having enough investment income to replace his work income and that the earlier that happens, the better. Moreover, a portion of the investment income must be certain and predictable to provide for what is known as “core expenses” in retirement.
Like many of his peers in the investment business, Eric viewed investment income as dividends from shares or rental from properties. He also thought that retirement planning can be done later. What he did not realise is that creating enough income for retirement takes planning and more importantly, requires starting early.
I explained to him that that while he is suited to invest and grow his investment portfolio, he may not be able to plan out his retirement needs properly. As such, a review was done to ascertain the following:
1. How much are his “Core Expenses” in retirement
(Note: Get our Top 10 “Core Expenses In Retirement” Checklist to find out the core expenses in retirement. Get your checklist here)
2. How much are his “Lifestyle Expenses” in retirement
3. What insurance plans to maintain in retirement and what are the premiums?
4. What is the effects of inflation on the total expenses?
From the review, he understood that investing is not retirement planning. We were able to identify how much of his retirement income needs to be from “low risk” options such as CPF-Life or annuities to provide a stable base and subsequently use his investment expertise to grow an investment portfolio to fund his lifestyle expenses in retirement.
Eventually, a plan consisting of insurance and investments (which he manages himself) was put in place to complement his projected CPF-Life annuity payouts. The goal is to create a stream of lifetime income from his planned retirement age of 55.
“Lee Meng helps to compare the different plans designed for providing retirement income and select what will be suitable for me. I know I can trust her as I have worked with her for many years.” – Eric
GEN Planner’s Thoughts:
I wanted to share Eric’s story because it highlights a common mistake people make when it comes to retirement planning – that investing is retirement planning. Investing is part of the retirement planning but unless it is complemented with income planning, the retirement plan will not be complete.
Story by Lee Meng
Email: meng.lee@gen.com.sg
The writer is an Executive Financial Services Consultant representing GEN Financial Advisory
