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Preparing Well Financially
For Your Future M. Salim
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
RETIREMENT
When your actual purpose in life changes from making an income to pursuing a life
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
WHAT IS RETIREMENT
Cessation of active work to pursue income earning objective in life
Beginning of fulfilling one’s dream
Growing older – physically
and mentally
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
3 GENERATIONS’ PERSPECTIVES
BABY BOOMER Born Between
1946 – 1964 Age Between
53 – 71
GENERATION X Born Between
1965 – 1980 Age Between
37 - 52
MILLENNIALS Born Between
1981 - 2000 Age Between
17 - 36
BABY BOOMERS
• Encountered & changed many new societal rules • Re- learning & training
• Many expect to continue working in retirement, at least on a part-time basis - much due to income or health benefits.
• Tend to rely on CPF - Higher CPF contributions in early years has help built CPF savings
• More conservative approach to retirement planning
Source: Transamerica Institute®, 2016 - Perspectives on Retirement: Baby Boomers, Generation X, and Millennials © 2017 Avallis Financial Pte Ltd. Private & Confidential.
GENERATION X
• Entered into sandwich years • Many in the midst of raising kids & caring aging parents
• Juggling their jobs.
• Find it hard to invest in their own retirement
• Much of CPF have been used for properties
• Know they are behind on their retirement savings
• Started Saving in the late 20s
Source: Transamerica Institute®, 2016 - Perspectives on Retirement: Baby Boomers, Generation X, and Millennials © 2017 Avallis Financial Pte Ltd. Private & Confidential.
MILLENNIALS
• Have heard the need to save for retirement much earlier
• Hungry for information
• Do-it-yourself generation of retirement savers
• Most likely to use digital technology to assist in planning
• Tend to discuss topic on saving, investing & planning for retirement with family and friends more than Generation X and Baby Boomer
• Started Saving in the early 20s
Source: Transamerica Institute®, 2016 - Perspectives on Retirement: Baby Boomers, Generation X, and Millennials © 2017 Avallis Financial Pte Ltd. Private & Confidential.
Millennials Generation X Baby
Boomer
Expect standard of living to decrease
17% 37% 40%
Confident about retiring well
18% 12% 15%
Want to receive info & advice on retirement planning
75% 68% 55%
Have plan for retirement planning
65% 60% 64%
DIFFERENCES IN OPINION
Source: Transamerica Institute®, 2016 - Perspectives on Retirement: Baby Boomers, Generation X, and Millennials © 2017 Avallis Financial Pte Ltd. Private & Confidential.
SO WHAT DO MOST PEOPLE LOOK OUT
FOR IN RETIREMENT?
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
65
56
49
27
13 12 11
7 4
Traveling Spending more
time with family
& Friends
Pursuing
hobbies
Doing
volunteer work
Pursuing an
encore career
Continue
working in the
Same field
Starting a business Other None of the above
HOW DO YOU DREAM OF SPENDING YOUR RETIREMENT?
Net Working =25
Source: Transamerica Institute®, 2016 - Perspectives on Retirement: Baby Boomers, Generation X, and Millennials © 2017 Avallis Financial Pte Ltd. Private & Confidential.
51
47 45
42
35
32
19 19 19
7
Outliving my savings and
investment
Social services will be reduced
Declining health that requires
Not being able to meet the basic
financial needs
Cognitive decline, dementia,
Lack of access to adequate
Being laid off -- not being able
Finding meaningful ways
Feeling isolated and alone
None of the above
or cease to exist long-term care Alzheimer’s and affordable to retire on my to spend time & in the future of my family Disease healthcare own terms stay involved
WHAT ARE YOUR GREATEST FEAR IN RETIREMENT?
Source: Transamerica Institute®, 2016 - Perspectives on Retirement: Baby Boomers, Generation X, and Millennials © 2017 Avallis Financial Pte Ltd. Private & Confidential.
Retirement Checklist A PRACTICAL APPROACH How much would I need
when I retire to maintain my lifestyle?
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
HOW MUCH WOULD ONE NEED ON RETIREMENT? • Personal & spouse expenditure
• Household expenditure
• Outstanding debts after retirement
• Insurance premiums
• Amenities – travel, courses, etc
• Cost of renewal & maintenance for big ticket items
• Healthcare & medical
• How will Inflation affect me
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
HOW WILL INFLATION AFFECT YOUR COST OF LIVING? Mr Lim aged 45 will be retiring at age 65.
He would like to provide for a monthly expenditure of $3,500 based on current value for him & his spouse’s retirement.
