ARTICLE

Test drive your retirement plans today

30 August 2024

8 min read

Healthy Mind

_{(photo credit: Photo by Marc Najera on Unsplash)}

Given the wealth of information on the internet today, many of you already do extensive research on purchases such as a staycation package or a new handphone you want to buy.

While there's a similarly long reading list for retirement planning, it's a much less exciting research to do. That's understandable. Perhaps you can try to test-drive the retirement life you want to live instead.

This will also give you a good gauge of whether your plan is feasible and, ultimately, if you're doing enough to build a nest egg that's adequate for the retirement you want to live.

1. How much will you spend in retirement?

It's easy to plan a cutback in your monthly expenses during retirement. Going without things like overseas holidays, eating out, Grab rides and other forms of entertainment you currently enjoy may even seem logical when you no longer earn a regular salary. However, it's entirely another thing to forego certain luxuries you have become so accustomed to.

One realistic way to determine if you can do without these expenses in retirement is to do without them today. If anything, this test-drive will leave you with more to put towards your retirement nest egg. When retirement comes along, you could potentially avoid a painful transition phase.

The current COVID-19 pandemic has already given you a glimpse of life without travel, and safe management measures may have also curbed expenses on grab rides and eating out. The real test will likely come once normalcy returns – can you continue living without these indulgences?

There's no right or wrong – it's down to individual preferences for the life you want to live.

If you cannot do without certain luxuries, then a low-cost retirement might not be on the cards for you. You can still consider working longer, past the retirement age, to grow a bigger nest egg. You can also consider working a less stressful job in your senior years to supplement your income.

If you're able to eliminate majority of your indulgences, then you may even be able to think about FIRE – Financial Independence, Retire Early.

2. What will you do in your retirement?

The thought of finally leaving the stress-laden working world behind might seem attractive. However, you have to consider whether you would even enjoy life without work. After spending close to four decades in your career, a major part of your identity and source of motivation is the work that you do.

While working, you may become resentful that you don't have enough time to workout, cook healthy meals or enjoy certain hobbies. You envision these things to be the passions and interests you want to pursue in retirement.

However, you never actually know if they were just activities you wanted to try and whether your interest in them will sustain over a long-term. It's not difficult to find out. Squeeze in time to head to the gym, go for runs, cook every weekend or indulge in your hobbies regularly. This experiment will reveal if you actually enjoy doing them for a sustained period of time or if you lose interest.

Even if you enjoy doing these things, they may take up just a fraction of your day. Again, you can test-drive this retirement lifestyle by taking a sabbatical or even using your annual leave to have a taste of several weeks' worth of such a lifestyle.

3. Where will you stay in your retirement?

This question is for those who want to right-size to a smaller home, rent out a room in their home or live in a more affordable retirement destination such as Malaysia or Indonesia.

Before taking the drastic action of selling your home and buying a smaller one or buying a home in another country, a test-drive can save you a lot of time and money. Renting a smaller home for two years (while renting out your current place) can tell you everything you need to know about living in a smaller home.

If you are planning to live in a cheaper overseas country, you might have to combine taking a sabbatical and renting a place overseas in your test-drive.

Sure, these will mean greater costs and inconvenience during your test-drive. However, if you turn out to be wrong about your preferred home during retirement, the savings can be immeasurable.

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Start growing your retirement nest egg today, so you don't have to take extreme steps tomorrow

You may think you will be able to drastically change your lifestyle in retirement. The reality is that humans a creatures of habit, after you get used to a certain standard of living or way of life, it can be difficult to make changes – both financially and emotionally.

To ensure you will be able to adjust to the retirement lifestyle you are aiming for, you should test-drive it before you actually retire.

One important component is having sufficient retirement income. Understand how much you stand to receive in CPF LIFE and build supplementary income streams with investments and savings. One way to boost your retirement nest egg is with AIA Platinum Retirement Elite, which ensures you consider your retirement needs with a target monthly retirement income. You also retain lifestyle flexibility to start drawing down from age 50 as well as choosing to receive a yearly stepped-up income between 0% and 5% to combat inflation.

As you put away savings towards your retirement, you also need to ensure that you protect your nest egg from uncertainties. Having sufficient life insurance not only protects your dependents in the short-term, but also the plans you have built with your spouse in the long-term.

With life insurance, such as AIA Guaranteed Protect Plus (IV), you can protect your young children, spouse or elderly parents from potential financial hardship, should any unforeseen events occur. It covers you for up to 5 times your coverage amount till age 65 or 75, and thereafter continues to protect you against death or total permanent disability with your coverage amount.. Plus, this plan accumulates stable cash value, and you also have the flexibility to encash 50% or 100% of your coverage amount to supplement your retirement income. For enhanced coverage, you can purchase add-on riders to cover critical illness as well. This protects you and your spouse from needing to dip into your retirement funds if critical illness strikes.

At the same time, if you are healthy in your golden years, the plan accumulates a cash value that will mature once you turn 100 or as legacy to leave behind for your loved ones when you pass on.

To encourage you to adopt a healthier lifestyle, AIA Vitality rewards you with discounted health screening, gym membership discounts and exclusive deals on fitness-related gadgets, and travel and leisure activities.

^{This article was originally published on 23 January 2022 and updated with new information.}

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