7-Step Guide to Your Retirement Blueprint
This step-by-step guide is a systematic and proven process that has helped me achieved retirement within 8 years – for a far richer, enjoyable and meaningful living. If you follow this blueprint, you can too!
Step 1 WHY Do You Want To Retire?
Be clear WHY you want to retire. Retirement is neither an event or a destination. It is a journey, a lifestyle. When something like work that has given purpose for many years stops, a new routine needs to be established, along with new goals and purposes.
Sitting on a beach in a sundeck chair gazing into the sunset is but a moment in retirement, not its entirety. Think of retirement as a second shot at life – but this time creating the ideal life, guided by hindsight and experience gathered to-date. Finding new purpose(s) for retirement years is crucial for emotional, mental and overall well-being, all of which make up the cornerstones of a happy retirement.
- Who do you want to be, know yourself
- What you want to accomplish
- Activities you want to do or challenges you want to undertake
- The people you want to spend time with
- Where do you see yourself doing these things
Step 2 Taking Stock
Take stock of current situation so that a roadmap can be drawn up. The 3 things to take stock of:
- Cashflow: what is left of income after deducting all expenses. Income includes salary, bonus, dividends, interest, fees & allowances, investment returns, rental income etc.
- Assets: things that adds to your wealth, such as cash savings, pension account, insurance policy, property or equity within it, gold, valuable collectibles etc.
- Liabilities: what you owe that needs to be paid up such as mortgage, car/personal loans, taxes owed etc.
Step 3 Timeline To Retirement
Do not let conventional thinking dictate when you retire. Granted that sometimes retirement is involuntary, with a retirement blueprint it means you are more prepared than most people, and less overtaken by surprises. Instead of letting financial status dictate retirement timeline and lifestyle, isn’t it much better to acquire the financial means to retire on your own terms?
The first step in deciding when to retire is to take into account the activities you want to do in retirement. Do you plan to travel extensively to sights like Machu Picchu, Great Wall of China, go on safari trips or live in another country? These are endeavours best embarked when still physically fit and with time to adapt, be it a new language or climate. Allocate a few more work years to build up sufficient funds if needed so you can retire in comfort and style. Early but poorly should not be a goal for retirement.
Step 4 Retirement Lifestyle
Think of retirement as a fresh start, an opportunity to be who you always want to be, do the things you want to do, in the company of people you like and living the lifestyle of choice. Time to reinvent yourself. Do you fancy:
- Travelling and exploring new places
- Learn new skills or take up a new hobby
- Start a second career or try entrepreneurship by setting up a small business
- Dedicate time to a cause you believe in
- Moving to a new country altogether with new culture, community and language
- Just pottering around in familiar surroundings and routine
The lifestyle you choose should reflect your personality. You should also take into account loved ones such as spouse, children, parents or grandchildren. What are their interests, needs, life stage and what proximity you want to be from them so they can be a part of your life and vice versa.
Step 5 How To Fund Your Dream Retirement
With a retirement vision in mind, you should be fired up and excited about it! Now the grind to work out how to support this lifestyle. Let’s start by forecasting expenses and categorising them into these 2 groups:
- Fixed expenses: for essential living, ie costs for ‘Must Have’ that need be taken care of first.
- Variable expenses: for ‘Nice to Have” to fund discretionary expenditure, driven by wants.
