4 Tips to Build a Stable Retirement Nest Egg
Contributed by: Shawn Low Wei Xuan
Intern from Gerontological Management Studies, School of Humanities and Social Sciences, Temasek Polytechnic.
We often worry about whether our savings are sufficient to last us throughout our retirement period as we have to consider a lot of unpredictable factors like our desired lifestyle, our dependents’ needs, inflation, longevity, accidents and poor health. All these factors serve as critical risk factors that can potentially stop us from enjoying our golden years if we use up our retirement savings prematurely.
The following steps are simple suggestions that you might consider to make sure that your retirement nest egg becomes more stable and sufficient.
- Calculate your Retirement Gap
In order to meet your retirement needs, you need to first know how much funds & protection you require to meet your retirement lifestyle. You have the option to either calculate your insurance coverage and retirement funding gaps on your own, or you may consult a financial adviser to help you calculate them. With the guidance of a financial consultant, you have the additional advantage of addressing shortfalls by implementing a financial plan that’s catered to your own retirement needs.
- Protect Your Wealth with Insurance
Even before attempting to grow our wealth, it is crucial to protect our wealth first. You may have accumulated a lump sum of money that is able to last you beyond your retirement age, but an unexpected event such as a critical illness is all it takes to deplete your savings overnight. Thus, we need insurance cover to protect ourselves from future uncertainties.
You may consider retirement-focused insurance cover (such as endowment or whole life insurance) that allows you to build up cash values, which may in turn help you defray the effects of inflation to some extent. Some even offer periodic payouts, which might be useful during your retirement years. Your financial adviser should be able to identify such products that is catered to your needs, and help you implement them.
For pure protection (e.g., without cash value accumulation), term life insurance offers protection for you and your dependents for a specific period of time of your choosing, and health insurance covers the costs of hospitalisation and surgery as well as selected medical treatments.
- Grow Your Nest Egg Through Investment
Depending on your risk profile, affordability and investment objectives, you can choose to invest in a diversified portfolio in order to effectively grow your retirement nest egg. Types of investments include Bonds, Unit Trusts, Shares, Exchange Traded Funds (ETFs), Investment-Linked Policies (ILPs), and Real Estate Investment Trusts (REITs).
Before making any investment or buying any investment products, you are strongly advised to take a careful look at the product’s factsheet and understand the potential risks and benefits involved. Different investment vehicles have different risk/return characteristics, hence, do consider investing in products of different volatility to diversify your portfolio to guard against sudden and significant losses should one investment product fail.
Moreover, do look at long term objectives when investing, as it takes time to build up profits and overcome any downturns so that you can accumulate a significant sum of money that can cover your retirement needs.
- Continue Working
Last but not least, if you are approaching your retirement age and you feel that your current savings might be insufficient, or if you like to keep yourself busy and earn income at the same time, you may certainly choose to stay employed in your retirement years.
In this state of “semi-retirement”, you could work part-time or full time, depending on your situation and preferences. Being semi-retired by working part-time would mean that you are able to reduce your workload and working hours by taking a pay cut, so that you have more time to engage in family time and leisure activities.
If your organisation allows, you could consider changing your job function or scope. For example, you might “sell” your experience by transitioning from a full-time engineer or senior manager to a part-time coach or adviser. It is a win-win situation as your company is able to retain your valuable expertise while you continue to earn some income for yourself to enjoy a fulfilling life.
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Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs.
Special thanks to Financial Alliance’s Corporate Development Director, MK Chan, and Wealth Management (Economy & Market Strategy) Director, Sani Hamid, and for sharing their knowledge and experience to make this article possible.
-Written by Rachel Teo, Financial Alliance Writing Team