Inflation Rate 3% 4% 5%
Monthly Expenditure at Age 65
$6,320 $7,670 $9,290
Annual Expenditure at Age 65
$75,800 $92,040 $111,480
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
HOWEVER INFLATION DOES NOT END WHEN YOU RETIRE…..
AgeLiving cost at 3%
inflation rateAge
Living cost at 3%
inflation rate
65 $75,852 78 $111,391
66 $78,128 79 $114,733
67 $80,471 80 $118,175
68 $82,886 81 $121,720
69 $85,372 82 $125,372
70 $87,933 83 $129,133
71 $90,571 84 $133,007
72 $93,288 85 $136,997
73 $96,087 86 $141,107
74 $98,970 87 $145,340
75 $101,939 88 $149,700
76 $104,997 89 $154,191
77 $108,147 90 $158,817© 2017 Avallis Financial Pte Ltd. Private & Confidential.
HOWEVER INFLATION DOES NOT END WHEN YOU RETIRE…..
In short, if you are 45 & intend to retire at 65
with a monthly income of $3,500 today, you
would be spending in retirement a total of
$2,924,000 based on
3% inflation rate $0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
6 5 6 6 6 7 6 8 6 9 7 0 7 1 7 2 7 3 7 4 7 5 7 6 7 7 7 8 7 9 8 0 8 1 8 2 8 3 8 4 8 5 8 6 8 7 8 8 8 9 9 0
WITH 3% INFLATION RATE
Annual living cost at 3% inflation rate
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
RETIREMENT CHECKLIST A PRACTICAL APPROACH • How much would I need when I retire,
to maintain my ideal lifestyle?
• Would I be debt free?
• How long will I live?
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
MORTALITY OF RESIDENTS AGE 65
Female 86 Years Old
Male 84 Years Old
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
RETIREMENT CHECKLIST A PRACTICAL APPROACH • How much would I need when I retire,
to maintain my lifestyle?
• Would I be debt free?
• How long will I live?
• How do I handle my medical cost?
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
RETIREMENT CHECKLIST A PRACTICAL APPROACH • How much would I need when I retire,
to maintain my lifestyle?
• Would I be debt free?
• How long will I live?
• How do I handle my medical cost?
• Would I be financially independent?
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
THE RETIREMENT CYCLE Phases Age range Principal activities Spending level
Pre- retirement 5 to 10 yrs
from retirement
Still active at work & play, and perhaps a glimpse of retiring one day
Moderate increment in real $ spending
Early Retirement From Age
60/65 to Age 75/80
“Doing years” - actively pursuing what you’ve been wanting to do all these years – travel, hobbies, “adventure”
Real $ tend to reduce slightly but remain stable
Intermediate Retirement
From Age 75/80
to Age 85/90
Consolidation years - time to choose fun things, develop old skills or fresh talents and focus on relationships.
Real $ would reduce somewhat
Advanced Retirement
From Age 85/90 onwards
More sedentary lifestyle due limited physical ability & finances. Making the most of old memories and cherishing old relationships.
Significant reduction in real $ spending
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
EXPENDITURE PATTERN IN RETIREMENT
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
6 5 6 6 6 7 6 8 6 9 7 0 7 1 7 2 7 3 7 4 7 5 7 6 7 7 7 8 7 9 8 0 8 1 8 2 8 3 8 4 8 5 8 6 8 7 8 8 8 9 9 0
WITH 3% INFLATION RATE
Annual living cost at 3% inflation rate
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
6 5 6 6 6 7 6 8 6 9 7 0 7 1 7 2 7 3 7 4 7 5 7 6 7 7 7 8 7 9 8 0 8 1 8 2 8 3 8 4 8 5 8 6 8 7 8 8 8 9 9 0
REDUCING LIVING COST WITH 3% INFLATION RATE
Reducing living cost with inflation rate
Early retirement Intermediate retirement
Advanced retirement
EXPENDITURE PATTERN IN RETIREMENT
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
HOW MUCH WOULD MR LIM NEED TO PROVIDE FOR HIS RETIREMENT? • Assuming he has CPF life monthly income
of $1,000
• Expects to accumulate up to $1,000,000 in cash from his CPF, insurance policies, cash savings etc
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
Age
Linving
Expenses
needed
CPF life monthly
income
Balance living
exp needed
65 $75,852 $16,000 $59,852
66 $78,128 $16,000 $62,128
67 $80,471 $16,000 $64,471
68 $82,886 $16,000 $66,886
69 $85,372 $16,000 $69,372
70 $86,209 $16,000 $70,209
71 $87,054 $16,000 $71,054
72 $87,908 $16,000 $71,908
73 $88,770 $16,000 $72,770
74 $89,640 $16,000 $73,640
75 $89,640 $16,000 $73,640
76 $89,640 $16,000 $73,640
77 $89,640 $16,000 $73,640
78 $89,640 $16,000 $73,640
79 $89,640 $16,000 $73,640
80 $87,932 $16,000 $71,932
81 $86,258 $16,000 $70,258
82 $84,615 $16,000 $68,615
83 $83,003 $16,000 $67,003
84 $81,422 $16,000 $65,422
85 $78,378 $16,000 $62,378
Total $1,792,096 $1,456,096
METHODS TO FUND MY RETIREMENT
EXPENSE
Assume $1m available at
Age 65 in DEPOSITS
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
METHODS TO FUND MY RETIREMENT EXPENSE • Capitalise on your CPF Life & SRS
• Bank Deposits
• Bonds
• Property
• Start investing with a robust asset allocation strategy that is tested with time.
