09 September 2012

Plan for your retirement early

I just read a book with regards to retirement planning. Basically retirement planning involves estate planning, tax planning and investment. I wish to write about the investment part.

If you know the power of compound interest, then you will understand that different asset classes would generate different investment returns in long run. Anyway, the earlier you start the retirement planning, the lesser capital you have to put aside to grow it to the figure you need when you retire.

If you think that you can rely on CPF/EPF to spend the rest of your retirement life, then you may be wrong. Majority of the retirees would finish spending their CPF/EPF money within 5 - 10 years. So you must have a regular saving plan before you use the excess savings to invest in various asset classes. For example, if you expect a 10% return and you expect to have 1M when you retire at age 65 years old, you just need to invest in following amount based on your age:


Age
Amount Invested
25
22,095
30
35,584
35
57,309
40
92,296
45
148,644
50
239,392
55
385,543
60
620,921

If you are only able to invest in 5,000 a year, based on the table below, the amount of years you may achieve 1M amount in various return rate:


Return Rate
Years to achieve 1M for every 5K invested
5%
49
10%
32
15%
25
20%
20
25%
18


From the tables above, it tells us that we should start our retirement planning as early as 30 years before we retired so that we can achieve 1M retirement fund. In long run, equity can achieve 10% return. We may also require some other asset classes such as bond, real estates to diversify our portfolio.

I just knew from the recent news that Bishan HDB sold at near to S$1M. So maybe 1M is not enough for us to retire too, after some 30 years later. So, just let us learn more about investment and hopefully we can reach the destination we pre-set earlier.


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