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The earlier you plan, the easier the retirement

To someone mid-career, retirement can seem such a long way away. But this is precisely where the battle for a happy retirement is won and lost. If you leave everything to luck and hope there will be a crock of gold waiting for you at the end of the retirement rainbow, then good luck to you. But realistically, would you leave something as important as your retirement nest egg up to chance?

A good place to start in finding out whether you are saving enough for your retirement is to use a simple rule of thumb by multiplying the annual income that you need to live on during your golden years by 22. Let’s suppose you desire to have 50,000 baht a month, which is 600,000 baht a year, during retirement. You need to aim for retirement savings of 13.2 million baht (600,000 baht x 22) by the time you are ready to retire.

If you find the above numbers too daunting, do not despair because you are not the only one! Even if you are already in your 40s and 50s, you still have a good 10 to 20 years to catch up on your retirement savings. You will be surprised what compounding at 8-10% per year can do to your retirement nest egg. As for the second challenge, where do we find 8-10% investment return over the long run? Bank deposits and bonds certainly will not do the trick. Only equity can give you that kind of return over the long haul. However, make sure that your portfolio is sufficiently diversified with both onshore and offshore securities.

As for those of you that are seriously behind with a shorter investment horizon, you may have to work longer and retire later or both in order to build up a sufficient nest egg to retire on. But in any case equity and real estate are the only asset classes that are likely to give you the return you need, and therefore it is not uncommon for equity to make up as much as 80% of your retirement portfolio. This may sound a bit too aggressive for most people, but at the end of the day the exposure to equity is your choice. If you invest too conservatively when you are young, i.e. mostly in bank deposits and bonds, you are likely to end up with a smaller nest egg. If you can live with that fine, but do not forget what many financial planners call "longevity risk": the possibility that you will run out of money before you die. This usually happens to people that start retirement with a portfolio that is not big enough in the first place.

Now that we have a rough idea about the asset allocation strategy we need to pursue in order to ensure a comfortable retirement, how do we go about it? If you are provided with a company-sponsored provident fund, you should demand from your employer or provident fund committee an "employee choice" option. Otherwise, it is highly unlikely you will ever achieve your retirement goal because most registered provident funds are overly conservative in their asset allocation strategies and not sufficiently diversified, especially in terms of offshore investment exposure. The thing to remember is that one size does not fit all and only utilising an "employee choice" option will give you the freedom to determine the asset mix that is exactly right for you.

If you are self-employed, the task can be made a bit more flexible by using tax-exempt investment vehicles such as Retirement Mutual Funds (RMF) and Long-Term Equity Funds (LTF). Right now there are several asset classes of RMF to choose from, i.e. equity, fixed income, money market, balanced, flexible etc. But do not forget that only equity will give you the long-term return you will need to achieve your goals. Even those of you that already have provident funds, you should try to top up your contribution to the maximum limit of 500,000 baht or 15% of gross income, whichever is lower.