Choosing the Best Retirement for You: What You Need to Know

Choosing the Best Retirement for You: What You Need to Know
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Last Updated on by Tree of Wealth

Retirement, the big R word we will struggle during our working years, as well as when we are approaching it. Are you ready for retirement? Have you given it some thought or planned out your finances for your golden years? When we are still young, retirement may be in the back of our minds but it still feels so far away that many of us do not properly prepare. However, it is important to make sure that we are planning for our future.

Retirement is something that we will all have to deal with eventually, whether we want to or not and when that day comes, we should be financially prepared. So, if you want to plan out your retirement and make sure you can afford the lifestyle you love, there are a number of factors to consider, such as the four retirement plan categories, the kind of income you are looking for, and generally planning out your financial situation once you retire.

Basically, your retirement is an investment plan. You will put away some savings every month when you are working and once you retire, you will be able to tap into those savings converted into streams of income. It is designed to replace your income sources when you are no longer working. To find out which retirement plan is best for you, here are a few factors to think about:

What Retirement Plan is Right For You?

When you first decide to plan out your retirement, you will need to decide on one of four categories, which are high income retirement plans, capital withdrawal-able retirement plans, lifetime income retirement plans, and inflation-proof retirement plans. Each option has their own pros and cons and may or may not work for your situation or for the lifestyle you want to live once you retire.

High Regular Payouts Retirement Plans

These plans will offer the highest payouts out of all of the retirement plans but it will only last a certain amount of years, usually ten to twenty years. This particular plan is great for individuals who have businesses or are looking for a large boost to their income stream when they first retire. Also, these plans provide an income multiplier if you become disabled.

This plan does carry the risk of running out of money if you do not use it wisely but if you plan accordingly, this is a great way to open up doors to the lifestyles you want to live for the rest of your life. With the increased income, you can use it to start businesses, get into investing, purchase real estate, enhance your current businesses, or simply go on that long deserved vacation.

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Cash Value Flexible Withdrawal Retirement Plans

These plans provide protection in uncertain times. You never know when you will need your money and this is where capital withdrawal-able retirement plans come into play. These plans provide a regular payout for as long as you have the policy.

You will also be able to cash out the policy whenever you want. This will give you back all of the premiums that you already paid into the plan and usually after a certain number of years into the policy. Which is great for unexpected situations but the disadvantage is a lower stream of income.

Lifetime Income Retirement Plans

The lifetime income retirement plan does exactly how it sounds. It will offer lifetime payments when you retire. You can also get joint ownership of these plans, so the payouts will transfer to your spouse if you pass away.

This retirement plan is great if you are already financially situated as it will offer a lifetime income you can rely on. However, the payouts you will receive are significantly lower compared to other plans. This can prove to be a problem if you have a lot of expenses, especially in the beginning part of your retirement. You also have to consider that overtime inflation can further reduce your payouts.

To get the most out of this plan, you should already have other income streams and then this will become a supplemental source of income. For example, consider to invest in some real estate or rental properties and receive a monthly income that is sufficient for your lifestyle, this plan can help provide some extra disposable money.

Increasing Rate of Returns Retirement Plans

Inflation is something that we all have to worry about and if we are not careful, it can erode our savings a significant amount especially during retirement. To combat this, there is a retirement plan that protects against this. The inflation-proof retirement plan won’t provide as high of an income as other options but it will adjust alongside inflation, so the payouts will actually increase over time.

These retirement plans will usually last around a max of 25 years, so you can outlive it but you may also get a lump sum along with your final payout but this isn’t guaranteed. Although, if inflation is something you are worried about, this is a great way to maintain your lifestyle for the next two decades and if you are worried about outliving your retirement, you can think about investment options that will payout once your retirement runs out.

