How To Retire Comfortably

How to Retire Comfortably
To have a smooth transition into retirement, here is a list of common mistakes your investors should avoid.
While it is never too early to start retirement planning, as unit trust consultants (UTCs) you need to advise investors to get on the right path towards financial freedom. Let them know that taking careful steps along the way will ensure a smooth and comfortable retirement. The Bulletin has listed down some retirement planning mistakes that investors should avoid for you to share with your investors.
1. Not having a retirement plan
This is the most common mistake that investors make. After all, failing to plan is planning to fail. You should ask your prospects and investors have thought about their retirement goals. Also have they committed to regular savings goals in writing? If not now, then when? Time is working against them. Urge them to review (and review with them) their asset allocation, investment performance, and total savings on a regular basis and make changes where necessary.
2. Not protecting savings
About five years before retiring, people should start to focus more on protecting their savings rather than growing them. As UTCs, let your investors know that they can reduce risks by shifting their assets to more conservative investments, and consciously avoiding borrowings or taking early withdrawals.
3. Investing too aggressively, or too conservatively
According to famous investor Warren Buffet, investing is simple, but difficult to execute. To help investors avoid mistakes, there are a few simple rules in investing that they should stick to, coupled with clear focus and discipline. Always bear in mind that investing is for medium- to long-term and advise investors to diversify and save systematically.
4. Not understanding diversification
The popular ‘mantra’ for investments is: ‘Do not put all your eggs in one basket’ and there is a good reason behind this saying. The main idea of diversification is to reduce risk. UTCs should recommend having four to six sources of retirement income without relying completely on just one. By diversifying, retirees can avoid losing all their income if one of the sources of income loses value. Fund allocations for retirement can include Employees Provident Fund (EPF), pensions, fixed deposits, unit trust investments, property investments and other sources.
5. Retiring with too much debt
Financial planners will generally recommend not retiring until credit card, mortgage and other forms of debt are paid off. These monthly payments can deplete savings, which will
ultimately go to various interests and current expenses. Increasingly, Malaysians are entering their retirement years with heavy debt, so you need to look into the matter with your investors.
6. Not taking inflation into account
Inflation will slowly affect investors’ retirement fund and their purchasing power, and subsequently eat into their fixed deposit and EPF returns. Already, we can estimate the national inflation rate at 3 percent per annum. For example, a cup of coffee now costs almost four times more when compared to say 30 years ago. Although inflation is something we cannot control, what you can do is to advise investors to save a higher amount for retirement, while always taking into account the inflation rate.
7. Not saving early enough
Many people mistakenly believe they will have plenty of time for retirement planning. This is a common misconception, because when they are 20 years old, for instance, they think retirement is 40 years off, so they wait until they are 30. And the same goes when they reach 30, 40 and so on. All the while they spend so much paying off mortgages and debts when suddenly, they realise that much time has been lost and their retirement savings is forever scarred. “Procrastination is the thief of time,” English poet Edward Young once said. The most valuable asset your investors have when saving for retirement is time. The more time they have until retirement, the easier the task is to achieve their retirement goals. The longer they delay getting started, the harder it will be and the greater the risk to their future lifestyle. Therefore, tell your investors that it is never too early to start!
8. Not investing regularly
Many people start investing and let their portfolio go into sleep-mode. Tell investors that they need to be disciplined and review their portfolios at least once a year. Even if retirement seems far away, it is important for them to continually add some amount to their portfolios. Advise them also to utilise our direct debit instruction (DDI) facility to make regular investments to ride out market volatilities. From time to time, there will be changes in personal needs, spending patterns or lifestyle goals that may call for adjustments to their investments. Investing regularly and adopting a long-term view in the process will make their money work for them, instead of against them.
9. Not taking healthcare costs into account
Not adequately considering future healthcare costs can have a major impact on retirement planning. Malaysia’s healthcare costs have increased rapidly over the years and not setting aside a percentage of retirement income specifically for healthcare can have a negative impact on your retirement fund. Before retirement (and the earlier they start the better), advise your investors to get adequate insurance coverage such as critical illness insurance, personal accident insurance and healthcare insurance (with hospitalisation) to help offset any medical bills incurred during their retirement period. By having enough insurance coverage for their future healthcare costs will help to ensure that they will not deplete their retirement savings account prematurely.
Source: The Bulletin, July/August 2012