Wednesday, March 26, 2008

Financial planning can be confusing

Hi, Mr. Tan,
I spent two hours with an insurance agent to do a financial planning exercise. We went through many projections using different rates of inflation and insurance products. I find the projections to be quite confusing as they produce different results.

To meet my target of retiring at age 60 with a monthly income of $x (adjusted for inflation), I have to save $y (about 30% of my salary) each month. I cannot afford to save this amount. If I save a smaller sum, I need to invest my savings more agressively to earn 10% per year. Is this realistic? Can you advice?

REPLY
I find this approach to be quite speculative. The results differ according to the assumptions on:
a) inflation
b) investment return
c) period of investment (or retirement age)

Here are my general tips:
a) Save 10% to 15% of your monthly salary, if your budget is tight
b) Save more, if your regular expenses take a smaller share of your salary (for singles and high earners)
c) Invest your savings in a low cost, diversified fund
d) Buy low cost insurance, to provide a payment in event of premature death
e) Retire at an age when your accumulated savings (with yield) is sufficient to meet your future lifetime expenses
f) Be flexible on your retirement age and the amount of retirement income (i.e. live within your means)

Using my guidelines, you will be able to retire quite comfortably at the age of 65 years. You can retire earlier, if you are prepared to accept a more frugal lifestyle.

Read this FAQ:
http://www.tankinlian.com/faq/fptips.html
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5 comments:

Anonymous said...

High rate of return is one of the variables.The other variables are ,
#1. adjust down your income expectation
#2. retire later
#3. earn more now and save more
Whether you find confusing or otherwise you need to know the truth of your financial health.if you young
you should start thinking about it now and don't wait until you are near retirement .

March 26, 2008 10:43 AM
Anonymous said...

Healhy lifestyle, CPF DPI, Workmen Compensation provided by Employer and investment tips in this Blog should help you to save $$$ and be safe!

March 26, 2008 10:59 AM
Anonymous said...

I wonder which insurance agent you had this session and from which company. Most agents think that having a calculator or some kind of retirement software is all they need to become a retirement planner.
That is why you ended up confused and think retirement planning is just crunching those figures.There is lot more to it.

March 26, 2008 10:59 AM
Anonymous said...

Don't be confused by others. Be confidence with a simple step by YOURSELF - deposit your money with NTUC Thrift at 2% per annual (best bank rate now and guarantee).

Source: http://www.ntucthrift.com.sg/business/product/rates.asp#SAVING_ACCOUNT

March 26, 2008 11:27 AM
Anonymous said...

Financial Planning is not confusing if you get a proper financial planner to help you. The problem you have an insurance agent passing off as planner. This 'planner' thinks ability to operate a software makes him a planner. The public must not be decieved by this.Today the insurance salesmen carry a computer and make a presentation. It is like bringing the website or the soft brochures to you and nothing more than that.He is making it more convenient for you. He is just a new breed of salesmen.This will not make him or her a professional or an adviser.They are like the new
bus inspectors with a hand held gadget to check the bus fares or car park attendants with a ticket dispenser. You can say they are now technologically assisted.

March 27, 2008 9:21 AM

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