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Sumiko at 61: 8 tips from a regretful investor on what not to do
Stakes are high when you invest your retirement savings. It pays to be extra cautious.
Finding out that an investment isn’t what you believed it to be can take a mental, physical and emotional toll.
Just ask me.
In 2022, I decided to finally buckle down to properly planning for my impending retirement. I was turning 59 that year and knew I was already too late in the game.
As someone who is risk-averse – fixed deposits and the Central Provident Fund (CPF) have been my go-to – I was looking for safe, steady income to fund my future.
I was advised to consider fixed deposits (FD), structured deposits (which carry a higher risk than FDs), a bank bond and an annuity plan.
I’d read about the importance of diversifying one’s investments so I decided to spread my money in some of these products.
Then, last week, during a conversation with a friend while researching for this column on retirement planning, I made a heart-stopping discovery.
A six-figure investment I had made in 2022 was more complicated than I had understood. Most troubling of all, it has a feature I am strongly opposed to on principle.
It is difficult to describe the feeling when you realise you’ve invested some of your life’s savings into something you shouldn’t have, especially at this late stage in life.
I felt disbelief, frustration with myself, and a deep sense of regret and sadness.
Investing should bring you peace of mind, but this situation has left me with ongoing anxiety instead.
Financial planning for retirement is hard.
First, you need to save enough money. Then you need to manage it prudently so it lasts. We all want better returns in our later years, but how many of us know how to achieve that?
This experience left me questioning if the average person truly understands the financial products they invest in.
It also highlighted the importance of planning for retirement earlier rather than later; you’d at least have more years to recover.
Long runway better than short
Early planning is something that experts like Ms Tan Siew Lee from OCBC Bank and Ms Lorna Tan from DBS Bank stress.
Since 2019, OCBC has surveyed annually around 2,000 working adults in Singapore aged between 21 and 65 on their financial situation.
Its OCBC 2024 Financial Wellness Index found that one in four Singaporeans intends to start, or only started, retirement planning in their 50s or later. Reasons for procrastinating include “I’ll just try to be thrifty and save up” and “I don’t want to think too far ahead”.
Among those in their 50s, about six in 10 say they have started planning for retirement. In the 60 to 65 age group, seven in 10 have sorted their retirement needs. (That also means three in 10 haven’t.)
While the majority of those in their 60s say they would opt for a basic retirement lifestyle – for example, no helper and capping holidays to twice a year and to the region – many underestimated the amount needed for retirement by about 20 per cent.
Ms Tan Siew Lee, head of group wealth management at OCBC, said that regardless of age, marital status or whether you have children, the financial planning model is the same.
First, manage your savings and debts. Second, protect yourself, which is where insurance comes in. Third, plan for your goals, such as children’s education or retirement needs.
“When you have settled all these three important pieces, when you have spare money, then you can start taking on certain risks and invest,” she said.
Is 60 too late to start investing for old age?
“I don’t say it’s too late, it’s better late than never, but you need to know that when you are late, your runway is very short. The power of compounding in terms of your investment returns will be shorter,” she said.
“I tell young people they should start retirement planning when they start work, but they think, ‘Why should I start planning?’ They don’t believe it, which I can understand,” she added.
“But when you are in your 30s or 40s, when you have a stable job and have a family, you really should start planning for your retirement already.”
Even if children have pressing needs to meet – such as education – couples should set aside some money for retirement.
“It does not have to be one or the other. You just need to split the $100 into probably 60 per cent education, the rest on retirement,” she said.
Ms Lorna Tan, head of financial planning literacy at DBS, echoed the need for an early start.
She gave the example of someone who wishes to achieve a retirement nest egg of $550,000 by age 65.
If you start at age 35, you would need to save and invest $690 a month at 5 per cent return, compounded annually. But if you wait till 50, you would need to invest $2,124 per month, assuming the same annual return.
“The closer you are to retirement, the less time you have to accumulate wealth,” she said.
Both experts couldn’t emphasise enough the importance of being properly covered by healthcare insurance.
DBS’ Ms Tan pointed out that the average cost of medical care in Singapore rose by 10.3 per cent in 2023.
All Singaporeans and permanent residents have MediShield Life, a basic health insurance scheme administered by the CPF Board that protects them against large medical bills and some costly outpatient treatments.
ElderShield and CareShield Life are national long-term care insurance schemes against severe disability.
Those who want to supplement these with private health insurance plans, such as critical illness cover, should note that there are age limits to getting them.
OCBC’s Ms Tan said the longer you wait to get additional coverage, the more you would be at a disadvantage as you might have developed conditions that would make you more difficult to cover, or you might face higher premiums.
As for investments, seniors should be wary of riskier financial products, especially if they fear they are not adequately covered for future healthcare bills, said OCBC’s Ms Tan.
