It is easy to talk about what we want to do after retirement, but talking about the steps we need to save for retirement is a more complex and less frequent conversation. In episode 5, we learn more with Aki Ranin about what mindset to adopt and what methods are available when saving for retirement.
Dani shares that she has not started saving for retirement because she does not know enough and trying to navigate the different wealth management options in the market is highly overwhelming. Ned adds to this by acknowledging how the terms used in wealth management are confusing for the masses and can be very intimidating for those new to this. The reality is that finance has been for people who can afford it. If you have enough money, chances are you have planned your finances before and know enough about financial terms to be self-directed.
When looking at assets under management, a small percentage of people hold most of the world’s wealth. For those selling investment products, it is economical to target this small percentage of people and ignore the masses. Additionally, the fees for wealth management have always been high, further dissuading the majority from planning for retirement. This is why technology such as Robo-advisory is necessary to make financial planning more cost-effective and accessible. Through Robo-advisors users put some money in every month, and that amount gets automatically invested on their behalf. Hence, users do not have to stress about navigating the financial market as the Robo-advisor chooses what funds to buy based on the user’s risk appetite. Aki comments that this is the base level of investing that everyone should be doing, but it is not enough. Before diving into investments, it is critical first to understand what kind of life you want to live and when you want to live it. For instance, you might wish to retire earlier in life which affects how you should save your money right now.
After determining what life we wish to live, the next step is planning how to get there. Aki explains that many tend to rely on government schemes like CPF for retirement. However, he notes that these schemes are pretty limited and not foolproof. The money that we put into such schemes is going to those who have just retired. Essentially, this means that we are paying for the retirement of others and can only hope that when it is our turn, there will be people at the bottom of the pyramid that will be contributing. However, if population dynamics skew and there are not enough young people to pay the pyramid, the scheme will eventually fail. As a result, it is essential to make your own plans around retirement.
There are two prominent contrasting opinions about retirement. The first mindset is working hard now and spending the money after retirement, while the second mindset is to spend during our youthful days. Aki believes that these mindsets do not have to be mutually exclusive. With sound finances and putting some money aside regularly, we can enjoy our lives right now while still having a secure future.