From The Straits Times    |


When it comes to planning for retirement, it’s not just about plucking a magical number out of thin air, and hoping that you will be able to achieve it.

It requires some thought about how much you really need, and how you’re actually going to get there. Even after you have established a retirement plan, there are also costs that you might be unaware of that could affect your happy retirement.

For many young Singaporeans, retirement seems like a far-off destination that they can’t really see or predict, but the truth is, retirement is a lot more tangible than what most people think. Don’t believe us? Here’s a video that might change your perception.

So what are some of these key “hidden” costs that you should be ready for? More importantly, how can you prepare yourself for them?

1. Healthcare Costs
Even though illness might be a taboo subject in our society, the fact is healthcare tends to make up the bulk of the variable costs we will incur in our old age. As seen from the video, it doesn’t take a major illness to rack up the medical bill.

Unforeseen accidents can often force one to chip away at their retirement savings if they are not adequately prepared to take on these medical costs. So what’s the solution? Well, most of us already know about it. Insurance!

Many Singaporeans think they are covered just because they own a policy or two, but what you might not realise is the policy you bought might not provide you with as much coverage as you thought, or need. Perhaps you bought a policy out of the desire to make money from it, or you weren’t informed of how much you really needed.

Understanding the differences between these policies will give you a better picture of what you can and should be covered for, and what is unnecessary for you, based on your lifestyle needs.

2. Housing Costs
For most Singaporeans, a house is probably the most expensive thing they will purchase in their lives. The thing is, as with people’s perspective on jobs these days, many people don’t stay in the same house they bought when they were younger.

Managing your finances when it comes to your housing loan is one key aspect of retirement planning. You need to bear in mind the restrictions to the duration of the loan you can take, and how the changing interest rates could affect your retirement plans as you grow older.

If you are thinking of upgrading your house in your later years, make sure you can afford your housing loan payments and factor that into your long-term financial plan.

Another thing that many Singaporeans are still unaware of is the ability to refinance their home loans. Home loans taken from banks are typically structured in such a way that their interest rate shoots up after the 3rd year, resulting in people paying more than they need to.

Keeping track of where you are on your home loan payments is something you should definitely be on the ball about, as a low interest rate could have a significant impact on your savings.

It’s also important to bear in mind that your home is not going to remain in its pristine condition forever. Initial renovation costs aside, you need to factor in the possibility that things are going to break down every now and then. Budgeting for general repairs and maintenance every 5 years will help to make sure you don’t get blindsided by a sudden burst pipe that sets you back a few hundred dollars.

3. Other Unsecured Debt 
While housing and healthcare costs are things that can be adequately covered with some thoughtful planning, unsecured debt is truly the silent killer when it comes to planning for retirement. We have spoken to many people who are close to their retirement age, saddled with credit card debt that they need to pay off, on top of their home loans.

A credit card can certainly be used for good purposes, with the important caveat that it is used in the right way. Unfortunately, there are people who cave in to the misconception that they have a “free” pass to spend how they wish and pay their bills back later.

However, the interest that they need to pay on the balance compounds much faster than they realise, and interest rates don’t look like they’re going down any time soon.

So what can you do if you are trying to get rid of your unsecured debt and it seems rather insurmountable? One way would be to take a personal loan to pay off your debt. That way, you not only pay back your debt at a lower interest rate, but the fixed payment schedule will also force you to be a lot more disciplined about clearing your debt.

At the end of the day, it’s about looking at the long run. Having open conversations and taking the effort to find out more is the first step towards making sure you can retire comfortably.

This article was written in collaboration with the CPF Board.

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