An important parameter to use is the inflation figure.
What should the assumed inflation be?
- If you use a high figure of say 8% per annum, you could end up with an inflated retirement funding required. You will be discouraged.
- If you use a figure that is too low, you could end up not having enough retirement money. This is dangerous.
If you intend to live in Singapore after retirement, professional financial planners tend to go for the low end of the inflation figure. This is because Singapore’s inflation is kept low by its monetary policy of pegging our currency against a weighted basket of currencies. The primary purpose of this method is to keep our inflation low. So it is likely our inflation will remain low for sometime to come.
Financial salespersons like to use a high inflation figure because this ultimately leads you to buy more in products.