Freebies in Financial Planning...... Nope.

Courtesy of Straits Times

My bad for not posting last week. I had a real "busy" weekend that consumed a lot of my time, sadly. =(

So after a busy weekend and week, I managed to catch up on my newspaper updates and stumbled upon this article (yes I know it is almost a week old).

It is written in a small section of the newspaper, so I thought it would be better if I highlighted it to everyone.

Sumiko Tan's column about retirement, kinda displays the mentality of most of the people I know, as well as it seems to me that it discourages people from planning for retirement which is foolish.

Courtesy of Straits Times

Some points to point out/lessons to learn: (her plans sounds like an endowment with protection plan to me though)

• "Overcontributing" for most people isn't "overcontributing", most of the time is because you're spending too much. Do always contribute what you can spare and not require in the short term.
• Forced savings is good, especially for those who lack discipline.
• Not being informed about your choices and assuming you're getting the right instrument for your needs. She would have done better to at least read up some instead of blindly going for it.
• Living longer is now a more often thing unlike the past. The risk is not living shorter but living longer and running out of money.
• The lump sum may seem "large" now, but post inflation adjustment, I don't think it is large anymore. (Just take 3% compounded per annum and see how much smaller your $10 becomes after 10 years).
• Not finding out how much you need for retirement. You need to do the math early and adjust along the way because with a longer time frame you can contribute less to get what you want by using the power of compounding interest.

And now back to my point:

One should NOT use freebies as a reason to take up a retirement plan. It clouds your judgement because it appeals to the short term "wants" when you are looking at a very long time horizon.

There is no such thing as "free" money, those vouchers/freebies has to come from somewhere (commissions, etc).

So please, consider what you actually NEED for retirement/financial planning, instead of saying, "They are both retirement plans, gee, that one gives $1,800 in shopping vouchers. That sounds/feels better"

Consider the details and what it actually does, else you might find yourself wondering, "I did retirement planning didn't I? Why isn't it enough?" or "Seems like contributing $100 a month didn't not meet my needs"

Lastly and again, Do not be blinded by short term rewards/freebies and look objectively.