• Use retirement plan from insurers
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
AgeLinving Expenses
needed
CPF life monthly
income
Balance living
exp needed
65 $75,852 $16,000 $59,852
66 $78,128 $16,000 $62,128
67 $80,471 $16,000 $64,471
68 $82,886 $16,000 $66,886
69 $85,372 $16,000 $69,372
70 $86,209 $16,000 $70,209
71 $87,054 $16,000 $71,054
72 $87,908 $16,000 $71,908
73 $88,770 $16,000 $72,770
74 $89,640 $16,000 $73,640
75 $89,640 $16,000 $73,640
76 $89,640 $16,000 $73,640
77 $89,640 $16,000 $73,640
78 $89,640 $16,000 $73,640
79 $89,640 $16,000 $73,640
80 $87,932 $16,000 $71,932
81 $86,258 $16,000 $70,258
82 $84,615 $16,000 $68,615
83 $83,003 $16,000 $67,003
84 $81,422 $16,000 $65,422
85 $78,378 $16,000 $62,378
Total $1,792,096 $1,456,096
Bank deposit &
equivalent 1% int
$949,549
$896,917
$841,415
$782,944
$721,401
$658,406
$593,936
$527,968
$460,478
$391,443
$321,717
$251,294
$180,167
$108,329
$35,773
-$35,802
-$106,418
-$176,096
-$244,860
-$312,730
-$379,799
METHODS TO FUND MY RETIREMENT
EXPENSE
Assume $1m available at
Age 65 in BANK
DEPOSITS
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
AgeLinving Expenses
needed
CPF life monthly
income
Balance living
exp needed
65 $75,852 $16,000 $59,852
66 $78,128 $16,000 $62,128
67 $80,471 $16,000 $64,471
68 $82,886 $16,000 $66,886
69 $85,372 $16,000 $69,372
70 $86,209 $16,000 $70,209
71 $87,054 $16,000 $71,054
72 $87,908 $16,000 $71,908
73 $88,770 $16,000 $72,770
74 $89,640 $16,000 $73,640
75 $89,640 $16,000 $73,640
76 $89,640 $16,000 $73,640
77 $89,640 $16,000 $73,640
78 $89,640 $16,000 $73,640
79 $89,640 $16,000 $73,640
80 $87,932 $16,000 $71,932
81 $86,258 $16,000 $70,258
82 $84,615 $16,000 $68,615
83 $83,003 $16,000 $67,003
84 $81,422 $16,000 $65,422
85 $78,378 $16,000 $62,378
Total $1,792,096 $1,456,096
Bonds 2.75%
-$32,352
-$66,980
-$103,951
-$143,336
-$185,209
-$227,918
-$271,472
-$315,880
-$361,149
-$407,289
-$453,429
-$499,569
-$545,709
-$591,849
-$637,988
-$682,421
-$725,178
-$766,293
-$805,796
-$843,718
-$878,596
$1,000,000
METHODS TO FUND MY RETIREMENT
EXPENSE
Assume $1m available at
Age 65 in BONDS
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
AgeLinving Expenses
needed
CPF life monthly
income
Balance living
exp needed
65 $75,852 $16,000 $59,852
66 $78,128 $16,000 $62,128
67 $80,471 $16,000 $64,471
68 $82,886 $16,000 $66,886
69 $85,372 $16,000 $69,372
70 $86,209 $16,000 $70,209
71 $87,054 $16,000 $71,054
72 $87,908 $16,000 $71,908
73 $88,770 $16,000 $72,770
74 $89,640 $16,000 $73,640
75 $89,640 $16,000 $73,640
76 $89,640 $16,000 $73,640
77 $89,640 $16,000 $73,640
78 $89,640 $16,000 $73,640
79 $89,640 $16,000 $73,640
80 $87,932 $16,000 $71,932
81 $86,258 $16,000 $70,258
82 $84,615 $16,000 $68,615
83 $83,003 $16,000 $67,003
84 $81,422 $16,000 $65,422
85 $78,378 $16,000 $62,378
Total $1,792,096 $1,456,096
Property rental
yield 3%
-$29,852
-$61,980
-$96,451
-$133,336
-$172,709
-$212,918
-$253,972
-$295,880
-$338,649
-$382,289
-$425,929
-$469,569
-$513,209
-$556,849
-$600,488
-$642,421
-$682,678
-$721,293
-$758,296
-$793,718
-$826,096
$1,000,000
