249) Why Financial Planning Approach for Retirement?

249) Why Financial Planning Approach for Retirement?

Many people will want to plan well for their retirement. However, not many plan well.
When they were asked how much is needed at retirement age, most people do not know the amount required.

Some will just say $1 Million will be enough. Some will say $2 Million will be enough.
It is mostly based on gut feel or just guess a number to give the impression that they know about it.
If they were asked how they get the number, most will just smile or laugh to avoid giving the answer.

As a quiz, what is the required amount for this case below?

30 years old now.
Retire at 60 years old.
Spends $2,000 per month.
Prepare for 20 years living expenses.
Inflation is at 4%.

How much:
a) Retirement money needed at age 60?
b) To save or invest monthly to achieve that number?

Estimate your answers before reading further.




Do you have the answers?

From our simple calculation, you will need $1,556,840 at age 60 to sustain till age 80. With a 7% investment yearly return, you will need to invest $1,373 monthly.

Most people will be surprised that the Retirement Amount and Monthly investment number are  higher than they expected.

If you do not calculate and plan, you may not be able to retire comfortably as you wanted. If your retirement fund is not sufficient, you cannot retire.

The younger persons will have a higher amount required than expected.

Why?

Because younger people have less experience in paying for all the things. If you are staying with your parents or renting, your payments are much less. Younger people do not know how much to pay for the family expenses, especially when kids expenses are included.

A higher inflation rate will definitely increase the expenses at much higher amount than you expected. Many people also expect their investments are going to give a higher return than actual.

A longer time to retire will also affect the retirement amount more. Any small change will be compounded to a longer period.

A more detail planning will be needed to check what is your actual monthly expenses?
Do you know how much is your current expenses? Most people will also estimate a number again. Have you actually list down the things you paid? Do it as a good exercise to know where actually has your money flowed out to.

Most expenses are only daily and monthly basis like food, petrol, car loan, phone, internet, water, electricity, car park, eating out, entertainment, clothing, etc.

Do take note that some expenses are based on yearly or irregular payments. For example, car insurance, road tax, life insurance, quit rents, festival expenses, car repair, etc.

The calculations are not only to be done once and use it until your retirement. You have to review your expenses situation and recalculate your retirement number again. It is best if you can do it on a yearly basis. You will be able to adjust and take some steps to handle the situation.

All the information you compiled now are just an estimate as your situation will change. You may have higher expenses, other unforeseen expenses, new income source, good investment opportunities, etc.

When your income increases, you will definitely increase your expenses too. You will have the urge to upgrade your car, house, lifestyle, etc.

This article is just a short introduction to plan for your retirement.

Please contact and discuss with your Financial Consultant on the financial options available for you.


Do you know your retirement amount required?
To calculate more accurately, click on the link below:

248) How to Calculate for Retirement Planning

http://highlevelrules.blogspot.com/2020/04/248-how-to-calculate-for-retirement.html

Here is an Excel file where you can compare the Cash Flow (income and expenses) during working and during retirement.  Link to Cash Flow excel file:

https://drive.google.com/open?id=1c9m6z1g_WxOmxHDhaM7wQLsjqSuuy21P

For more related articles:

107) Invest & Expenses for Retirement Plan

http://highlevelrules.blogspot.com/2017/09/invest-expenses-for-retirement-plan.html

210) Do You spend more or less during retirement?

http://highlevelrules.blogspot.com/2018/09/do-you-spend-more-or-less-during.html

200) Why Retirees Should Still Invest their Retirement Fund?

http://highlevelrules.blogspot.com/2018/08/invest-out-of-retirement-fund.html

201) Why You Should Start Your Retirement Fund Early?

http://highlevelrules.blogspot.com/2018/08/start-your-retirement-fund-early.html

166) Project Lower Investment Return

http://highlevelrules.blogspot.com/2018/04/project-lower-investment-return.html

248) How to Calculate for Retirement Planning

248) How to Calculate for Retirement Planning

Have you wondered how to calculate for your retirement nest egg amount?
What is the amount needed at your retirement day to spend during your retirement days.

The calculation uses the concept and formula as shown below. The value of money is worth more in the future due to interest or inflation rates. Higher interest rate and more years will make the money value increased more in the future.

These are simple steps to calculate your Monthly Savings to achieve your Retirement target.
We will be using a Time Value of Money calculator or simply named Financial Calculator.
There are many apps available online.

