Retirement planning blues

It's never too early to plan for retirement, experts say. I may have left it too late

I woke up last Monday with cold feet.

Six weeks ago, I'd put my signature on a "retirement" plan, committing a sizeable portion of my salary to it every month.

The scheme, as I understood it, sounded promising.

Each month for eight years, that amount is taken from my bank account. Every year, interest - which should average 2.38 per cent - is declared on it.

From the 13th year, which is my selected "retirement age", I will get a guaranteed monthly income just a little short of the monthly amount I had put in for eight years. But I get it for 10 years.

If I go for the full 10-year plan, I get a "maturity" payout.

I can also choose to get a lump sum from the 13th year onwards. It would include the full amount I had put in and a little more, plus a non-guaranteed "retirement reward" portion.

There is an insurance element but I wasn't interested in that.

I bought the plan from a financial adviser from a bank I have accounts with. He had cold-called me to arrange a meeting. He was patient in explaining the scheme. The returns looked decent and I didn't ask many questions.

I've been using the bank since I was a child and had seen the retirement plan prominently advertised at its branches. I thought the bank was selling the product but found out it was from an insurance company.

Other reasons I signed: I like the idea of enforced monthly savings. I also don't like the hassle of monitoring investments and I didn't have to do so in this plan.

Besides, if I didn't do anything with my money, it would languish in a savings or fixed deposit account earning a laughable 0.05 to 0.25 per cent interest a year.

What really clinched it for me, though, was the shopping voucher.

If I signed up at a certain premium, the bank would set up a two-month fixed deposit account.

At the end of the two months, I would get a $1,800 Takashimaya shopping voucher. Shopping here I come, I thought gleefully.

I signed the documents.

In mid-April, I got a thick package of documents from the insurance company. A cover letter said that there was a 14-day "free-look period" during which I could cancel the policy.

I didn't bother reading the 27 or so pages that were attached - until last Monday.

I woke up with a niggling feeling that I had committed too much to the plan.

What if, for some reason, I can't pay the monthly premiums anymore?

What if I lose my job, fall ill or decide to opt for early retirement? Where would the money for the plan come from?

I'm no longer in my 30s or 40s where I can expect life to stretch ahead uneventfully, career- and health-wise.

Instead, I'm at a stage of my life where my health can only take a turn for the worse, and if things get exciting in my career, chances are it's not going to be happy news.

Also, why was I so sure I would live to 75, which is the age I'd have to be to enjoy the full benefits of the scheme?

What would I do with a lump sum "maturity" payout at that age anyway? Buy more shoes? Travel around the world? Unlikely. There isn't anyone I'd need to bequeath it to either.

I fished out the documents and finally read them, surfed the Internet for reviews of the plan (and discovered it is termed an endowment policy), and started messaging the financial adviser.

He had bad news.

Because the cooling period was over, I would have to forfeit the two months' worth of premiums I'd already paid if I were to back out now.

He tried to reassure me. If I had problems paying the premiums, there would be a grace period of up to six months. If I were critically ill and lost the total ability to work (I noted he said "total"), I would get the money I'd paid with interest owed.

He said that this was a good scheme to ensure I had a regular income after retirement. But it was for the long term and I would not be able to reap the benefits now. I did not doubt his sincerity.

Over the next few days, I swung from one decision to another.

On the one hand, having a decent regular income after retirement was desirable.

In any case, it's not like I was keen on other ways to invest my savings. The upcoming Singapore Savings Bonds are an option, but there's a cap on how much you can invest. (But there's no harsh surrender clause if you pull out).

On the other hand, paying high premiums suddenly felt too risky at my age.

What I had regarded as welcomed enforced monthly savings suddenly felt like a debt I owed the insurer. I felt burdened. I hate being in debt.

Worse, if I were to bail out, say, six months down the road, I'd lose all six months worth of premiums. If I cancelled now, the loss would be very painful but it'll be a smaller (but not small) amount.

Experts say it is never too early to plan financially for your retirement, but I'm beginning to think I may have left it too late.

I have a general idea of my finances, I have insurance and shares. But I haven't worked out exactly how much I'd need when I retire or how I can make my money "work" better for me.

I did try with the retirement plan, but then I got cold feet. It's not just retirement income that I should be thinking about now that I'm in the autumn of my life.

There're other issues, like my standard of living when I retire. I am sure it will drop. Is it time to start making changes to my lifestyle now, so I can ease into that?

Then there's the matter of my health. It is within my control only up to a point. What, too, am I going to do with my time? Should I start planning for a post- retirement career?

But first things first.

I considered reducing the premium paid to my retirement plan. Alas, I was told the contract did not allow for this.

I decided to bite the bullet and backed out, and said goodbye to the two months worth of premiums.

I am sure the plan makes sense for some people. I am told it is popular.

But at my age and given how I'm childless, waiting 23 years to experience its full benefits is foolhardy.

I wish I had realised that earlier.

It was an expensive lesson, but next time, I will read all the documents, compare products and ask more questions first.

Needless to say, I also don't get the Takashimaya shopping voucher.

sumiko@sph.com.sg

Follow Sumiko Tan on Twitter @STsumikotan