So how to plan successfully for your retirement? Below outlines the seven steps in designing a retirement plan.

Step 1 – Financial Discipline & Delay Gratification

Successful retirement planning always start with discipline cash management, before we even talk about any investment strategy. And this require the virtue of Delay Gratification Asset Management Wealth Advisory.

Many people feel that they want to live life to the fullest. I do not disagree, but is it necessary to spend almost every dollar you earn, immediately in the same month, to live life to the fullest?

The number one reason for people to fail in achieving their retirement goal is the lack of financial discipline in delaying gratification. Delay gratification is an important virtue.

Your income is for the enjoyment of your lifestyle and life purpose, it has no other function. The important question is WHEN? How many percentage of your take home pay should be put aside specifically for the purpose of your retirement?

So how much are you willing to put aside each month for your retirement plan? Is it in line with how much you need to put aside?

Step 2 – Goal Setting

A) When do you like to retire? Do you have definite / mandatory retirement age that your company impose? Check that with your HR department. Or you really wish to stop work at a younger age, for whatever reasons?

B) At what lifestyle? Review your current expenses and try to determine how they will change at retirement. Two major assumptions would be whether your mortgage would be fully paid off by then, and whether your children would be fully independent by then.

Step 3 – Take stock of your current financial position

How does your current balance sheet looks? What are your assets, which are specifically earmarked for retirement, vs other objectives like buying a car, holiday or children education. Are you getting a fair return with the risk you are taking, for each of your existing investments? What about your liabilities, how soon can you pay them off?

Anyway to save interest cost on your existing liability?

Saving on interest income, through mortgage refinancing. If you have a substantial outstanding mortgage of $500k or more, and annual interest of 3.5% or more, you can potentially save over $10,000 interest in the first year alone, through refinancing of your home mortgage.

Step 4 – Understand your Risk Profile

** This is the step that most people (including many financial advisers), got it wrong.

It’s a lot more then just investing based on risk profile, ie. if you have low risk tolerance, invest in low risk products, if you have high risk tolerance, invest in high risk products. That’s what you hear all the time.

This is one of the most tricky areas that many people make mistake. Again, there is problem in both over exposure and under exposure to risk. Most people understand the problem of over exposure to risk, but what about under exposure?

The reluctance to take any risk, e.g. see any short term loss in capital, will result in reduction in long term growth in capital, directly impacting on the viability of your retirement goal. How to balance the two is both an art and a science.

First, you need to set a realistic expectation on the rate of return. Then, you’ll need to construct an efficient portfolio that is in line with your required long term rate of return, investment horizon, at the same time taking you risk tolerance into consideration.