Build your retirement plan by yourself?

Absolutely it does!

To craft your second half of life, there are three areas you have to consider, how many of which have you prepared for?

1.Staggering medical costs

When you are still employed, your employer usually provides medical coverage for you which generally covers the basic medical costs. However, when you retire and your health deteriorates as you age, you need to arrange for your own medical protection to enable you to relieve any financial burden relating to medical expenditure.

2.Maintain ideal quality of life

Living better in retirement is a must after working so hard for the first half of life! Yet, according to the results of the Opinion Survey conducted by the Public Opinion Programme of the University of Hong Kong, 70% of the respondents expected that MPF would only contribute less than half of their retirement reserve, making it impossible to maintain their existing quality of life¹. It is thus important to accumulate additional retirement funds to cater for the living expenses after retirement given an environment with persistently high inflation.

3.Detailed arrangements for retired life

Seniors always under-estimate their change in health condition after retirement with respect to their daily lives. They therefore overlook the need for additional support in their daily lives. For example, when they get old and cannot live independently, or even suffer from long-term illnesses, they will need to depend on others to look after them and more relevant reserve will be required accordingly.

These three areas are indeed basic requirements. There are other personal considerations. For example, how much money should I need for retirement? How will inflation, medical cost increments affect me? Any liquidity for my accumulated funds? When is a suitable time to plan for retirement?

Retirement planning is all about budgeting

Retirement budgeting is no easy task. The difficulty lies in the estimation of the living costs more than 10 to 20 years away. Factors including inflation, economic environment, possibility of financial subsidies from family, health condition should be taken into account. If retirement costs are under-estimated, retired life may become chaotic.

First, inflation rate reflecting increase in price levels of commodities has a direct impact on daily expenses. When budgeting, the past economic data have to be reviewed. For instance, the average inflation rates over the past 30 years and a forecast of the economic trend in the future. The forecast has to be reviewed regularly to make adjustment promptly and update the budget if there are any discrepancies between the trends and assumptions.

Next is budgeting for medical expenses. This part may make up a greater proportion with increase in age. It’s getting more difficult to make the estimation when there are annual increments of surgical fee, consultation fee, hospital services and long-term care charges of the Hospital Authority, coupled with the younger age of onset for critical illnesses. What we could do is to arrange for adequate protection based on our own resources and needs so as to relieve any unexpected financial burden.

Third, pay attention to the liquidity of your assets. To cash out extra funds by selling a property, for example, it may take about 2 – 3 months. You may also experience price swings during the time the property is put up for sale, making it difficult for you to sell it at a good price. As a result, liquidity of funds is of the utmost importance and makes it a critical factor to consider when you make your retirement plan.

When is a suitable time to plan for retirement? Age 30, 45 or 60?

Age 30

You may not want to retire yet if you are 30 years old! Retirement is generally not one of your financial goals as it is too distant away and you will soon experience different life stages including getting married, having children and buying a new home. From the financial planning perspective, however, the longer the time, the greater growth of your assets. Even for a minimal amount, its value will increase significantly with the effects of time and compound interest. You are thus recommended to set aside a small portion of your monthly salary for retirement reserve and let it grow on a long-term basis. You may also adjust your savings when your salary is increased.

Age 45

If you make your planning at age 45, the fund stability will become more important as you approach retirement within a shorter period of time and your risk tolerance level starts to drop. High-risk investment is no longer suitable for you. At this age, it is likely that you have already had a better understanding on how your retirement life may be and therefore it is easier for you to formulate your retirement goals as you have clear objectives to achieve. Hence, you may still be able to realise your goals with proper use of the time before retirement and an appropriate plan to accumulate enough funds.

Age 60

Retirement is imminent if you are 60 years old. With clear objectives in place, saving is not the focus, but the control of risks and liquidity of funds. What’s more, forecasting the level of living expenses in retirement according to your current assets. Health protection is also of significant importance as you may need to take out funds from the reserve to pay for the medical expenses in case of any health challenges. It’s also necessary to plan ahead for your wealth distribution so as to pass on your legacy to your next generation.

The to-do items of a retirement plan are not exhaustive and every one’s needs are unique. It would be a good idea to plan your retirement with a professional financial expert. Tahoe Life’s financial consultants may understand your perfect retirement life in terms of living environment, quality of life, monthly living expenditure, etc., and help you to work out your plan systematically by considering factors including inflation, medical cost increments, life expectancy, and trend of critical illnesses. Make an appointment with our professional teams now and plan together for your retirement and get prepared for your second half of life!

Sources:

1.http://www.etnet.com.hk/www/tc/mpf/news_detail.php?newsid=ETN271017411&page=3