| FIXED EXPENSES IN RETIREMENT | VARIABLE EXPENSES IN RETIREMENT |
|---|---|
| Accomodation: mortgage, rent, condo fees | Travel & Vacation |
| Utilities, Wifi & Telecom | R&R: golf, piano lesson, ballroom dancing |
| Food | Personal indulgences: massage, shopping, high-tea |
| Transport | Personal improvement: conferences, courses |
| Insurance & Medical | Entertainment: movies, concerts, plays |
| Taxes | Upgrades & Renovations |
| $ $ $ | $ $ $ $ |
Next, list down projected income in retirement, grouped into Guaranteed vs Non-Guaranteed income:
| GUARANTEED INCOME IN RETIREMENT | NON-GUARANTEED INCOME IN RETIREMENT |
|---|---|
| Pension, insurance payout, annuity, savings | Rental collection 25% |
| Rental collection 75% | Dividends, interests, coupons, inheritance (or other 1-time windfall) |
To be conservative, I allocated 75% of rental income under ‘Guaranteed’ and the balance 25% as ‘Non-Guaranteed’ to take into account vacancy rate. Examine total projected income vs expenses to ascertain the shortfall. Fixed expenses should be funded by Guaranteed income and Variable expenses by Non-Guaranteed income. From this baseline, start figuring out how to ‘fix’ the shortfall during your work years. Some ideas:
– Pay down high interest credit card debt
– Mortgage refinancing to take advantage of lower interest rate
– Reduce unnecessary expenses (eg car, gym membership, magazine subscription)
– Take on a side hustle
– Make a move for promotion or solicit new job
– Invest in rental property
– Start or expand stock portfolio especially if time horizon is long
– Tap into home equity (especially given current low interest) for investment funds
– Relook current holdings to for better rate of return, eg from FD to index funds
– Boost pension account where possible (eg from CPF OA to SA, CPFIS)
You may want to stretch retirement dollars and up lifestyle by moving to a lower-cost country. Or stay in the workforce longer. Whatever it is, start thinking about how to build up both funds to generate Guaranteed and Non-Guaranteed income, this is the most critical step in working towards a dream retirement.
You can also consider additional income streams during retirement, such as:
| Cash holdings | Pension annuity schemes (eg. CPF Life) | Rental income |
|---|---|---|
| Investment in stocks, funds, ETFs | Coupons from bonds | Interest from debt instruments eg: P2P lending, crowdfunding |
| Dividends from stocks & REITs | Insurance annuities | Home equity |
| Downsizing to smaller home | Reverse-mortgage scheme | Work (for passion) or business venture (web shop, blog) |
Step 6 Additional Checklist
Mortgage: If you are planning for retirement or in the early stages of retirement, I advocate retaining your mortgage as it allows you to flex your financial muscle more. The benefits of not paying off your mortgage in the run-up to retirement are multi-fold:
- Access to cash buffer for emergencies (assuming you have the funds), even greater peace of mind!
- Earn better returns by investing given current low interest rates
- Benefit from inflationary effect on fixe debt
- Access to loan facility through home equity (such facilities are difficult to secure without steady income)
Life Insurance: Conduct a complete review of your insurance portfolio, preferably by an independent financial advisor. Weed out or reduce coverage to match your personal circumstance and re-allocate to more relevant coverage such as medical and hospitalisation as these are likely to escalate especially with longer life expectancy.
For instance, you do not need a big life insurance policy if you do not have children. Reduce the coverage or switch to a term policy which is cheaper. If travel does not figure much in your retirement years than better to change from an annual travel insurance to a trip-based plan.
Overdraft: Open an overdraft (OD) account before putting in that resignation letter. It gives access to emergency funds if ever needed. Make sure the OD account does not charge any annual fees so you will only incur interest for the amount and period used. This is another facility that is difficult to secure without a staple salary.
Step 7 SMART Retirement Canvas
The final step of this exercise is to compile the components into a 1-page at-a-glance retirement blueprint using the SMART Retirement Canvas©, an adaptation of the Business Model Canvas that I find enormously useful.
SMART Retirement Canvas©
Use the plan to quantify any gaps (eg add 2nd income stream, find out more about retirement visa for Malaysia), then formulate appropriate actions and systematically work towards taking action to close the gaps. These action steps are to be tracked systematically under the ‘How’ section. Every goal to be clearly associated with an action plan and time span.
Place this Canvas somewhere that can be easily referred to, like a vision board. It should be reviewed and updated whenever any of the aspects has changed, whether by circumstance or desire, but at least once a year to be in alignment.
By using the SMART Retirement Canvas, you will start to have a more structured thinking not just for your retirement, but also your life. Let it be the compass to finding your purpose and paths to retirement on your terms!
Happy canvasing,
Savvy Maverick
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