The Retirement Planning Process

The Retirement planning process is made up of 6 steps:

1. Establish Goals
2. Gathering Relevant Data
3. Analysing The Data
4. Developing a Plan
5. Implementing The Plan
6. Monitoring The Plan

Let me bring you through the steps and explain how I usually use these steps to help my clients customize their retirement plan.

Step 1 - Establish Goals

Client’s goals vary significantly depending on many factors including health, age, marital status, number and age of children, different in the ages of the husband and wife and personal preferences. Also clients’ goals will vary depending on his personal definition of retirement. For some, retirement is the last day they have to work for others, it is the last day they want to work and for still others, it is the last day they can work.

As such effective retirement planning begins with identifying and prioritizing my client’s retirement goals. The goals identified must be both realistic and attainable. Example of retirement goals include:

• Maintaining pre-retirement standard of living
• Maintaining economic self -sufficiency
• Minimizing taxes
• Retiring early
• Adapting to non-economic aspects of retirement
• Passing on wealth to others
• improving lifestyle in retirement
• aring for Dependants

Maintaining their standard of living despite the loss of income from employment can mean a variety of things to clients. For some clients it may mean being able to stay where they are without dramatic loss of purchasing power. Other clients may be willing to move to a less costly house in order to maintain their purchasing power. client who are active in leisure activities such as golf will want to continues these activities.

Maintaining economic Self-Sufficiency

An objective that goes hand in hand with maintaining one’s pre-retirement standard of living is the desire to remain self-sufficient throughout. Many clients fear becoming dependent on children, charity or the government. This may be a significant reason that clients actually cut back on spending in retirement. Financial independence takes on even more importance when one considers that many other constraints may be imposed on their independence such as their ability to work drive or be physically mobile.

Minimising Taxes

An important goal common to all clients is their desire to be tax wise regarding their retirement funds. Paying the least amount of taxes on their retirement distributions investing for the best after tax yield and maximizing tax-shelter opportunities with their retirement capital are special priorities that my clients will have.

Retiring Early

A characteristic of modern times is that many peopl want to get out of the rat race as soon as possible. Early retirement is popular for several reasons:

• Health problem that client is currently facing
• fear of future health problems
  (the get out now while I still can enjoy it philosophy)
• care giving concerns due to health problems of loved ones
• corporate downsizing
• retirement of a spouse
• death of a spouse

If my client seeks early retirement, it is even more important to start retirement planning at a young age and to accurately estimate the retirement need. These extra precautions are necessary because the lengthened retirement period is subject to compounded increases in inflation. Furthermore the shortened pre-retirement period is subject to increased drain on current cash in order to fund the extended retirement period and for medical protection.

Adapting to Non-economic Aspects of Retirement

In addition to relevant economic objectives my clients will have to meet, they will also have non-economic objects such as:

• using leisure time more effectively
• adapting to a nonworking environment
• coping with deteriorating health
• coping with care giving responsibilities
• adapting to a fixed income relocating after retirement

These and other non-economic factors also have impostant economic implications. For example, replocating after retirement can affect the overall pool of retirement assets because the sa;es of the home may provide surplus assets.

Improving Lifestyle In RetirementClients with the objective of improving their life-style in the retirement years are willing to make extra sacrifices prior to retirement in order to enjoy some luxuries, such as travel, during retirement. another set of planning problems is created if the person’s objective is to plan for a more costly life-style during retirement. These individuals will need extra resources in order to fulfill their dreams.

Caring for Dependants

Another retirement objective for some people is to have the ability to support a dependent. This typically occurs when a dependent needs frequent physical or medical care. Special and distinct planning considerations are required depending on whether the dependent is a child, sibling or parent. In addition to the normal living expenses during the dependent’s life expectancy, you must also consider whether there will be medical bills, additional living expenses, and any other financial drain on the client’s retirement income.

Other Goals

In additional to the general retirement goals discussed above, my client may have one or more of the following specific retirement goals:

• Providing for secure investments-investing assets to minimise potential losses and make the client feel secure about his investment.
• coping with health care costs– purchasing a Major Medical expenses policy may be required to cover health care costs no covered by group health insurance, basic medical expenses insurance as well as CPF approved medical insurance schemes.
• staying as healthy as possible — ensuring adequate funding for health clubs and other leisure activities

Very often, I will find my clients’ goals conflict with each other as well as with the demands and reality of their daily lifestyle. For example, a client may say that his goal is to retire early and he wants to maintain economic self sufficiency. However, based on his financial standing, he will not be able to achieve self-sufficiency if he were to retire early. In fact, if he wants to have self-sufficiency after retirement, he should retire later. Such clients will have difficulties setiing aside enough money from their current incomes to meet their retirement goals. Thus, you have a duty to help your clients set the right goals so that they are both realistic and attainable.

Having determined the goals, I will move on to step 2

Step 2 — Gather Relevant Data

In this step, I will be doing a fact find to gather more information from my client. The information which I need to obtain include:

• an inventory of assets and liabilities
• annual income
• estate planning information
• any existing insurance coverages
• amount of CPF saving
• information about employer-sponsored retirements plan
• information regarding the client’s risk tolerance
• his current desired retirement age
• his marital statues
• his employment status
• which life cycle he is in
• any dependants
• any health problems

Step 3 — Analyse The Data

This third step requires myself to analyse the date and to quantify the needs uncovered. The data gathered earlier will enable me to determine where my client stand financially for his retirement purpose. It will also enable me to assess my client wants to be financially during retirement as well as his ability to reach his goal.

To compute the client’s retirement needs, I have to add up my client’s existing resources. These may include:

• bank deposits
• investment
• CPF saving
• supplementary retirement scheme
• endownment insurance policies
• annuities
• property rental income
• reverse mortgage
• proceeds from downgrading to a smaller residential property

Once a financial inventory of possible sources of retirement income has been taken, the next step is to determine how much annual income will be needed in the first year of retirement to achieve the client’s goals.

Step 4 — Develop A Plan

In this step I will road map the way for my client to achieve his goals. To begin with I have to determine the type of products that can be used to fund the client’s retirement needs that I have arrived in step 3

When recommending products for my client’s retirement, I always bear in mind the 2 basic principle

1. Only recommend products if my client needs them, and
2. Only recommend products which are the most suitable for my client given his circumstances.

In the plan development process, I must consider how to use CPF saving , insurance policies annuities, unit trusts, shares and the net inflow/saving to maximisie the overall investment returns and meet the retirement funding need.

Once the plan has been developed, my next job is to present it to my client.

Step 5 — Implement The Plan

It is my duty to help implement every aspect of the financial plan which I have proposed and accepted by the client.

Step 6 — Monitor The Plan

The process of identifying and satisfying a client’s needs does not stop with the implementation of the plan. My client’s circumstances may change or there may be external developments which may affect my client. As such, it is important that I conduct an least yearly review with my client regularly.

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