How to find out if you have enough for retirement?

Retirement is one of the most important financial goals of an individual.

However, most people don’t plan for it or think about how much they actually need during retirement. Besides a lack of urgency, another reason is that it seems like a daunting task sprinkled with lots of unknowns to calculate it.

But you have little excuses now because the DBS digibank app provides you with the DBS NAV Planner – a free and simple tool to guide you through retirement planning and more. What’s more, I will show how you can utilise this tool in this article.

First, let’s create a scenario to see how this financial modelling works.

Bill is a 38-year-old executive and his take-home pay is $5,000. He lives in a HDB flat with his wife and two children. His wife is working too and they co-pay the living expenses of the family. He drives a car and his overall monthly expenditure is $4,000.

He dreams of retiring after his children start work. That is 17 years from now and he would be 55 years old by then.

I will use this context to model a financial plan for fictitious Bill with the DBS NAV Planner. Follow these steps and you can model it for yourself too!

Step 1: Update your current financial situation

The first step is to update your current financial data on DBS NAV Planner. With SGFinDex, you can now sync your accounts across various banks, and even CPF, SRS and CDP into the app with just your Singpass. That will save you the chore of keying in every single detail and you will have a complete snapshot of your money whereabouts. This is important because a financial plan can only be as good as the inputs, and you want to make sure all your current wealth has been accounted for.

You can still choose to do it manually if you prefer, or to edit some of the figures which aren’t accurate.

The DBS NAV Planner allows you to edit information in these sections:

• Income
• Expenses
• Assets
• Liabilities

Income and expenses data would be easy if you use DBS accounts or have synced with other external accounts. DBS automatically categorizes your expenses and tracks inflow and outflow amounts. You are able to edit the categories if there are errors. This is useful if you don’t know where you have been spending your money as you can review it from time to time without much effort.

It isn’t a showstopper if you are using a separate expense tracker. You will know your average monthly expenses and just key that into the DBS NAV Planner. You don’t need to manually key in individual transactions into the app because the modelling doesn’t need that level of details.

Next, make sure your assets are updated and accurate.

Again, you can choose to do a quick sync so that you do not need to key in the information from scratch. Else, you have to check across your brokerage accounts, CPFIS / SRS investment accounts, CPF accounts and insurance policies with cash value (life insurance, endowment plans and investment-linked products).

Assets such as properties, precious metals and cryptocurrencies would have to be keyed in manually. It is important to include your property value in your assets otherwise you might end up with a negative net worth if you have a mortgage loan with DBS, which will be automatically added to the liability.

There are 3 categories for liabilities:

But the subcategories have plenty more and you should be able to find an option from the list. Home loans and car loans would be the most common among individuals.

DBS NAV Planner will display an overview of your assets and liabilities once you have completed them.

I simulated Bill’s assets which include a mix of CPF monies, investments, cash savings and residential property. His liabilities are mortgage which he services with his CPF savings and a car loan.

Step 2: Review the assumptions

Financial plans are always about the future and there are many things that we aren’t able to know in advance. For example, how do we know the inflation rate in 30 years’ time or our investment return when we are ready to retire.

That said, we still need to make some assumptions about these unknowns. The sensible thing to do is to be conservative. Don’t chart a high rate of investment return or salary growth rate in case you couldn’t achieve them in reality.

DBS NAV Planner has a set of default rates as indicated in the app. They look reasonable in my opinion, and I am happy to use these figures. But, of course, you can alter them to suit your situation.

Step 3: Set your financial goal

The final step is to set your financial goal/s. Other than retirement, you can set other financial goals such as saving for your wedding, buying a house or funding your child’s tertiary education. I recommend you set a few goals to see how each goal has an impact to your retirement. The tool is a very good “what-if” simulator.

I will demonstrate with one goal for Bill’s case first, which is to retire at 55 years old with a target monthly expenses of $2,000.

After completing the 3 steps, DBS NAV Planner will have enough details to do the projection and give you a glance of your financial future.

DBS NAV Planner presented that Bill does not have enough to retire at the age of 55. In fact, he has a cash deficit of S$252,157.