The example below are using screenshots from the app Financial Calculators, created by Bishinews www.fncalculator.com

Please download and start the App to follow the steps.  Click on the TVM Calculator function and you should see the TVM calculator screen as shown on below right image.

Let's take a case study of Adam.
He is currently 30 years old.
He plans to retire at 60 years old.
He wants to prepare money to live for 20 years until he is 80 years old.
He spends $24,000 per year now and wish to have same purchasing power when he is in retirement.

Assumption:
Inflation is at 4% and remains the same all the time.
During retirement, Inflation Rate is same as Investment Return Rate at 4%
He expects his current investment to give 7% per year until he retires at 60. 


There are 3 steps in the calculation.

1) Future Value of Expenses.

2) Total Expenses during Retirement.

3) Yearly Investment amount.

Step 1: Calculate Future Value of Expenses

Present Value is $24,000
Annual Rate is 4%
Period is 30 years

Click on FV button to get the Future Value.

The $24,000 expenses will be inflated to $77,842.54 after 30 years at inflation rate of 4% per annum.

Note:
1) The negative sign shows the money you get back after 30 years. It is not relevant for this calculation.
2) End mode or Begin mode gives same answer.
3) Use Annual Compounding as the Rate is Annual Compounding Rate

The app screen should look like below:

Step 2: Total Expenses during Retirement.

The $77,854.54 is only expenses for 1 year. To live for 20 years, the amount need to multiply by 20.
1 year = $77,842.54
Total = $77,842.54 x 20 years = $1,556,840

Amount needed at age 60 for 20 years Retirement = $1,556,840.

He will withdraw $77,842.54 at age 60 to spend while investing the remaining amount with a conservative return rate of 4%. 

At age 61, he will withdraw more money to match the inflation rate.

Withdrawal at age 61 = $77,842.54 (1 + 4%) = $80,956.24

He continues to withdraw additional 4% every year until he is 80 years old. Upon reaching 80 years old, all the money will be finished.

Step 3: Yearly Investment amount.

Now we need to calculate the yearly investment amount needed to achieve the Retirement Nest Egg amount. 

Future Value is $1,556,840 for the total retirement amount
Annual Rate for investment is 7%
Period is 30 years

Click on PMT button to get the yearly Payment Amount.
He needs to invest $16,481.34 every year or
$16,481.34/12 = $1,373.45 per month.

If we combine the graphs of the 3 steps, it will look like below:

This is the simple steps to calculate for your retirement amount.

Using the steps shown above, you can do your own calculation to suit your own retirement plans.

You can also download a FREE Android App that calculates the above numbers in 1 screen.
The app is only available in Google Play for Android devices. It is not available for Apple iPhone devices.

The App is UTC Tools by Sam Sim.

Get the App link here.
https://play.google.com/store/apps/details?id=com.highlevelrules.UTC_Calc_Tools

Below is how the icon in Google Play looks like.

Below is the Home Screen page 1 upon launching the App.
There are many functions and calculators for Financial Planning applications.

Below is the Home Screen page 2 upon launching the App.
Click on the Retirement Planning button, as highlighted in red.

Below is the Retirement Planning Screen.
Enter your Information to calculate the Retirement nest egg amount needed.

Below is the information entered as per case study above.

Once the data was entered, click on the Calculator button to display the calculated results as shown below.
There are 3 ways to achieve the required Retirement Target (Nest Egg Amount)
a) One single Lump Sum now
b) Yearly amount now until retirement age
c) Monthly amount now until retirement age

The amount is slightly different due to rounding off of the numbers.

Do contact and consult a Financial Consultant for more details and proper planning.

For more related articles:

107) Invest & Expenses for Retirement Plan
http://highlevelrules.blogspot.com/2017/09/invest-expenses-for-retirement-plan.html

210) Do You spend more or less during retirement?

http://highlevelrules.blogspot.com/2018/09/do-you-spend-more-or-less-during.html

200) Why Retirees Should Still Invest their Retirement Fund?

http://highlevelrules.blogspot.com/2018/08/invest-out-of-retirement-fund.html

201) Why You Should Start Your Retirement Fund Early?

http://highlevelrules.blogspot.com/2018/08/start-your-retirement-fund-early.html

247) What to Ask When Sales Charges is Cut by Half?

247) What to ASK When Sales Charges is Cut by Half?

In the tough economic times, there will be times when the industry or company decided to cut the Sales Charges by half. By cutting the Sales Charges by half, the commission paid to the Sales person will also be cut by half. That means the Sales person's income will also be cut by half.

