Personal Finance Part 8 - Defining your investment and retirement goals

On the topic of retirement, many books and articles on the Net have been written about this but truthfully, one must always apply the principles to one's own unique situation and circumstances in order for it to be relevant. Most books can only give a guide as to what constitutes a proper retirement when it comes to finances, planning and budgeting; but each person has different needs and time horizons; thus it can be a pretty difficult topic to properly advise on unless one does a mental self-reflection first.

To start off the topic, please see Panzer's post on retirement which I think sums up the idea of retirement very nicely. Retirement can be defined as "one stopping work as he has enough passive income to continue to support himself through his golden years". Of course, many of us may have our own interpretation of what constitutes a proper and satisfying retirement. As I was discussing this with my wife, it occurred to me that no two people can have exactly the same definition of retirement. On one hand, one may wish to continue doing something he enjoys while being "retired", while another may consider retirement as travelling the world and enjoying the sights and sounds which one never had the chance when one was working in the ratrace.

For myself, retirement is more of a financial situation where I have achieved financial independence, rather than a specific age such as the government-mandated retirement age of 62. As Panzer rightly pointed out, at a certain age we can have access to our CPF monies; and assuming we have the minimum balance in place, can enjoy a "windfall" gain. My opinion is that CPF is hardly sufficient to tide us through retirement and our senior years; even as the Government introduces CPF Life scheme which promises to pay an annuity to us till the day we die. The CPF, being a compulsory savings plan, cannot tailor itself to meet the needs of every single citizen as it is just a general plan catering to the man on the street. One definitely needs passive income sources and his own cache of cash to tide him through the years after he officially stops earning active income.

The idea of financial independence is not new and I had mentioned this before in several posts. Basically, your passive income sources from dividends, rental or interest need to be able to sustain your current lifestyle; thus one technically can stop working and yet enjoy the same quality of life without compromising anything. This is, of course, easier said than done. With uncertainties such as illnesses and inflation, one's carefully built nest egg may suffer sudden "shocks". Hence, it is always good to maintain a buffer when one is planning for retirement; which means getting it in surplus rather than doing an exact computation. This is to provide for contingencies and unforseen events (which usually do tend to crop up as one goes through life !).

Investing is one method I use to grow my net wealth in preparation for retirement. By ensuring I have steady dividend income as well as capital appreciation from my investments, I can slowly but surely move towards building up enough funds to ensure I can have a comfortable and worry-free retirement !