Alongside these four different plans you can also use riders and other features to customize these policies to better suit your unique situation. You can also use CPF life, which is a national longevity insurance annuity scheme that will help keep your lights on. It is designed to pay for your basic needs, such as food, rent, and utilities. This will allow your retirement to become a disposable income that you can use to improve your quality of life. However, this won’t cover unexpected situations such as severe illness or even disability. For this reason, it is still important to consider getting other riders and features that can cover these situations if they were ever to occur, these include:

Disability Lump Sum Payouts

This will provide a lump sum payout if you were ever to become disabled. This is great as it will allow you to put in a claim, even when you are still paying your premiums or before you retire.

Premium Waiver Benefits

These riders will waive your future premiums if you were to become disabled or critically ill. They are something that you should definitely consider as it will help you save a lot of money if the unexpected were to happen. Also, you will still receive your full retirement income even if the premiums are waived.

The downside to these riders is that they are quite expensive and you may never need to use it, so you could end up spending money for nothing. To make the most out of this, it is important to consider your work situation or family health history. It is worth getting if you have dangerous work, use dangerous modes of transportation, or have a health history that may predispose you to certain critical illnesses.

Disability Income Multiplier

Disability is something that no one wants. It will not only flip your life upside down, prevent you from doing the things you love but it will also have a significant negative impact on your income. Now you are suddenly making less money and have more expenses to deal with at the same time.

To help keep your income flowing when you become disabled, it is important to consider a disability income multiplier. This means your retirement income may increase double or triple the original amount. The extra money will pay for a full-time caregiver, daily living needs, and more.

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Besides disability and illness related riders there are other features you can integrate into your retirement plan, such as:

Lump Sum Payouts

These addons will provide a lump sum cash payout once a certain amount of time has passed or when you become a specified age. Some lump sum features you can use are:

Maturity Lump Sum

The maturity lump sum payout is a great way to get some extra cash when you outlive your retirement policy. You can use this to get an additional payout once your retirement policy expires. This will provide a buffer for you while you find additional income streams.

Lump Sum Payout Upon Surrendering

This feature will provide you with a lump sum cash payout when you surrender your retirement policy. However, it is important to take note that not every plan will have this option. So, if you are interested in complete liquidity, make sure your retirement policy allows it.

Upfront Lump Sum

Depending on your retirement policy, you may be able to enjoy an upfront lump sum. This feature will give you a partial or full lump sum cash payout once you hit your retirement age. However, this may reduce your monthly income so make sure to check your policy.

Living Your Best Life During Retirement

Retiring is a huge step in life, so it is important to make sure you are planning ahead to make the most of it. Besides deciding on which plan will work best for you, it is crucial to make sure that you are looking for additional optimization or customization of your policy. Retirement plans are not a one size fits all. You need to make sure the policy you choose, works for you.

Here are a few factors to consider:

Accumulation Period

A retirement plan is just like any other investment and you can enjoy the benefits of compound interest. To take advantage of this, you will want to start as early as possible. Also, it is important to note that for every 5 years of deferred payouts for retirement, your financial returns will increase by 20%.

If you are looking for the most compound interest, then you will want to select a retirement plan that locks in your cash payouts until you retire. Policies that allow you to withdraw money before retirement, will have less compound interest. It is also a good idea to use a SRS approved retirement plan, as it comes with an 0.05% interest rate.

Premium Terms

If you have the cash to spare and a higher budget available, consider putting your funds into a single premium or pay over five years. This will provide much higher financial returns. You may even see up to 40% higher returns. However, this means a lower remuneration so it is typically not advised unless you can comfortably afford it.

When you start planning your retirement, make sure to take your time. Look at your lifestyle and the lifestyle you want to live in your golden years, consider how much it costs to achieve that and what policy will best suited in helping you achieve your goals.

 

Are you looking for retirement planning but not sure which instruments to go ahead with?

Let us do the homework and help you compare across the different retirement plans in the market to save you time. Drop us an inquiry below and our professional experienced licensed FA advisor will get in touch with you shortly upon your request.

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