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January 2023
Deciding between legacy and retirement
Raising a child is never easy, but it can be one of the most rewarding responsibilities.
Quite simply, most parents just want their children to have a better life than they did. This may entail leaving their offspring with a substantial legacy upon the parents’ untimely demise. However, providing for one’s own retirement needs may often conflict with one’s desire to leave behind a sizeable bequest, given that most of us only have a scarce amount of resources at our disposal. Hence, as with all matters of life, there is a trade-off to be made — happy retirement or happy children?
Prioritise your retirement needs first. Leaving behind a legacy can wait.
If you ever had to make such a choice, it’s good to be slightly selfish by putting yourself first and choose a happy retirement. Think about it, what good could you be to your children if you are unable to independently provide for yourself financially in your twilight years? After all, you are best able to give back to others when your life is secure. Therefore, you should settle your retirement planning before considering legacy planning.
To do this, you should first decide how you want to live out your golden years. Time is finally a luxury you can afford when you retire, and whether you would like to travel, live with your children, support a charity or engage in several other activities, these should be reflected in your financial plans. Plan for your retirement as early as you can and review these plans as regularly as possible to ensure you are on track to meet your target standard of living at retirement.
Once you are satisfied with your retirement provisions, legacy planning would naturally fall into place. This is when you may start thinking about the assets you want to leave behind as bequests to your family and the manner of distribution.
What about doing both together? The wonders of financial innovation.
Depending on the level of planning that you have done as well as your financial capacity, you may also take advantage of financial innovation that has been developed to address both retirement and legacy needs simultaneously.
In OCBC, this is possible through the PremierLife Generation insurance product. This is a Singapore-dollar denominated single premium, whole life participating insurance plan that enables customers to address both their retirement and wealth transfer needs.
It allows policy holders to enjoy a guaranteed monthly income to supplement or maintain your current lifestyle, transfer wealth for up to 3 generations, enjoy guaranteed insurance coverage for life and a hassle-free application with no medical questionnaire.
Seek advisory, not just product solutions.
While it may be attractive to jump on such product opportunities, it is important to note that a financial product is not the be-all end-all solution to your wealth transfer needs. Legacy planning goes beyond just leaving behind a sum of cash to your family.
These are factors one should generally consider when broaching the idea of wealth transfer.
1. What you need to leave behind
Begin by understanding how much you would like to leave behind to ensure that your family is financially stable upon your passing.
Derive broad figures for (1) your current living expenses, (2) the financial needs of your dependents (whether they are still in school, etc.), (3) your existing liabilities (do you have outstanding loans on properties or other types of investments) and (4) the ideal length of time the family should be supported with this source of income.
Minimally, this should be the amount you leave behind to tide your family over upon your demise.
2. How much more you can afford to leave behind
With these figures in mind, you can then address the “wants”. This encompasses the additional amount of money you would like to pass on to your successors as a head start to their lives.
3. How should the wealth be distributed?
Finally, you should settle on (1) whom the beneficiaries should be in your wealth transfer plan and (2) how these beneficiaries should receive pay out, whether as a lump sum or monthly income.
Ultimately, wealth transfer should be an ongoing conversation with your financial advisors as circumstances and financial situations may change, and your plans should change along.
At the same time, wealth transfer plans cannot be a standalone. Rather, you must complement these plans with your own will-planning as well as financial plans to fulfil your other life goals like retirement and children’s education.
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