Financial Planning for Different Life Stages

2 weeks ago JCprojectfreedom 1

Financial planning changes for different life’s milestones as goals and priorities will evolve as we age. Hence, it is important to regularly review your financial plans and take actions to adjust accordingly.

Aged 20 to 30

You have just started working and enjoy the taste of freedom of having your first credit card.

It is important to build up your financial literacy and knowledge. It will become more expensive because it will cost more to be ignorant when you have more money later on in life.

You need to set up your personal finance plan, set aside a saving plan, paying yourself first and track your expenses. It is important to inculcate a habit to save money. Then you can build up your emergency funds which is between 6 – 12 months of monthly expenses.

Meanwhile, you can set aside money to participate in regular investment/savings plans such as DBS Invest-Saver (2019), OCBC Blue Chip Investment Plan (BCIP in 2019) and POEMS Share Builders Plan. The early you start, the earlier you can harness the power of compounding.

*Do note STI ETF is over-weighed with Singapore banks stock and it has a lot of laggards in the components. It is a good step to start with STI ETF and move on to other ETFs or individual stock picks later on.

Aged 30 to 45

This age group is when you reach the top of your career, building a family and it can be the most financially challenging age group taking care of young children and ageing parents.

You need to ensure that you have sufficient insurance coverage for critical illness, hospitalization and home loan.

Then you need to aggressively save and invest for your retirement and children’s education fund.

Aged 45 to 60

This age group is close to retirement and they need to think what is their desired retirement lifestyle. This age group has started or are starting their retirement planning. This age group faces the most challenges in terms of children’s education, taking care of aged parents and stability in career.

They want to have passive income to meet monthly expenses when they retire. They want to have sufficient resources to travel. They want to have sufficient insurance coverage to cater for unexpected medical expenses.

For this age group, wealth planning will be gear towards wealth preservation more than wealth accumulation. Conservative investors can use different maturity endowment plans as a form of force regular savings to receive lump sum cash payout during their retirement years. Investors who are more aggressive, can continue to spare maximum 50% of their portfolio in equities such as dividend stocks and REITs.

You need to scrutinize costs of your investment and question your adviser or banker what does the cost of the investment includes. Costs are the only thing which you can control when investing. If your investment incurs higher cost, it will affect your returns.

Insurance coverage is important for this age group as there are dependants to look after, loans and mortgages to serve.

Aged 60 and above

This age group is advised to reduce equities to 20-30% of your retirement fund, depending on your risk appetite. The main risk is for permanent capital loss and there is lesser time to recoup the losses. The key is to constantly review your retirement amount and portfolio, making sure that there is sufficient to retire on. You can continue to remain in the work force on a part time basis to have lesser income, delaying the draw down of your retirement sum.

You can consider downsizing your house as larger the house the more tedious and hectic to clean and maintain. This will also free up money for your retirement.

It is important to stay engage with community activities and exercise on a regular basis.