What do you do?

If you think that is not fair and in response, you decided not to continue to do the sales.
You may feel that it is no longer viable to continue doing the work. You want to give up and do something else.

That is one way of looking at it.

Another way is to look and analyse the situation using the 5 Problem Solving Questions (PSQ)

1) What's the Problem?
2) Why not able to solve the problem?
3) How can you solve it?
4) What else can be done?
5) Which one to do first?

For more info on the 5 PSQ
http://highlevelrules.blogspot.com/2017/07/4-high-level-coaching-questions.html

Besides that, what other ways can you look at the situation?
Let's see from this perspective.

In tough times, all people are affected. Some are affected more badly than others.

Questions to ask yourself.

1) How long will this tough time lasts?

Is the bad situation lasts only for a short while? If it is only temporary, you can just hang on and persevere through. After the tough times is over, you will emerge stronger than before. If the next tough times come again, you will be better prepared and more confident to handle the situation. Do ask your friends who had been through similar situation before. Ask them to share with you how they manage the situation.

When the Going gets Tough,

the Tough gets Going.

After the tough times is over, the sales charge and commission will be back to normal again. Then you will get back to normal as before.

2) Is the tough times only affecting you?

If it is only affecting you, you can ask others for help. What if it affects everybody? If it is affecting everybody, then you should not complain. Everybody is also complaining. Complaining will not help you overcome the situation. It is better to focus on what you can do. Do contact your friends and discuss on how you can handle the situation together.

A team will be better to handle the situation than alone.

Be careful to contact friends who wants to help one another and not those who wants to complain together. Look for positive people. Avoid those negative people.

Look around at the others who are in the same industry. Are there others who could still continue? Are their sales increase higher? If they can get more sales, then you can learn from them on how they do it.

3) Is it affecting other industries or markets?

If it is a crisis, all industries are also affected. You will see that other industries are also losing their business, lower profits, cutting staff salary, lower sales commission, giving discounts to customers. Some companies even closed down. In this case, you should be thankful if you still have work or business to do.

Half is better than Nothing.

4) Who was complaining about the high service charge before?

If you had potential clients who were complaining of high sales charges before, now is a good time to contact them. The sales charges had been cut by half, then it is cheaper now.

The Sales Charge is at a discount. 

The client is going to get the same product at lower charges, while still getting the same services. No more excuses of high sales charges.

5) Do you have the maintenance or career benefit from the past sales?

If your past sales still give you maintenance of career benefit, then it is still worth to continue doing new sales. Your new sales will also accumulate and give you more career benefits. Initial sales charge being cut by half only affect the initial sales. However, look at the long term benefits you can get. A little less now will be nothing in the overall benefit of many years.

6) Are you able to build better relationship with your clients?

During this tough times, you still must continue to service your existing clients. Do continue to provide same or even better services. They will remember you for being a good sales person who keeps servicing them during good and tough times.

Ask not what your clients can do for you,

but what you can do for your clients.

Help your clients in whatever way you can. Better still if you can give them opportunities like new business contacts, potential clients or cheaper products. Be more than a sales person that only get sales from your clients.

Be a friend to your clients.

Many people will be financially, emotionally and mentally stressed. Give them some supportive time and even a listening ear to their problems.

7) Who is going to take care of your clients?

If you decide to stop doing your sales and not to service your clients, someone else will take care of them. If your clients are not able to contact you, they will definitely contact someone else.

If you don’t take care of your clients,

someone else will. 

In the same scenario, you may even get contacted by clients who had lost support from their previous sales person. You will be able to take care of someone else's clients.

8) Can you expand your services?

Do you have many products, but had been only focusing on a few products. Then this is a good time for you to explore into other products. If you had been selling on one sales type, you can start to do other sales types. What is stopping you from doing all of your products? Find out the obstacles and overcome them.

9) Can you enhance your services?

Can you find ways and learn to improve your services. If you had been doing a standard service level, can you improve your standard? Can you give much higher level services? Make your client be impressed with your new service level and start talking about you to others.

Can you help and provide more detail planning for your client to solve their problem?
Is there any proposals to help your client do their business better?
Do you have other contacts that can be helpful to your clients?

10) Can you get referrals?

Have you asked your clients, friends, neighbors, relatives for business referrals? You can expand your prospect list if you just ask for referrals. Tell your friends on the type of clients you are looking for. It will be easier for them to recommend someone they know that fits your client's profile. In return, remember to ask them what type of clients they need? You help one another to expand everyone's businesses.

