Practical financial planning for your secure retirement
by Lee Khee Chuan. Posted on July 22, 2012, Sunday
In the previous discussion on Scenario 1, we were talking about the critical importance of a ‘golf umbrella’ that represent life insurance and estate planning – take care of any unexpected risks in life.
We also asked the first financial planning question: “Will your estate plan do a good job to provide adequately for your beneficiaries and preserve your estate against estate creditors?”
“Will your retirement income get sucked up by future financial crises?”
Today, we discuss Scenario 2.
Observe Scenario 2 in Diagram 1a and you will have to ask yourself Question 2.
This is a huge question that you must always remember.
It is a blessing in disguise that you have seen before your own eyes via the financial crisis of 2008.
We have not seen such a huge crisis since The Great Depression of 1929 when all of us were not even born yet.
When you read the book, ‘This Time Is Different: Eight Centuries of Financial Folly’ by Carmen M, Reinhart and Kenneth Rogoff, you will realise that financial crises are quite a regular feature over the last 800 years.
It is safe to say that you will face a few more financial crises until you retire and even when you are in retirement.
Go to a local library and look for this book.
I guarantee you this will be the best recommendation you get for a retirement and personal finance book you will receive this year.
Safety of your retirement nest eggs
My message is simple: You have to be dead serious about the safety of your retirement nest eggs.
Start paying more attention to it and start taking charge.
Neglecting this matter will cost you to lose a substantial value of your nest eggs.
You will have little time to recover or might even have to further delay your well deserved retirement.
At the time of writing, there was a news repor t in the media that many people lost a huge amount of money when a popular multilevel marketing (MLM) company launched a share investment scheme to its members and then suddenly decided to swindle the money.
That is another risk that will threaten your retirement nest egg – scams.
“Will you run out of retirement income?”
This is another pertinent question to ask, but it is a tough one to answer.
We do not know how long we are going to live.
There are other variables that are not in our control, such as future cost of living, inflation and investment returns.
As you invest your money in shares, unit trust, properties, fixed deposits or even some kinds of get-rich-quick schemes, there is always the risk that these investments might shrink in value during investment or scam risks.
A possible asset allocation strategy for you to consider is to park some of your money in an annuity income programme.
The contract guarantees you a regular annual income (much like a pension income) until the end of your life.
This will provide you with some form of financial security if things in the future do not turn out as expected.
This will further strengthen your retirement plan.