retirement comparison

How To Beat High Earners In Getting To Retirement By Being Good At Financial Planning

When it comes to retirement, many people think that you need to be highly paid in order to be thinking about retirement. The general belief is that, if you aren’t paid $8k to $10k per month, you are probably much better thinking about ways to raise your income first than to think about financial planning for retirement.

Myth 1: You Need To Be A High Earner To Start Financial Planning

Well, turns out that most of us are wrong about this. A recent poll by wealth management company St. James’s Place debunks this for us. The poll found that even so-called high income earners making anywhere from $6k to over $20k are worried about their retirement funds.

Many of them barely have enough savings and are living from pay cheque to pay cheque to cover their monthly expenses. All of these problems can be attributed to the lack of financial planning for the high income earners.

Myth 2: Cash Is King And You Don’t Have To Worry About Idle Cash

The other danger that was flagged out in the poll was that many high income earners treat cash as king. There’s nothing wrong with that if you want to live in comfort knowing that your bank balance is increasing steadily over time. The only problem is when you have too much cash lying idle in the bank account.

The survey found that ~40% of high income earners only have a single source of income, which means that they do not use their idle cash to invest in stocks, insurance plans or property. The reality is that putting your stack of cash in bank isn’t going to help you beat inflation and prepare you for retirement. In fact, inflation is likely to beat the interest you are earning from the bank by a huge margin.

Why Financial Planning Is Important Even If You Are Not A High Income Earner?

The two dangers highlighted above points to the same takeaway: If you want to retire, you need to start by being good at financial planning. And if you are good at financial planning, you can outdo the so-called high income earners in the race to retirement. Here’s why.

Good financial planning will help you to allocate your idle cash in the right investments (based on your risk profile and appetite) to make your money work hard for you. While you are climbing the corporate ladder to boost your monthly income, your money is also hard at work to give you some passive income without you lifting a finger.

If you save $1k per month for the next 30 years, you would have saved $360k. However, if you take inflation (~2%) into account, you will be left with only $267.25k. If you take that $1k monthly saving and invest it, here’s how much you can get at the end of 30 years.

 Net Investment Rate (After Inflation) Future Value At End Of 30 Years No. Of Times Of Savings
0% (savings rate) – 2% = -2% $267.25k 0.74x
2.5% (CPF OA rate) – 2% = 0.5% $389.29k 1.08
4% (CPF SA rate/Retirement Plans) – 2% = 2% $496.55k 1.38x
6% (moderate risk investment) – 2% = 4% $699.94k 1.94x
10% (higher risk investment) – 2% = 8% $1.468M 4.07x
When Is The Best Time To Start Financial Planning?

Now, the question is, when is the best time to start financial planning? The best time to start financial planning is yesterday. However, that doesn’t mean that you have missed the holden timing for financial planning.

While the time that have slipped through cannot be retrieved, but you can always kickstart your financial planning today. Thus, the next best time to start is today.

How To Start Financial Planning Today?

Starting your financial planning right this moment requires you to have a comprehensive view of your current financial status. The other thing you need to identify before starting is your financial goals. For example, when do you want to retire by and what kind of retirement lifestyle will determine how much you need for retirement.

Then based on your current financial status, retirement goals and risk profile, you can plan what is the best investment to meet your retirement goals.

Based on the poll, the reality is that not everyone is equipped with the skills and financial literacy knowledge to do your own financial planning. That’s why Moneyline.sg is here to help you start your financial planning journey today.

Drop us a message and we will arrange for a financial review session to help you take stock of your current financial status, retirement goals and risk profile. We will then provide a professional recommendation for what you can do with your idle cash and where best to invest them based on your profile.

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