By Sriwipa Siripunyawit
BANGKOK, Thailand (Bangkok Post), November 19, 2007:Retirement has become a growing concern for many people who realise that company or government pensions alone will hardly be enough to sustain them after they leave the working world.
And as society ages _ with fewer working-age people to support a growing number of retirees who are living longer _ the need to plan financially for retirement becomes even more urgent.
People who are well-prepared for retirement can live on their savings alone or seek ways to earn steady fixed income from other sources. But the fact is that a lot of people don't understand how to begin accumulating a retirement nest-egg, or they simply leave it too late.
According to Suthas Ruangmanamongkol, managing director of Tisco Asset Management, creating a retirement plan isn't as hard as one might think. The toughest part is discipline and keeping oneself on the right track once the plan is firmly in place.
Younger people just starting out in their careers, he says, often find it hard to keep any savings in their accounts since starting salaries are usually minimal. Month after month, keeping up with expenses alone is hard enough work. In his experience, most people don't start to think seriously about planning for retirement until they're five or 10 years down their career path.
With that in mind, here are a few steps that Mr Suthas says anyone can follow.
1. Work out the amount of money you will require to cover your monthly expenses and suit your lifestyle after retirement. If you aspire to a life of luxury after age 60, then obviously you'll have to work harder and save more. But even if your desires are more modest, you need to provide for basic income plus emergency funds to cover medical or other expenses. In both cases, inflation will be a major factor in your calculations.
2. It's impossible to anticipate how long you will live after you reach 60, but you still need to determine the number of years you want your money to last. It could be 20, 30 or even more.
3. Once you get those numbers down, work back to see the total amount of money you will need to have at age 60. Multiplying the monthly requirement by the total number of months will produce a big figure that could be intimidating. But keep in mind that you will be earning savings interest or yields from other investments after you retire.
Obtaining a clearer picture will require a more complicated calculation using a "present value" formula (see table) to work back and find the total you will need. The formula allows you to factor in interest rates and yields you expect to earn during the period of your retirement.
The planning should be conservative and realistic. Typically, people who are retired or close to that age are advised to put their money in safe places such as banks or fixed-income instruments rather than stock markets. Hence, realistic expected yields during that period should be around 4% to 5%.
4. The one variable here will be interest rates or the returns you wish to have, which are sensitive to many factors and vary depending on where you put your money. The higher the returns, the more you'll have each month after retirement.
5. When you figure out the total amount you will need to have by age 60, then work back to another step. This time you will have to figure out how much money you have to save/invest on a monthly basis in order to have the amount you've chosen.
Applying the above-mentioned formula again, consider the returns on savings and other investments that you expect to earn during your working years. On average, the expected rate of return should be around 6% to 7%, using a relatively conservative approach.
6. Now you know how much money you have to save/invest on a monthly basis to accumulate sufficient funds for your retirement period.
The approach is quite conservative, but takes into consideration some general principles that apply to most people. For example, people tend to earn more yet spend less as they get older. Your salary usually increases over time while some expenses will start to diminish _ your home mortgage is paid off and your children have completed their education and are out working themselves, for example.
If the thought of doing all the calculations concerns you, seek advice from a banker, fund manager, financial adviser, insurance agent or brokerage officer. They all have expertise as well as computer programs that can generate accurate figures after they've entered the data you supply.
The internet is a great resource as well. Many websites have very good online calculators, among them:
http://www.cnnmoney.com
http://www.moneycentral.msn.com
http://www.flagstar.com, and more.
So get calculating, because the sooner you start, the richer you're likely to be.
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© Copyright The Post Publishing Public Co., Ltd. 2007