METHODS TO FUND MY RETIREMENT
EXPENSE
Assume $1m available at
Age 65 in PROPERTY
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
AgeLinving Expenses
needed
CPF life monthly
income
Balance living
exp needed
65 $75,852 $16,000 $59,852
66 $78,128 $16,000 $62,128
67 $80,471 $16,000 $64,471
68 $82,886 $16,000 $66,886
69 $85,372 $16,000 $69,372
70 $86,209 $16,000 $70,209
71 $87,054 $16,000 $71,054
72 $87,908 $16,000 $71,908
73 $88,770 $16,000 $72,770
74 $89,640 $16,000 $73,640
75 $89,640 $16,000 $73,640
76 $89,640 $16,000 $73,640
77 $89,640 $16,000 $73,640
78 $89,640 $16,000 $73,640
79 $89,640 $16,000 $73,640
80 $87,932 $16,000 $71,932
81 $86,258 $16,000 $70,258
82 $84,615 $16,000 $68,615
83 $83,003 $16,000 $67,003
84 $81,422 $16,000 $65,422
85 $78,378 $16,000 $62,378
Total $1,792,096 $1,456,096
Portfolio of
funds to achieve
5% ROI
$987,155
$974,386
$958,634
$939,680
$917,292
$892,947
$866,540
$837,959
$807,088
$773,802
$738,853
$694,767
$648,918
$601,234
$551,644
$501,777
$451,591
$401,040
$350,079
$298,660
$248,228
METHODS TO FUND MY RETIREMENT
EXPENSE
Assume $1m available at
Age 65 in PORTFOLIO
OF FUNDS
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
AgeLinving Expenses
needed
CPF life monthly
income
Balance living
exp needed
65 $75,852 $16,000 $59,852
66 $78,128 $16,000 $62,128
67 $80,471 $16,000 $64,471
68 $82,886 $16,000 $66,886
69 $85,372 $16,000 $69,372
70 $86,209 $16,000 $70,209
71 $87,054 $16,000 $71,054
72 $87,908 $16,000 $71,908
73 $88,770 $16,000 $72,770
74 $89,640 $16,000 $73,640
75 $89,640 $16,000 $73,640
76 $89,640 $16,000 $73,640
77 $89,640 $16,000 $73,640
78 $89,640 $16,000 $73,640
79 $89,640 $16,000 $73,640
80 $87,932 $16,000 $71,932
81 $86,258 $16,000 $70,258
82 $84,615 $16,000 $68,615
83 $83,003 $16,000 $67,003
84 $81,422 $16,000 $65,422
85 $78,378 $16,000 $62,378
Total $1,792,096 $1,456,096
Retirement
plans - Annuity
-$2,052
-$6,380
-$13,051
-$22,136
-$33,709
-$46,118
-$59,372
-$73,480
-$88,449
-$104,289
-$120,129
-$135,969
-$151,809
-$167,649
-$183,488
-$197,621
-$210,078
-$220,893
-$230,096
-$237,718
-$242,296
$647,000
METHODS TO FUND MY RETIREMENT
EXPENSE
Assume $1m available at
Age 65 in RETIREMENT
ANNUITY
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
FINANCIAL ABILITY & LIMITATIONS DURING RETIREMENT • Risk taking propensity reduces
• Limited ability to recover any substantial loss
• Need for income stream
• Financial wisdom decreases
• Fear of physical / mental impairment
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
A GOOD RETIREMENT PLAN
• Stable & constant income stream
• Simplicity in the plan
• Diversify adequately
• Employ a guided investment advisory service to cater for higher inflationary condition
• Reliable financial advisory services
• Develop personal financial knowledge
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
WHEN IS THE BEST TIME TO GET PREPARED?
As soon as you can!
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
© 2017 Avallis Financial Pte Ltd. Private & Confidential.
Thank you very much
© 2017 Avallis Financial Pte Ltd. Private & Confidential.