“Yes, I am retiring.”
With these words, beloved MediaCorp celebrity Rebecca Lim broke a million hearts (ok maybe not), albeit temporarily, before revealing that what she meant was that she had signed up for a retirement plan with an insurance company and is now looking forward to retiring with all of us and living life to the fullest!
A spokesperson for the insurance company tried to explain that they were trying to introduce the concept of retiring as a journey and they were hoping to use this opportunity to articulate the real concept of retiring. Yup, whatever floats your boat man.
Okay I don’t want to discuss the marketing disaster that was pulled off, so we’ll leave that to the marketing gurus and PR professionals. But because of this event, many of us are suddenly exposed to the words “retirement plan”.
What is this retirement plan whose benefits Rebecca Lim is selling us? (I will refer to this retirement ‘plan’ as a retirement ‘policy’ from now onwards)
I am not finding faults with the words ‘plan’ or ‘policy’, but my intention is to bring to light the confusion that arises when one signs up for a similar retirement policy.
As a financial planning practitioner, I believe it is important for us to look at what a proper retirement ‘plan’ entails before rushing out to sign up for a ‘policy’ thinking that it’d allow us to retire happily ever after with our favourite celebrity (Ellen Page, if you’re wondering).
Since Singaporeans generally enjoy going abroad for a holiday, let me use the following as an example:
When you plan for a holiday, there are a number of things that you would require:
- A Holiday Destination.
- Some of you would note the places you want to visit, food you want to eat, malls you want to shop at, at your holiday destination
- An air-plane ticket (to your destination)
- In the event of say a last minute work engagement, and you are forced to alter your plans. So perhaps, instead of going to Canada, you to go somewhere nearer like Johor Bahru.
Similarly, a simple retirement plan would be as follows:
- A (desired) Retirement Age
- Some of you would note the lifestyle that you want to lead in retirement.
- Possibly implementing a retirement policy so you can reach your destination as planned
- Constantly working on your retirement plan as you run into potential challenges along the way (for eg, job loss, interest rate changes, inflation rate changes, birth of a new child)
Given the context above, what Rebecca Lim and the insurance company is promoting is a retirement policy, which is like an air-plane ticket in your holiday plans, it is NOT an all-encompassing “retirement plan”.
And now that we have differentiated a “retirement policy” from a “retirement plan”, let us understand a retirement policy better.
Here’s how I define the retirement policy that Rebecca signed up for: It is a savings instrument, known more traditionally as an endowment plan/policy, designed to assist you in achieving your retirement goals.
Some retirement policies pay you a lump sum at a particular age, some pay you a cashflow, and others are a combination of the two.
Like most endowment policies, you have the option of contributing regularly (eg. monthly or annually) to your plan over a number of years.
As she said in her now infamous video, you can save a little each day for your future by starting a retirement policy with as small a commitment as you deem fit in reaching your retirement goals.
With insurance companies, you can almost be assured that your money will be invested at low risks, thus the money you contributed to your retirement policy will usually be growing slowly and steadily.
Young professionals can take advantage of the fact that we have time on our side and with the miracle known as the compound effect, create a sizable fortune by the time we reach retirement age, with a relatively small effort each day.
However it is important also to realise that for most of us, it still requires an initial effort to ‘compromise’ on our spending and save more in such a retirement policy to create a meaningful retirement fund at the end of the day.
Assuming your final destination is nothing more than retiring at age 65 with your current standard of living. While setting aside $100 a month may not cause you to compromise on your daily expenditures and decisions, it is a blatant lie to say or think that you’re all set for retirement!
This is perhaps the biggest problem I have with marketing campaigns that promises a lot for very little.
By the way, I’m not saying that you shouldn’t get involved in a retirement policy if all you can afford is $100, because doing something today is invariably better than doing nothing, and most people do nothing!
However, before jumping on the ‘retirement policy’ bandwagon, you might want to pick up your Casio calculator to work out your numbers first. Or better still, speak to a trusted financial planner, like me of course 🙂 , and see how your retirement goals can best be achieved.
This is to make sure that you don’t purchase the wrong air-plane ticket and end up somewhere you didn’t plan to go.