Starter Guide to Financial Planning
Breakdown Of Your Expenses During Retirement
Retirement, a word frequently associated when you are doing your financial planning. It is something huge but it should not be too complicated to plan for it as well. The main difference between pre-retirement and during retirement is the income factor.
Since you are no longer working, you will no longer earn any income. Nevertheless, your expenses will still continue. Given the fact it is before or after retirement, you still need to spend in order to live. Thus, in this article, we will share the potential expenses during retirement.
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Will You Spend More or Less During Retirement?
*Approximate expenses
This is a tricky question. It does depend on a few things and they are:
- Lifestyle
- Insurance Policies
- Traveling Plans
Lifestyle
Since you are no longer working, you do have a lot of spare time. Thus the question is, what will you be doing in your spare time.
If you love to go shopping, there is a possibility that you will do some major shopping during retirement. With the free time on hand, you might even pick up a new hobby. Bowling, cycling or even playing golf is some examples.
To sum it up, all this new lifestyle that you pick will require you to spend money. Thus, if you foresee yourself having a different lifestyle, it is only wise to be prepared for any extra expenses.
Insurance Policies
Having health insurance, in particular, your integrated shield plan requires you to pay premiums annually. Health insurance premiums are age-banded, which means that the premiums will increase as you age.
Therefore, be prepared for your health insurance premiums.
But what if you do not have any health insurance?
That means you need to set aside more money if you fall ill. You can still depend on MediShield Life and your CPF MediSave Account but it might not the type of healthcare treatment you would be comfortable in.
Traveling Plans
Road trip to Australia, an adventure to South America or even going for pilgrimage, these are few examples for your traveling plans during retirement.
Those are big costs and if you intend to travel when you retire, do factor this in your retirement planning.
Even short trips across the causeway or a ferry ride to Batam will be amongst your expenses.
Therefore, travel plans are an element in planning for your expenses during retirement.
Healthcare: Hospital bills, Health Insurance, and Long-term care
It is normal that when we age, our body will deteriorate as well. We will not be recovering as fast as we were when we were younger. And every single joint in your body will start to ache.
Therefore, going to the hospital or even a clinic would definitely cost you money.
Even if you have health insurance, you do need to pay the premiums. The premiums will only get higher as you age. Be prepared for the increase every year.
READ ALSO: Are You Prepared For The Increase Of Health Insurance Premiums Every Year?
Lastly, if you become partially disabled, you might need to buy a few extra things to help you around. You might need a wheelchair to move. There might be alterations to your home to insert in the handles so you can move around. Or even hire a maid to help you with basic daily activities.
All these are costly and will definitely be part of your retirement funds.
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Have You Paid Off Your Mortgage?
If you just bought a new home at the age of 45, there is a chance that you will still be paying your mortgage during your retirement years.
And that will certainly factor in your expenses during your retirement.
If you are financing your home with your CPF monies, you will be in a tough situation. Here is the explanation.
At age 55, you will need to set a certain amount of retirement sum. By default, you have to fulfill the Full Retirement Sum (FRS). As of 2019, the Full Retirement Sum is capped at $176,000. And every year, it will increase at least by approximately 3%.
However, if you choose to set aside to the Basic Retirement Sum (half of FRS), you would need to pledge your property.
By doing that, you can set aside a certain amount of your CPF Ordinary Account to finance your home. But by doing that, you will affect your monthly payout from your CPF. And to add on, the lump sum of money that you can receive upon reaching 55 might be relatively low.
Therefore, if you choose or do not have a choice of paying your home with your CPF monies, thus do factor in the cost of paying for your mortgage in your retirement expenses.
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And yes, the increase in the inflation rate
After factoring all of the above, do not forget this huge thing called Inflation.
The rise of the average price level of goods and services over time is disturbing. It is scary how expensive things can be in a number of years.
Back then (20 years ago), if you want to take a bus and pay via cash, it will only cost you $0.70. Now, is at least $1.50? That is more than double.
For that reason, do factor in the inflation rate when calculating your retirement expenses.
What Happens In The Future, Depends On What You Do Now
If you have a concrete plan and you are executing it right, then you are in for a good retirement.
What is a concrete plan?
You are constantly accumulating your money, have sufficient insurance coverage and you know what you are getting into when purchasing a home.
Accumulating is to battle inflation. Proper insurance coverage to help you get back on track even when experiencing setbacks. And know when is the right time to buy or sell or even keep your home.
Hope that this article was useful. Do share it with your family and friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
