When we talk about retirement planning, most people only think about the outcome. Few people actually think about the phases that are embedded within retirement planning. Yet, these phases are important in helping us understand the psychology behind retirement planning. The understanding of these phases will help us understand why some people fail to achieve their retirement dreams. It also helps us to be better prepared for retirement and avoid making the same mistakes as our predecessors.
Stage 1: Ignorance
The first phase of retirement planning is the stage of ignorance. This usually takes place when you are in your mid-20s to early 30s. While you might have heard of advice from your parents or friends who are more senior to start your retirement planning early, the advice often falls onto deaf ears. At this stage, it is common for you to fall into the myth that you are still young and it’s too early to start planning for retirement.
Mindset: ‘Don’t worry, there’s still time’.
Stage 2: Realization
One major problem about missing out of starting retirement planning in your mid-20s to early 30s is that it IS the best time for you to save up for retirement. You are at the life stage where you don’t have much financial commitments like housing loan, kids and parents’ medical bills to weigh you down.
However, when you finally realize that, you would have already moved past the ideal life stage for retirement planning. The moment of realization means that you are now in the second stage of retirement planning, i.e. the realization stage. At this stage, you have already lost 10 odd years that could have allowed you to compound your retirement savings.
Mindset: ‘Oh no, my commitments are piling up and affecting my ability to save for retirement’.
Stage 3: Action
The transition between the second and third stage is very quick. The moment you realize that you have lost time, you want to start taking action to remedy the situation. You begin to explore ways to speed up the accumulation of your retirement savings so that you can make up for lost time. You hope that you will still make it in time to achieve your retirement goals by your ideal retirement age.
Mindset: ‘I need to be more pro-active in order to achieve my retirement goals’.
Stage 4: Panic
As you continue to take actions to make up for lost time (e.g. invest actively, increasing your saving quantum), you might start to recognize that you can’t achieve your retirement goal at the current pace. You now enter the panic stage where you are very worried about your retirement plans.
You start to make more aggressive investments, hoping that you will be able to cover the retirement gap between your retirement savings and your retirement goal.
Mindset: ‘I need to be more aggressive in my investments in order to cover the retirement gap’.
Stage 5: Hopeful vs Hopelessness
In the final stage, there are two possible scenarios that can happen. You might either find yourself being hopeful or find yourself losing all hope. As you make more aggressive investments, it translates to more investment risks.
On one hand, you might find yourself aggressively covering the retirement gap if your investments blossom. On the other hand, you find yourself aggressively moving away from the retirement gap as the investment risks turn out to be bad risks. However, 95% of the time these investment risks turn into bad risks. Most people end up in the stage of hopelessness as their retirement savings cannot keep up with their retirement ambitions.
Mindset: ‘Shit. If only I had started my retirement planning early, I wouldn’t be in this situation now’.
What Can You Do To Avoid Being In The Stage Of Hopelessness?
Ideally, nobody wants to be in the stage of hopelessness. Yet, many of us are subconsciously causing ourselves to be in that stage by staying in the stage of ignorance for too long. If you are really determined on a happy retirement life, then you need to get out of the ignorance stage today. You can start by getting your financial portfolio reviewed today to identify your retirement gaps and take steps towards closing those gaps.
The Moneyline.sg team is committed to helping our readers skip the ignorance stage and directly move into the action stage as early as possible. Check out the 3 best retirement plan in Singapore today if you want your financial portfolio to be in the best shape for retirement.