Pitfalls for retirement planning
Retirement may feel distant for most of us who have just graduated.
Although many young adults understand the advantage of planning for their retirement early, retirement life may still be too “abstract” as they could not imagine how exactly it will be like. To make better retirement plans as a fresh graduate, here are two major pitfalls to avoid.
Planning for too little
According to the OCBC Financial Wellness Index 2021, 81% of the respondents underestimate the amount they need for their desired lifestyle. Among them, millennials born between the 1980s to late 1990s fared the worst by underestimating their retirement sum by almost 50%. Having talked to many responsible young adults who are prudent in their spending, I know many of them advocate for simplicity when it comes to retirement. Some felt that they won’t have the energy to do much when they are older, while others are willing to settle for a minimalistic lifestyle.
These are valid considerations, but they did not realise that when we are older, we have very few choices if we end up planning for too little. Therefore, it is important to give ourselves more leeway when planning instead of settling for the minimum since the start.
Lack of consistency and review
In the same survey done by OCBC, while some people did make retirement plans for themselves, half of them are not on track with their retirement plans. People who contribute to their retirement plans more regularly are more likely to be on track. Along with concepts such as compound interest, it is not surprising that consistency plays an essential role in ensuring that we achieve our retirement goals. Once we make our retirement plan, we should be reviewing it regularly at different junctures in life. This is to ensure that we are able to make necessary adjustments to our plans if there are any changes in our financial situation or our
desired retirement lifestyle.
With limited choices to earn an income when we are older, it makes it much more important for us to plan with realistic expectations instead of short-changing ourselves by planning for too little. Furthermore, consistent effort and regular review should be done to ensure that we are on the right track!
Zhang Ruo Lin
Financial Services Consultant