“When you are in your 60s, that’s when your health starts to deteriorate and you would need cash to cover medical expenses,” she added.
DBS’ Ms Tan said that near-retirees and retirees generally opt for investments that generate passive income flows and they are more focused on capital preservation.
“Their shorter investment time horizon makes them more vulnerable to losses during economic downturns,” she said, adding that they must also ensure their retirement nest egg lasts their lifespan.
Don’t shop solo, don’t be a hero
I took a first stab at retirement planning when I was 43.
I signed up to a financial planner who talked me through my financial goals and worked out how much I would need to achieve them. It wasn’t a small sum.
My savings then were in CPF and bank deposits. The planner suggested I diversify to include unit trusts and an endowment plan, and to sign up for the Supplementary Retirement Scheme, which has tax benefits.
Despite her advice, I steered clear of investments and stuck to fixed deposits.
Until 2022.
Having also seen my fair share of friends and relatives making investment decisions they regret, this is now my what-not-to-do list for buying financial products which I am determined to now follow:
1. Don’t sign anything at the first, or even second, meeting
Take your time to shop around at least three, preferably more, banks and financial institutions before committing your funds. Don’t settle for the first product offered at the first bank visited.
Visiting different institutions will allow you to compare their service and culture towards customers’ needs. You can also get their views on competitors’ products, which might raise red flags you never saw.
Don’t be impatient. You need time – a lot of time – to understand and compare products. Even if you decide on one, mull over it, do online research and read reviews and ratings. Get views from financially savvy friends. Don’t be defensive about the products you are keen on. Keep an open mind.
Once you decide on an investment, wait some more. Don’t be pressured by “promotions”. Investment products aren’t going to run away, but your funds will, if you make a mistake.
2. Don’t buy several products at once
Don’t be a hero and put your money in varied products all at one go. Pace yourself if you want to “diversify”.
Bonds, exchange-traded funds, mutual funds, index funds, annuities, savings bonds. These are all different products with different methodologies and risks. They are highly complex and technical, and there’s only so much an average person can understand and absorb.
3. Don’t shop solo
You might want privacy and prefer to make financial decisions alone, but consider bringing along a family member or friend at your meeting with the financial adviser.
If the relative or friend has a sceptical and questioning mindset, good. Even better, give them the authority to be the “bad guy” and ask the difficult questions. They might spot bad – but also good – features of the product that you might miss.
They can be that restraining hand – literally – that stops you from signing the contract. They will also be a witness to your transaction.
4. Don’t forget worst-case scenarios
If a product sounds too good to be true, it probably is.
Always ask the adviser to list five worst-case scenarios of the product, and have them give it to you in writing. Take the time to understand each scenario.
Don’t rely on illustrated examples of returns. Once you know how much you are investing, get the adviser to simulate worst-case scenarios based on the sum.
Find out how the bank profits from the product. What are the bank’s best-case scenarios?
Always ask if there are more affordable alternatives to the product.
5. Don’t forget to get written documentation
Always get all terms and conditions of the product in writing before signing an agreement. This includes a list of all the costs and fees involved, upfront and “hidden”.
Read the documents.
6. Don’t forget to take notes
Get a notebook, label it “My Investments”, and take it with you every time you meet an adviser. Take down copious notes during and after the meeting. Keep e-mail and phone text conversations.
Keep every scrap of paper where illustrated examples of the product were scribbled down for you. Store these, as well as product brochures and signed documents, neatly and in a safe place for easy retrieval.
They will come in useful should you want to refresh your memory of the product or – heaven forbid – need to dispute how it had been sold to you.
7. Don’t be shy to ask questions
The financial world is very technical and specialised. Words used might not be what you and I think they mean.
Does “guaranteed returns” mean returns are completely risk-free and guaranteed?
Should you assume a “diversified portfolio” is safer and a good thing?
Is “yield” a guaranteed return?
Does “capital preservation” mean you don’t suffer a loss? What is “capital protection”?
Do you really know the difference between “principal” and “interest”?
On the flip side of jargon, be wary, too, when products are explained in overly simple terms.
There is no need to feel bad about taking up the adviser’s time, and remember: you don’t have an obligation to buy.
8. Don’t be distracted by gifts
Whether it’s a “sign-up gift”, VIP access to pop concerts or airport lounges, be focused on the product you are buying and not the perks.
Does it align with your financial goals? Do you understand it? Have you studied the worst-case scenarios?
My recent experience has underscored just how complex financial planning is.
It has been a painful and confusing period for me, but at least it has cleared one thing in my head: In this final stage of my life, growing wealth isn’t my priority. Maintaining peace of mind is.
It is a lesson I cannot afford to forget.
- Sumiko Tan is Chief Columist & Senior Editor, Publications, at The Straits Times.
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