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5 Steps to Retirement Planning

What is retirement planning?

Retirement planning is a process that you put in place to maintain your funds to cover your day-to-day expenses after you leave the workforce. We have put up 5 simple steps that can help you to achieve this:

  1. When you should start planning

  2. How much do you need for retirement

  3. What are your priorities

  4. Where should you build your retirement funds

  5. Consistency is the key

When can you retire?

This will boil down to when you'll have the adequate money to cover the earnings or salary you receive from working. Some individuals retire early, and also many retire later on. Some people find it best to gradually retire, for example converting to part-time job or freelancing as opposed to retire abruptly.

Retirement planning has several steps, with the end goal of having sufficient money to give up your daily job as well as do whatever you want.

Step 1: When you should start planning

When should you begin retirement preparation? The answer is as soon as possible. The

earlier you begin preparing, the more time you have to accumulate fund and the more time you have to compound your returns. That said, it's never too late to begin retirement planning. Every dollar you can save currently for the retirement planning will be much valued later.

Step 2: How much do you need for retirement

The amount of cash you need to retire is a function of your present income and expenses, and also how you think those expenses will become in retirement. The typical guidance is to replace at least 70% of your annual pre-retirement earnings with savings, dividends and CPF payouts. For instance, a retiree that gains approximately $60,000 per year before retirement expects to need roughly $42,000 annually in retirement.

Step 3: What are your priorities

Lots of people have financial objectives they really feel are a lot more important, such as

paying down home loan, credit card or savings for a holiday. Normally, you should aim to save for retirement at the same time you’re savings or spending for other goals.

Step 4: Where should you build your retirement funds

After you have determined how much you need for retirement and your priorities, next is to decide where you should build the retirement sum. Some people who are more conservative will choose to build their retirements using their CPF accounts. The earliest you can start withdrawing CPF is age 62 (depending on which year you are born). The benefit will increase if you can postpone it additionally, up till age 68.

Besides monthly CPF contributions through your salaries, you can also choose to do voluntary contributions, and enjoy income tax rebate for the first $8,000 you transfer into the special or retirement account in CPF. You can also invest your retirement funds in Singapore Savings Bonds (SSB) backed by the government, which offer up to 3% interest currently. Some people who are more aggressive can invest in the stock markets for higher returns.

Step 5: Consistency is the key

Planning for retirement is like running a marathon. You will not reach the end point in day 1. It takes years of preparation and dedication to stick to your plan closely. You will need track your retirement planning closely, ideally at least once every quarter, review and adjust your plan accordingly based on your preferences and priorities.

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