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Save now, spend later

Save now, spend later


Save now, spend later


By Trevor Keidan
PHNOM PENH - Almost half of us underestimate the amount of spending money we would need to ensure a comfortable retirement, according to a survey by insurer MetLife.

In addition, many of us underestimate how long we will live after we have retired, according to the very same study.

 The MetLife Retirement Income IQ Study, which was released earlier this year, found that almost half (49 percent) of those surveyed underestimated the amount of pre-retirement income they would need to have a comfortable lifestyle in retirement. While many thought they would need just 50 percent of their pre-retirement income to achieve a comfortable lifestyle in retirement, experts believed they would need 80 percent to 90 percent.

 In addition to these findings, the study also highlighted the fact that about 60 percent of retirees underestimate their life expectancy when they go into retirement - putting them at risk of running out of funds.

If nothing else, the survey, conducted among 56- to 65-year-olds in the United States, showed that many of us go into our retirement years unprepared. It also showed that many of us can expect to live longer than we might think.

So what can we do to avoid becoming a statistic, as illustrated by the MetLife study? Well, to begin with we must plan. We must also realise that delaying our pension planning will have an extremely negative effect on our retirement income and lifestyle.

According to the US Department of Labour, we can expect to retire at the age of 65. According to some experts, the average American male can expect to live 16 years beyond the age of 65, and the average American female can expect to live 19 years beyond the age of retirement. However, as stated in the Department of Labour's report, titled "Taking the Mystery Out of Retirement Planning", retirees should plan to live 30 years beyond the age of 65 in order to avoid outliving their income.


With all this in mind, how much do we really need in retirement - on a monthly basis - and how do we achieve it? To begin with, we should plan to withdraw and use just four percent to five percent of our overall savings or retirement fund per year.
At this rate, with US$400,000 of savings, one could withdraw anywhere between   $16,000 to $20,000 per year. With savings of $800,000, one could withdraw $32,000 to $40,000 per annum. The amounts of annual withdrawals per savings are as follows:

  • $400,000 equals annual withdrawals of $16,000 to $20,000
  • $500,000 equals annual withdrawals of $20,000 to $25,000
  • $700,000 equals annual withdrawals of $28,000 to $35,000
  • $800,000 equals withdrawals of $32,000 to $40,000
  • $900,000 equals annual withdrawals of $32,000 to $40,000

Although the figures listed might seem daunting at first, they are definitely achievable with a little discipline and planning. But do remember that how much we save does depend on how much we earn.

There are numerous ways to save for retirement, from basic checking or money market accounts with returns of four or five percent to investment funds with average returns of 10 percent per year. Where you put our money really comes down to your attitude to risk. However, you must remember that it is also essential to have a balanced, diversified portfolio to minimise the risk.

As a personal financial adviser, I tell my clients that the distribution of their pension plans is most definitely based on the amount of time they have until retirement. In other words, I would encourage someone with, say, 15 years to go to have a far more aggressive and volatile portfolio than someone with, say, three years. It is most important that over time, risk is adjusted so that in the last several years before retirement, funds are not at risk to severe market turns such as we are now experiencing.

If you are in any doubt where to invest for our retirement, you should talk to a personal financial adviser. It could mean the difference between an enjoyable retirement and an uncomfortable one.

In addition you must start early. The sooner you can start the better - it gives your money more time to grow. Retirement savings must become one of your highest priorities. You must also be aware of the effects of inflation, devise a plan and stick to it.

After all, Your Money Matters!

Trevor Keidan is managing director of Infinity Financial Solutions, a firm providing impartial,  tailor-made  personal financial advice to clients in Cambodia and Southeast Asia. Should you wish to contact Trevor, please send an email to [email protected].