11) Can you expand into other client types?

Is your products specific to a client type? Look at other client types. If you have been selling to retail or individuals, now is a good time to expand to corporate sales. Ask for referrals from existing clients to promote your products to their companies management.

12) Which other industries can you expand to?

Have you been focusing into 1 industry only? Now is the time to expand to other industries. In times of crisis, different industries are affected differently. Some industries will be badly affected, while other industries will have better businesses.

Take a look around and approach those who are thriving in the crisis. Approach them and propose your products.


Other articles:

169) Unit Trust Business vs Other Business

http://highlevelrules.blogspot.com/2018/04/unit-trust-business-vs-other-business.html

7) A Problem is An Opportunity

http://highlevelrules.blogspot.com/2017/06/a-problem-is-opportunity.html

198) Handling Objections During Presentation

http://highlevelrules.blogspot.com/2018/08/handling-objections-during-presentation.html

2) Free Books Links

2) Free Books Links

In need of any book relating to any subject/field or topic?
Below are few links:

1) www.pdfdrive.net
- Free in pdf format. More than 78 million files are listed and increasing every second.

2) https://b-ok.cc
- Free in epub format. You need to download an epub format reader (available free software) to read the books. I used a software named Calibre. You can even convert the epub version to a normal pdf.

3) https://link.springer.com
- Some are Free, but most are Payable.

Have fun reading...

246) Europe Debt Crisis Effect on Equity & Bond Funds

246) Europe Debt Crisis Effect on Equity & Bond Funds

Do you know what happened to the Stock Market and Bonds during the Europe Debt Crisis (EDC) from Jul to Sep 2011? 

Do you wonder what happened to the markets after the Crisis was over?

Let's look at the details to learn lessons from the past.

Below is an example of Equity fund and the benchmark KLCI performance during EDC.

The EDC crisis happened from 8 Jul to 26 Sep 2011 for only 80 days (around 2.5 months).
The Equity Fund dropped 22%, while KLCI also dropped 16%.

If you had invested $10,000 into the Equity Fund just before the crisis started and sold everything at the lowest point, you would have lost $2,200. 

Now, let's look at the graph below of same fund after the crisis was over.

After the EDC crisis, the stock market increased from 26 Sep 2011 to 29 Sep Sep 2014 for 1099 days (3 years). The same Equity Fund increased 41%, while KLCI increased 39%.

If you had invested $10,000 into the Equity Fund at the lowest point, you would have made a profit of  $4,100. 

Now, let's look at the graph below of combined total period from 8 Jul 2011 to 29 Sep 2014. It was the period of EDC start to end of the market growth.

The Equity fund dropped, rebound back and still gave 9% total returns, while KLCI gave 16%.

If you had invested $10,000 into the Equity Fund just before the crisis started and kept staying invested until the market recovered, you would still made $900. 

But, if you had invested another $10,000 at the bottom of the market, you would have a better return

The first $10,000 became 10,000 x (1 + 9%) = $10,900

The second $10,000 became 10,000 x (1 + 41%) = $14,100

The total $20,000 became $10,900 + $14,100 = $25,000

Now, let's compare the performance of a Bond Fund.

During the EDC crisis, the Bond Fund increased 2.2%, while the 12 Months Fixed Deposit value increased 0.7%. 

If you had invested $10,000 into the Bond Fund just before the crisis started and sold everything at the end of the crisis, you would have made $220. 

Click here for more reading on factors that affect bond prices.

https://highlevelrules.blogspot.com/2020/03/241-factors-affect-bond-prices.html

Now, let's look at the graph below of same fund after the EDC Crisis was over.

After the EDC crisis, the Bond Fund continues o give positive returns 12.2%, while the 12 Months Fixed Deposit value increased another 9.8%.

If you had invested $10,000 into the Bond Fund just when the crisis ended and sold everything at the end of the recovery, you would have made $1,220. 

Now, let's look at the graph below of combined total period from 8 Jul 2011 to 29 Sep 2014. It was the period of EDC start to end of the market growth.

The Bond Fund total increased 14.7%, while the 12 Months Fixed Deposit value increased 10.6%.

If you had invested $10,000 into the Bond Fund just before the crisis started and kept staying invested until the market recovered, you would made $1,470. 

