Wednesday, January 14, 2015

The Journey Of A Thousand Mile Begins With A Single Step

There has been much talk on retirement on the news papers recently. It seems that everybody knows its going to be expensive to retire here but none has done much about it. A quick calculation will tell you that you will need about $1.3 million if your expenses are $2,000 and you intend to retire in 20 years time and your years of retirement is 20 years. The calculations has taken an inflation of 3% into consideration. 

So if $1.3 million is what you will need to retire then what are you doing today to achieve it? Many have told me that they are saving every month. That's great! But too many did not consider the effects of inflation on their monies when they save. Lets take for example a savings instrument that gives us 0.5%, we save $1,000 for the next 20 years. You will get $253,000 after 20 years. 

Save in an instrument that gives you 2% for the next 20 years, $297,400. That is $44,400 more just by increasing your rate of return. 

The above assumes that whatever goods and services you pay for $1,000 today does not change in 20 years time. But if we take inflation into consideration, the value of your money, if you save in an instrument of 0.5% will be $185,942 and the value of your money in the the instrument that gives 2% will be $216,326.

Huh? Tang .. cheem leh! Ok, lets use an example which I have used in a previous post. Kopi o. 10 years ago, kopi o, $0.60. Today kopi o $1.00. So if we know that in 20 years time the cost of goods will also be increasing then we know that the same $253,000 that is saved will not buy us $253,000 worth of good in 20 years time. It will only get us $185,942 worth of goods and services in 20 years time. 

So how should we accumulate wealth so that we can buy the same amount of goods and services in 20 years time as we are spending today? There are few solutions:

1. Spend less
2. Save more
3. Save in a higher rate rate of return instrument

1. Spend Less

If you think you can sacrifice your lifestyle and not spend as much as what you are spending now during your retirement then, make a plan so you are sure of the expenses you want to cut at retirement. 

2. Save more

Lets use the example above, if you put $1,000 in the instrument that gives you 0.5% and get $253,000 in 20 years time. You want the same value in 20 years time, you will have to save $1,360 per month for the next 20 years in the same instrument. The extra $360 saved will offset the increase in the price of goods and service caused by inflation in 20 years time.

3. Save in higher rate of return instrument

You can also start saving in an instrument that will offset the inflation of 3% or invest in instruments that give you more than 3%. So depending on your risk profile, if you put the same $1,000 in an instrument that gives 5%, you will get $416,631 in 20 years time! An increase of about 60% from $253,000 with just an increase in 4.5% rate of return over 20 years!

There are many other strategies like delaying retirement, not retiring, ask children to support, work part time, collect tin can to sell, but importantly, whatever strategy you decide to take, talk to your financial consultant first. Your financial consultant can do up a retirement plan for you. He/She can calculate the figures for you so that you have a clearer picture of what to aim for. With that figure then you can make Specific and Measurable plans to achieve it. We will help you make Achievable and Relevant financial decision so that we will be in Time for your retirement.

So make a SMART choice today. Call your financial consultant if not email me for a no obligation consultation. tngjinyau@gmail.com Like they say, nobody plans to fail, but many fail to plan. Start your journey to your retirement with me today! The journey of a thousand mile begins with a single step.