October 19, 2020

Categories: Investment

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Retirement is a major life milestone for many, which makes retirement planning one of the most significant financial goals to achieve. If you endeavour to stay gold as you grow old, you will need to plan your decumulation strategy right now.

By far, millennials have expressed more optimism about their retirement than the generation before them. The Manulife Investor Sentiment Index in 2016 showed that 83% of millennial respondents expected to maintain or improve their current lifestyle after they retire; compared to just 56% for those above age 50. However, in the same survey, only 50% of millennials said they were on track to achieving their goal, which is one of the lowest figures in Asia.1

The gap between expectation and reality needs to be bridged before an ideal retirement can be achieved. Be realistic when you define your retirement lifestyle and work backwards to figure out how much you will need to sustain it. For example, if you decide that a monthly sum of $2,500 will suffice and you plan to retire at age 62; taking the average life expectancy as a benchmark, you would need at least $600,000 to sustain your living needs. Now ask yourself this: Where is this sum going to come from? The fundamental answer lies how you plan to derive your retirement income; for many it would be a mix of CPF and insurance payouts, savings and investments, as well as family support.

This brings us to address one of the biggest risks in decumulation, which is longevity. As much as it is a blessing to be able to live a longer life than you expect, it raises the unavoidable and unsavoury question of whether your nest egg is adequate enough to last you just as long. Wealth preservation and estate planning must also happen in tandem if you hope to leave a lasting legacy for your loved ones, or seek to provide financial support to dependents or charitable causes.

You have worked hard to accumulate your pot of gold. It is important to be just as careful when it comes to decumulating your wealth. Make the necessary adjustments to cater for your changing income needs, and do seek professional advisory to help you optimise this process.

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