DBS NAV Planner provides more detailed information where the shortfall is. In the yearly projection chart below, you can see that the shortfall begins from age 85 onwards where he runs out of cash totally. The median death age for a male in Singapore is 81.5 but I extrapolated to 90 since the median death age rises with medical improvement.

Don’t fret. It isn’t the end of the world. This is why we do financial planning so that we know what we need to do now and not panic at the end of the road when it is too late to do anything.

DBS NAV Planner will give some suggestions on how to plug the shortfall. Here are two solutions suggested by the app – save an additional S$441.05 a month or invest an additional S$131.29 per month at 4.45% annual returns.

How to invest? This is where digibank app conveniently suggests some investment options to you.

You can look at some investment products available for purchase via CPF Investment Account by clicking on the “Make the most of your CPF” module.

DBS offers a holistic suite of investment products such as unit trusts, ETFs, roboadvisor (digiPortfolio), stocks, bonds, and more. If you find it hard to decide, you can choose the “See our top picks” to get investment recommendations tailored for you.

Another way is to adjust other parameters such as the retirement age. I pushed Bill’s retirement age by another 2 years to 57 years old and just by doing that, he will have sufficient money to live till 90. It isn’t that bad to work for additional two years and it is something that Bill is mentally prepare for.

Of course, it isn’t a sound plan to have just enough money to last till the end.

Bill may spend more during retirement than budgeted, or the inflation rate may spike for some years that lowers his spending power. Or he might live longer and require more cash. There can be countless reasons why this plan may not work out. But it isn’t practical to plan for every scenario. We just have to plan with surplus assets to buffer for any unforeseen circumstances.

What if Bill has more financial goals? For example, he wants to be able to pay for his children’s university fees. Considering inflation, he expects the local university fee for a 4-year programme would be about S$50,000 for each kid.

The DBS NAV Planner told Bill that he would be able to afford the financial goals for his children but he would have insufficient funds for his retirement. You can see the DBS NAV Planner is able to handle realistic and sequential scenarios like this.

Again, I went back to change some parameters and found that Bill would need to work another year and delay his retirement age to 58. That is the price of fulfilling the other two financial goals and he can better decide if he is willing to pay this price.

Or, he can invest more money now so that he can keep his target retirement age. DBS NAV Planner will figure out the additional amount to invest and suggest relevant investment products for Bill.

Planning for unfortunate events

Besides planning for a surplus, we should also buy sufficient insurance for our needs. The financial plan is only good if nothing major happens to Bill. He could meet an accident and get disabled. He could also contract a terminal disease and pass away sooner than expected. His dependants would need a replacement income after Bill is unable to work anymore.

DBS NAV Planner has a tool for you to do an all-round protection check. It isn’t just about identifying deficiencies but also to help you to find out if you are over insured in some areas. You could cut back on the premiums and deploy them to investments instead.

DBS NAV Planner identified 7 types of coverage:

• Life
• Critical Illness
• Mortgage
• Health
• Long Term Care
• Personal Accident
• Disability Income

DBS NAV Planner will also calculate how much you would need to insure so you know if you have sufficient coverage. If you happen to have a shortfall, DBS NAV Planner would be able to suggest the suitable and relevant insurance products to plug the gap.

For example in Bill’s case, he has all 7 types of coverage but DBS NAV Planner flagged a shortfall in his critical illness coverage.

DBS NAV Planner will show the breakdown of the calculation and suggest related products such as CancerCare, eCriticalCare and Critical SelectCare for Bill to consider.

Financial planning is your responsibility

We may think that financial planning is the job of the advisors. While it is true to a certain extent, we must remember that our financial future is our responsibility and nobody else’s. Moreover, we may not reveal all the financial details to an advisor, causing him to have a limited view of our actual financial situation, resulting in an inadequate plan.

In the past, we can argue that a layman does not have the tools to carry out a financial plan. But today, with the DBS NAV Planner, it can assist us to model our own financial future. It might take a little effort to set it up at the initial stage, but it isn’t that daunting. Once done, just update it periodically and you will have a better sense if you are on the right track to achieve your financial goals.

DBS NAV Planner is right in your digibank app and it is free! Use it if you haven’t already.

This article is sponsored by DBS but the opinions belong to the author.