Creating Your Retirement On Purpose
Mr Fernandaz* is a fund manager. He was my high net-worth client when I was a private banker in Singapore (that was my past life before I became a finance coach). We would meet up regularly to talk about his investment portfolio. Despite his busy schedule, he would always ask his secretary to find time in his calendar to catch up with me. He was keen and open to hearing investment ideas from his bankers. He fully understood the importance of making his money work for him.
In fact, being the seasoned investor he was, I always felt that I was learning from him instead. We would bounce off some investment ideas that I got from the in-house research reports and we would discuss whether these were viable in terms of risks and rewards.
Mr Fernandaz knew what he wanted. Work-life balance was important to him. He was a family man who wanted to spend quality time with his family. He would come into the office only at 10 am, to avoid the early morning traffic (and stress). And he got to enjoy a leisurely breakfast with his wife before starting each day.
It has been almost a decade since I left private banking. Recently when I contacted Mr Fernandaz, he was already in his 60s. He shared that he is easing himself into a semi-retired mode. He had bought a cosy home somewhere in Europe where he would get to enjoy the summer months with his wife each year. The rest of the time, he will balance between work and other travels. His children are adults now and independent. He had provided them with a good education and they could take good care of themselves. Life is blissful.
This is a man who truly created his retirement on purpose. He took consistent action through the years and had routines that supported the lifestyle he envisioned.
Don’t you like to have a lifestyle like him?
But you may say “Dinah, I’m just a normal salaried professional. I don’t have so much money.”
According to a recent HSBC Survey, nearly 60% of Singaporeans surveyed are not on track with their retirement plans and planned to work past official retirement. In fact, as many as one-third of Singapore respondents admit they do not have a comprehensive plan for retirement. (See footnote 1)
There are a few ways that you can approach your retirement:
You save up “enough” cash and liquid assets that will last you through your retirement.
This was the traditional method where people would stash away money in the bank, or hide money under their beds and pull it out when they needed cash. However, under today’s inflationary conditions, your cash savings are being chipped away by inflation.
You are losing money trying to save money.
Another issue is that one’s mortality is not fixed or predictable. How would you know how many years you have to spend all those savings? You don’t want to use up all your funds before your mortality expires! Yet it is a pain trying to cut back, again saving whatever savings you have for future spending.
You don’t save up and if you are lucky, you have family members who can take care of you.
This is an ostrich’s approach to the retirement issue. You know you have your retirement coming up but you don’t take any action to plan for it. You let “nature take its course” and one day you wake up and it’s time to retire. Then you look towards the government and your family to take care of you and provide for your old age.
I know from a couple of polls that I had conducted that financial independence is one of the most mentioned financial aspirations of people. For our young generations, they value their independence and with the low birth rates, they are no longer betting on this method.
You create multiple streams of income, which can fully or partially cover your living expenses when you retire.
What if you could “start with the end in mind”, just like the famous quote from Stephen Covey?
Calculate how much you need when you retire.
Remember that there is a cost to working too. When you retire, some of these costs associated with a job will fall away. Items like
transport costs (you know how expensive peak hours transport costs are, don’t you?),
meals cost (if you are working in the central business district, you are definitely paying a premium for meals),
wardrobe costs (no need for expensive clothes, shoes, leather bags etc),
maintenance costs (no need for expensive haircuts, styling, manicure and pedicures either).
On the other hand, there might be additional costs as you grow older, e.g. medical costs, insurance costs, mobility equipment costs and so on.
So how do you envision your retirement lifestyle? Work the numbers. How much do you need per month or per year? Given that you will have more time on hand, how would you be spending your time? Will you be travelling more? Will your home need some refurbishment?
The age at which you can retire comfortably can be defined as the age you achieve financial freedom. This age need not coincide with the statutory retirement age provided by your government.
What if you can create passive income by putting your money to work for you while you are still young, just like Mr Fernandaz mentioned at the beginning of this article?
Passive income is any income created without your time being involved. It could come from dividends, interest, coupon payments, or from your money working for you. It could come from rental income if you have an investment property.
Just remember that financial freedom is a formula. The higher your expenses, the higher the passive income you will need for financial freedom. Alternatively, if you are pursuing a simple retirement life, you may be able to achieve it fast.
Visualise your retirement, get the passive income number that you need and work towards it as a financial goal. Start young, start today and create your retirement on purpose!
If you are new to investing and would like to learn how to Invest with Confidence, watch my Masterclass on how to get started.
*Name has been changed for confidentiality.
Footnote 1: 6 in 10 Singaporeans expect to work after retirement: HSBC Survey, The Business Times, 8 December 2023.