I am 45 and want a proper financial plan to secure my life after retirement. My income is about 1.5 million baht per year. I don't have the guts of a gambler, so I put more than 50% of my savings in fixed deposits, while the rest goes to low-risk assets such as fixed-income funds. But this seems to make way too low of a return.
ANSWERED BY... Teera Phutrakul, CFP, Chairman, TFPA Asset-liability matching is the name of the game. First you need to work out your retirement liabilities. Based on your current income of 1.5 million baht per year, let's suppose your income will grow by 3% annually for the next 20 years until retirement at 65. This will come to roughly 2.7 million baht.
As a rule of thumb, most individuals can maintain their pre-retirement standard of living on 60-80% of their pre-retirement gross income. You then multiply 2.7 million baht by 70%, which comes to 1.9 million.
The next step is to work out your life expectancy. Nowadays it is not uncommon for people to live until 90. By multiplying 1.9 million baht by 25 years plus a 3% annualised rate of inflation, your total retirement liability comes to about 71 million baht. This may come as a shock, but that's the reality you have to live with.
Now that you know what is involved in figuring out how much money you will need during retirement, the next step is to look at the size of your current assets, namely provident funds, LTFs, RMFs and so on. If you do not have enough funds to meet your retirement goals, it means you have a retirement "savings gap", which is the estimated total savings you will need at your expected retirement age minus the projected value of your current retirement savings and additional income you will save each year until retirement.
But do not despair, because at this stage there are a number of different strategies that can be employed to help you deal with your shortfall _ save more, work longer and increase your investment return. Depending on your risk tolerance and time horizon, equities are probably the only asset class that will generate the sufficient return you require in the long run.
Last, it goes without saying that the secret to living within your means during retirement is to live within your means before retirement. It's really that simple.
The Thai Financial Planners Association is the Certified Financial Planner (CFP) trademark licensing authority in Thailand. It is a self-regulated, non-profit group of financial advisers and experts from various organisations set up to give advice to investors. Questions can be submitted through email@example.com or posted on the TFPA webboard at www.tfpa.or.th
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Writer: Thai Financial Planners Association