But, if you had invested another $10,000 at the bottom of the market, you would have a better return

The first $10,000 became 10,000 x (1 + 2.2%) = $10,220

The second $10,000 became 10,000 x (1 + 14.7%) = $11,470

The total $20,000 became $10,900 + $14,100 = $21,690

Comparison:

1) During EDC Crisis, the Equity Fund dropped 22%, while the Bond Fund increased 2.2%.

2) After EDC Crisis, the Equity Fund increased 41%, while the Bond Fund increased only another 12%. The Equity Fund gave much higher returns than Bond Fund. An Investor who had invested at the lowest point of the crisis would have made a very good return.

3) During & after EDC Crisis, the Equity Fund increased 9%, while the Bond Fund increased 14%. An investor that had bought just before EDC, stay invested until the Crisis was over and continued to stay invested would still made a some returns.

4) The Bond Fund continued to increase in value with more stable performance while the Equity Fund was more volatile with bigger ups and downs.

Conclusion:

1) Stay Invested for the Long Term until your financial objective is achieved.
2) Understand that Equity Fund is more volatile, so stay calm.
3) Equity Fund has Higher Volatility (Risk) vs Bond Fund. However, higher Risk gives higher Returns in the long term.
4) Diversify your portfolio to balance the Risk and Returns.
5) Add more investment at the market low point.

For more related articles:

244) Global Financial Crisis Effect on Equity & Bond Funds

http://highlevelrules.blogspot.com/2020/03/244-global-financial-crisis-effect-on.html

242) SARS Crisis Effect on Equity & Bond Funds

https://highlevelrules.blogspot.com/2020/03/242-sars-crisis-effect-on-equity-bond.html

241) Factors Affect Bond Prices

https://highlevelrules.blogspot.com/2020/03/241-factors-affect-bond-prices.html

227) Why You Should Think Twice Before Selling That Losing Unit Trust Funds
https://highlevelrules.blogspot.com/2019/06/227-why-you-should-think-twice-before.html

Trader vs Investor
http://highlevelrules.blogspot.com/2018/07/trader-vs-investor.html


Time In vs Timing the Market
http://highlevelrules.blogspot.com/2017/10/time-in-vs-timing-market_24.html


Price Top & Bottom Cycle
http://highlevelrules.blogspot.com/2018/08/price-top-bottom-cycle.html

245) How the Index Look Like At Turn Around

245) How the Index Look Like At Turn Around 

Below is the Current KLCI Index as of 3 Apr 2020. The Covid-19 Pandemic started in Dec 2019.

Come back to this blog page often to see the KLCI updated.

Have you always wonder how the indices look like when the Stock Market turn around from Bear to Bull? 


Here are the indices 6 months before and 6 months after the lowest point during the past crisis.

A) KLCI - Asian Financial Crisis (28 Feb 1997 to 1 Sep 1998)
Dropped 79%
Lowest point on 1 Sep 1998
Index from Mar 1998 to Mar 1999

Comment: The turn around was steady and decisive. Almost a V-shape recovery.

B) KLCI - Dotcom Bubble (18 Feb 2000 to 9 Apr 2001)
Dropped 45%
Lowest point on 9 Apr 2001
Index from Oct 2000 to Oct 2001

Comment: The turn around was not so sudden. Took 2 months and 2 times to test the low before a more confident and slow up turn. 

C) KLCI - SARS (23 Apr 2002 to 11 Mar 2003)
Dropped 23%
Lowest point on 11 Mar 2003
Index from Sep 2002 to Sep 2003

Comment: The turn around was not so sudden. Took many months and at least 4 times to test the low before a more confident and decisive up turn. 

D) KLCI - Global Financial Crisis (11 Jan 2008 to 29 Oct 2008)
Dropped 45%
Lowest point on 29 Oct 2008
Index from May 2008 to May 2009

Comment: The turn around was not so sudden. Took around 5 months and at least 3 times to test the low before a more confident and decisive up turn. 


E) KLCI - Europe Debt Crisis (8 Jul 2011 to 26 Sep 2011)
Dropped 17%
Lowest point on 26 Sep 2011
Index from Apr 2011 to Apr 2012

Comment: The turn around was quite fast and decisive. Almost a V-shape recovery. The market recovered in a short time of around 5 months.


KLCI From 1995 to Apr 2020

More articles below: 

188) KLCI Foreign Fund Flow:
http://highlevelrules.blogspot.com/2018/07/188-foreign-fund-flow-and-klci.html


220) FBM KCLI Major Historical Eventshttps://highlevelrules.blogspot.com/2019/02/220-fbm-kcli-major-events.html