If you have not read the Invest section of last Sunday Straits Time, you have missed out on a few good articles related to financial planning. One of them is on “Financial Planning for the Sandwich Generation”.
I find the “advice” provided very useful, insightful and practical. These “advice” are in essence, the critiques from the judges on the financial plans submitted for the FPAS Financial Planner Awards. If you have no idea what or how to start planning for your financials (and retirement), you will find this a GREAT read.
In thinking of our financial state and our FIRE aspiration, we have to think beyond just normal expenses. In fact, they advised that if we want to be conservative, instead of using a forecast expenses based on current experience, we should use the whole of our active income as our future expenses for retirement planning. Why? This is because there may be “black swan” events that will break your bank … I think everyone will agree that life is unpredictable.
Children’s future education, parents’ and own’s future medical demands, care for special needs children, siblings will also drain our retirement savings significantly and not all of them can be predicted. Worst if they are not being catered for in our plans.
By being prudent and creating a buffer/safety margin, we allow ourselves to respond to those unplanned events by adjusting down our envisaged living standard. If we start with too tight a retirement plan, once such a major event struck, we will be knocked off our feet and may not be able to stand again.
Using the case in the paper, it was estimated that a retirement sum of $ 3,000,000 at age 65 is required for the couple who are in their mid 40s. And they have to start investing $ 68,500 a year for the next 20 years and assuming a 7% return rate a year.
$3,000,000 !!!! … That’s a bombshell for me … and based on what was written in the paper, the couple are not asking for the sky for their retirement and their living style seems pretty modest … eg living in a 5 room HDB flat.
How to get so much money??? I was only hoping to accumulate $1,500,000 and I am banging on a 5% yield y-on-y to bring me there. If I were to adjust my target upwards to $3,000,000, it will mean that either I have to reduce my current expenses drastically to save more for investment or I need to take on more risk to get a higher yield than 5% or 7% => both are not appealing to me 😦
Looks like my FIRE aspiration is still a long way to go (much longer than I originally expect after I read this article) … sigh … I better go back to my office work now and ensure I keep my job for as long as I can.
Though feeling a bit demoralising after reflecting on what I had read, I still think it is worth a read as it helps to put us squarely back to reality.
FIRE? … sigh …but don’t give up. Halfway there is still better than not to move a single step forward