Keeping up with New Year Resolutions

Financial planning isn’t a one-off event; that’s why at least once a year (sometimes more often), your financial representative calls you for a policy review. Life brings unpredictable changes: we may not need the same things at 30 that we needed at 20, or we may decide we want a lot more for retirement after all, as we near 65. Here’s how to financially set, and keep up, with new year resolutions:
 

1. Review your new financial responsibilities

Financial responsibilities tend to increase as we grow older. For example, our parents may have looked after us right up to our 20’s, but by the time we’re 40 or 50, we may be the ones looking after them instead. A lot of financial responsibilities also creep up in our 30’s, the period when we’re buying our first home, getting married, having a first child, and so forth.

This tricky part is, this is never the same for everyone. Some of us will have more dependents to look after, some of us may have less (e.g. if your parents were wise savers and don’t need your help, you may not need to provide for them in your financial planning).

This is where a financial representative can really show their worth: they can tailor your insurance policies and overall portfolio, in a way that accommodates your shifting responsibilities.
 

2. Ensure your returns are keeping pace with inflation

Inflation rate risk is the danger that the cost of living will rise faster than our savings can keep up.

As of August 2022, for example, Singapore’s inflation rate reached seven per cent: the highest in 14 years, due to global factors like the Russia-Ukraine war. Consider that, if the prices of goods rise by seven per cent, but your investment returns are only five per cent, then you’ve lost two per cent to inflation; even if it seems like you made money that year.

The tough part here is that, to get higher returns, you may have to take on riskier financial products. So you may be caught between the proverbial rock and a hard place: if you stick to safe products, inflation chews up your wealth, as your returns can’t keep up. But if you go for returns higher than the inflation rate, you may be taking on big risks in a volatile time.

A financial representative will usually help you to create a balanced, diversified portfolio with a mix of low, medium, and high-risk investments; this may help to keep pace with inflation, without too much added risk.

3. Adapt to changes in your income

If you’re making more money, you can allocate more to savings or investment - this might mean better assurance of reaching financial goals, like your retirement sum. Alternatively, you may even shift your goal posts nearer; such as by planning to retire at 60, rather than 65, or by planning to repay your mortgage before 50.

If you’re making less money, bear in mind you need more protection, not less - so don’t allow your insurance policies to lapse to “save” money, as this is just a false sense of security. You need to get your financial representative to review your policies and find options, such as premium holidays while you recover your income, or changes to your savings rates. 

As you near your retirement age, you’ll often be advised to tailor your portfolio toward fixed-income products. These can range from vanilla bonds, to certain types of annuities; this ensures you have an income stream even after you retire.

4. Ensure sufficient coverage for lifestyle changes

The amount of coverage you need will vary over time. This applies to almost any form of insurance policy.

For example, if your children are below 21 years old and cannot work, you may want to ensure your life insurance benefits are enough to care for them until they’re adults. Conversely, if your children are already well-off professionals, that could mean you can lower life insurance coverage for them as beneficiaries.

Your level of physical activity, and leisure preferences, can also affect the amount of coverage you need for hospitalisation plans, or personal accident policies. If you currently enjoy sporting activities - particularly at the level of competitive athletes - you may need higher coverage for any risks of injury. As you wind down and take part in less-strenuous activities, you may want to shift the bulk of your coverage elsewhere.

The key is to avoid being under-insured (not enough coverage for certain risks), as well as being over-insured (too much coverage, for risks that are very low).


5. New financial aspirations

Perhaps when you were younger, you felt you were happy to live a spartan existence. “All I need is eggs and kopi in the morning, and hot Milo at night”… Or so you thought.

But as you near your later years, you may begin to add more to your bucket list. Perhaps you want to travel at least once a month after you retire, because you have family overseas. Or maybe you want to provide for your grandchildren’s education, in the off-chance your immediate children can’t manage it.

It may not be too late to tweak your portfolio, to adapt to these new aspirations. A financial representative can review your existing policies, savings, and investments, and work out if it's plausible to accommodate the extra sum.

Note that besides adding or raising aspirations, you can also opt for the opposite. For example, you may decide that your legacy for your children can be toned down, as they’re already doing well and have their own homes. In these cases, you may be able to set aside less each month, and have more to enjoy in your own lifetime.

The main thing to know is that financial planning isn’t a once-and-done affair. It’s a good idea to conduct a review of your policy and plans, anywhere from bi-annually to once a year.