Planning for retirement sustenance is always tricky business especially if one is planning for 25 to 35 years down the road. It is really too deep into the future to see. How then do we minimize the unknown in our planning and preparation? Here are 4 steps that I think are useful.

The first step is to plan for inflation.
We are often told that based on historical data, the inflation rate averaged 3%. We can use this figure to project what our expenses will be like in the distant future. For example, if we need $2500 today, we will need $3450 in 10 years time, $4,500 in 20 years time and $6000 in 30 years time - just to have the same purchasing power that $2500 gives us today.

In the case where you already have $900k and it is earning an ROI that is equal to inflation, then the $900k will be able to provide $2,500 pm or $30k pa. However at the end of 30 years, it will be zero. That is, nothing left to bequeath to your loved ones.

If however your $900k is unable to consistently bring in a ROI of 3%, or a net ROI of 0, then it will run out in 23 years.

The second step is to cater buffer, as big a buffer as you can.

Catering for inflation alone is not sufficient. Because after all, the 3% inflation rate is a broad historical gauge. If you look at the cost of basic necessities, such as food, medical fees and other basic items, their inflation rates are much higher. Something like 10%! When you only budgeted $2500 pm for your retirement expenses, you are already at the bare bones lifestyle. This means that you are very vulnerable and susceptible to the core living inflation which are typically higher. To get around this, you must budget a buffer into your planning. For example, add another $1500 pm to make your monthly budget to $4000 pm. Then use the $4000pm or $48k pa to re-compute what you would need to save for 30 years of retirement.

So instead of $900k, you will now need $1.5m! And this $1.5m must earn you an ROI that is equal to the broad inflation rate.

Buffers are important because there are always curve balls in life. That medical emergency, that unexpected home repair, that unexpected trip to make and what not.

The third step is to minimize the time you spend in retirement.

No, I am NOT asking you to die early, but to work longer. The longer you work, the more you will save, and the less you will need in retirement because of the shorter retirement years. Whatever it is you want to do in retirement, you can actually do them when you are still working. Traveling, reading, keeping fit, writing to this forum etc.... All can be done while still working.

For us (we are already 56), every year that we work, we can save for 3 years of retirement expenses. If we work till 62, another 6 years, we would save up another 18 years of retirement expense.

The 4th step is to ensure that your savings are invested and diversified. Invest some in high yield but unfortunately more risky instruments such as shares. Put some money in bonds (bonds as we learnt recently can also go bust!). Put lots into your CPF RA, here I mean go for the ERS. At least if everything else fails, the ERS can still provide you an income to meet your basic bare bones need. And if you have enough money, get a property for rental income.

The more sources of passive income, the more robust your retirement planning.

We have all 4 sources of income and at this point, I will tell you that the dividends from shares are not consistent. Neither is rental income. There were short duration where our property was sitting empty. Our only consistent and strong sources are bonds, and the CPF!