Retirees' financial Nip/Tuck

SINGAPORE - Soon after he retired as a financial system support executive in 2007, Mr Koh T.L. and his wife flew to Perth, Australia, to stay with their daughter, who was studying there.

"It was a last-minute decision," says Mr Koh, now 64.

The couple enjoyed themselves so much that they extended the trip from a few months to almost a year.

They put up in a rented house with their daughter and ate at restaurants. On weekends and long holidays, they toured the countryside and other towns and often stayed overnight in motels and holiday chalets.

The total bill that year came to about $40,000 to $50,000, much more than what Mr Koh had expected to spend in his first year of retirement. It was about twice the expenses in his last year of working.

But the experience was worth it, he says.

Mr Koh, who has been working since he graduated from polytechnic when he was 17 years old, says: "My wife and I never had a chance to immerse ourselves in a different lifestyle and culture."

Mr Eddy Cheong, head of financial planning at Providend, a financial planning firm, says it is not surprising for retirees to spend freely in their first year of retirement. He says: "Retirement is like going to this longawaited exotic holiday destination. All the 30 to 40 years of a person's working life, he has been preparing for this.

"It's often the time when his wealth, in terms of savings and investments, has reached its peak. And he just wants to reward himself with extended holidays or other purchases."

Moreover, in his experience, most people refuse to believe they might live quite long and so in the first few years of retirement, people tend to be more easy with their money.

There is nothing wrong with celebrating retirement, especially in the first few years, he says.

"Over time, people will slow down, travel less and consume less when fitness and health become an issue."

But those who plan to spend more in the first few years of retirement should factor this expense into a financial plan so that they will not end up exhausting their retirement funds, he says.

In the case of Mr Koh, he is not too worried about the extra expenses he had incurred during his year-long Australian holiday because he has rental income from an apartment he bought in 2007.

He also has dividends from stocks and shares he had bought over the years. Nonetheless, he has since cut down his annual expenses to half of what they used to be when he was working.

A financial plan for retirement, says Mr Cheong, allows people to find out how much they can spend and for how long before the money runs out. Conservatively, Singaporeans should plan at least till they are 85 years old, the average lifespan here.

It is best to start doing this assessment at least five years before one retires, he says.

Without such planning, new retirees could deplete their reserves prematurely, or swing to the other extreme and become overly thrifty and not be able to fully enjoy their hard-earned money during retirement.

After coming up with a financial plan, retirees need to be able to keep to their budget. This could potentially be more difficult for some in the first year of retirement, when they are adjusting to a new lifestyle, says Mr Ong Lean Wan, director and chief executive officer of Life Planning Associates, a financial advisory firm.

People who tend to have more success in this area are usually those who are financially savvy or who have always been frugal, he says.

Mr Ramapathy Doraswamy, 65, had no problems cutting his expenses by about 20 per cent after he retired in 2010 as an executive in NTUC Income.

"I have never been a big spender to begin with," says Mr Doraswamy, who lives with his wife, 57, an operations officer in an investment company, and his son, 29, a senior manager, in a four-room HDB flat bought 20 years ago.

He has no plans to move out even though he can afford to buy a condominium unit. He does not own a car and takes the bus and MRT. He replaces household items such as his television set only when they are no longer working.

Two years before he retired, he started to work on trimming his expenses further.

"Instead of going to private clinics, I went to polyclinics. I watched movies only on days when there were discounts for senior citizens. I patronised supermarkets which sold cheaper products."

While it is important for retirees to keep to their budget, it is also important for them to protect their retirement assets from bad investments.

In general, Mr Ong advises retirees to avoid products which sound too good to be true and to check them with an experienced independent financial adviser.

For financially savvy retirees such as Ms Lilian Yap, this is not a problem.

The 65-year-old mother of two and grandmother of five retired as the vice-president of personal credit and risk at a bank in 2003.

Since she was in her 30s, she had been putting aside about 60 per cent of her salary and investing the bulk of it in blue chips.

But Ms Yap, whose husband died of cancer 20 years ago, still chooses to take the bus and train instead of the taxi like she used to.

When she goes on holidays, she flies on budget airlines whenever possible. She also stopped employing a domestic helper, often cooks at home and hardly shops.

In fact, when she was about to retire, she was less concerned about whether she would have enough money to last her the rest of her life than she was with how she was going to keep herself occupied.

Says the active ageing ambassador with the People's Association: "Even before I retired, I was checking out enrichment courses I could sign up for. I just wanted to make sure my days would be filled."Retirement pitfalls

Overspending

To avoid overspending, financial planner Eddy Cheong has the following advice:

- Have a concrete financial plan to ascertain how much you can spend in a month. Look at your retirement assets and find out if they can last you till age 85, the average lifespan of Singaporeans. If not, you need to cut down on expenses or work part-time.

- Allocate a bigger budget for the early retirement years.

- Track your expenses to avoid overspending. One way is to put the sum of money you expect to spend every year into a specific bank account and withdraw from only that account for expenses.

- Review your expenses at the end of the year and make adjustments accordingly. If you have exceeded the budget that year, make an effort to cut back the following year.

Bad investments

New retirees can fall prey to scams and risky financial products, says financial adviser Ong Lean Wan.

When they find themselves suddenly without an active source of income and their savings are earning low interest rates, retirees are often eager to earn extra income or yield from other investments, he says.

His advice is to: - Avoid products which sound too good to be true, or check them with an experienced independent financial adviser or someone who is financially literate.

- Avoid companies that are on the Investor Alert List compiled by the Monetary Authority of Singapore. While the companies on the online list are not necessarily fraudulent or bogus, they are not regulated by the authority.

- Be more alert in times when interest rates are low, as scams and risky financial products tend to be more actively marketed then.

Learn to save and plan

Citi-Tsao Foundation Financial Education Programme for Mature Women

Participants learn how to be financially independent and secure as they grow older. The programme comprises five modules in 20 weekly sessions of three hours each. It is for low-income women above 35 years old whose family monthly income is between $1,500 and $3,500.

The next class, conducted in English, starts on Oct 26 at Geylang Serai Community Centre.

Info: Call Mr Tan Wei Lit (6593-9515) or e-mail weilit@tsaofoundation.org to find out about this course and other classes.

Cost: $10

Wings Money WAGS

This 10-week course by Wings (Women's Initiative for Ageing Successfully) aims to equip women aged 40 and older with financial and money management skills.

The next intake, conducted in both English and Mandarin, is early next year. Info: Call 6250-1012 or e-mail info@wings.sg

Cost: $50 (excluding a one-time membership fee of $10) Financial talks at community clubs Community clubs conduct regular financial education talks and activities for seniors.

Info: Visit a community club or go to one.pa.gov.sg.

Get a copy of The Straits Times or go to straitstimes.com for more stories.

leawee@sph.com.sg

Get a copy of The Straits Times or go to straitstimes.com for more stories.