Ages 41-60: Asset accumulation stage

Welcome to the middle ages. You are now at the stage of life where you have found a comfortable place in your career, love, and society. Your primary concerns are protecting your assets and family, which you have worked hard to gather so far, and getting ready for your retirement. It is never too late to start planning for your retirement if you had not done so earlier. The difference is that you will have to be more focused.

Protecting your assets and family
Because of the irony inherent in insurance arrangement, some people hesitate to invest adequately in insurance coverage. This is a form of risky wishful thinking. Terrible events can befall even the most wonderful people. And even if you are single and have no obligations to anyone else, certain forms of insurance can save you from financial disaster. If you have a spouse and children, insurance is all the more crucial as a means for you to protect them from potential hardship.

Insurance is essentially a means of transferring risk. Fundamental risks we are all subjected to includes: death, disability, accidents or illnesses, property loss or damage and litigation for real or perceived negligence. Rather than risk all the consequences of physical disability for example, you pay a premium and transfer some of the risk to an insurance company. How much risk should you retain, how much should you transfer, how likely is the risk to affect you and at what cost you are willing to pay for transferring the risk? These are essentially personal decisions. However, try and avoid the 10 Big Mistakes in Insurance!

#1 Knowingly underinsuring any major risk that you could cover inexpensively

#2 Covering later needs than immediate needs with an insurance policy

#3 Using term insurance for permanent insurance needs

#4 Calculating insurance needs by rules of thumb rather than by assessing your actual circumstances

#5 Generally overestimating coverage under MediShield

#6 Expecting MediShield to cover a sustained need for long term care

#7 Ignoring the need for disability insurance

#8 Carrying unrealistically low limits under your liability policies

#9 Carrying inadequate deductibles on property/casualty insurance

#10 Carrying limited coverage only on a car insurance

Do not rely solely on work-related medical benefit schemes to offset hospitalization expenses. They do not pay your full medical bill and the benefits are lost when you leave your job. Do not put off addressing your insurance needs as premiums tend to be higher as we age.

Preparing for retirement
If you have been saving for your retirement, it is more urgent that you review your retirement needs as you move closer to your days of non-working. You can only live off your passive income from your retirement funds, so have you invested enough to generate the amount of money adequate for your retired lifestyle?

Since your time horizon has shortened, it is imperative that your investments are tending to lower risk investments. You do not want to lose a significant proportion of your saved funds so far. Unit trusts are a good means of meeting your investment objectives given the multitude of funds available on the market nowadays with varying degrees of risk, countries invested and sector exposure. They allocate your money for you to different asset classes of equities and fixed income instruments in their fund portfolio according to their advertised investment objective. Always make investments which you are comfortable with. To find out your risk profile, you can try the following questionnaire.Score | Risk Profile (Asset Allocation Percentage)
13-30 | Conservative (20% Equities, 80% Fixed Income)
31-47 | Moderate (40% Equities, 60% Fixed Income)
48-64 | Balanced (60% Equities, 40% Fixed Income)
65-82 | Growth (80% Equities, 20% Fixed Income)
Above 82 | Aggressive (100% Equities)

It is also a good time to look at alternative investments which are not high risk and appeals to your interest. Gold, real estate and wine may not be high returns investments but they will make a nice diversification to your portfolio. These are resources which only get more valuable with time. In so doing, you can enjoy financial and emotional well-being. Financial well-being because they serve as potential hedge to your market investments; emotional well-being because the presence of these alternative hedges can significantly lower your level of worry.

Estate planning
Anyone who owns assets is said to have an estate and should therefore have an estate plan. The purpose of estate planning is to ensure the maximum value of your assets will be distributed to the beneficiaries of your choice. Without a proper estate plan, your estate may be subject to more estate duty and administrative hassle and delay than necessary, distribution not according to the way you prefer and your minor children/grandchildren may not be cared for by people of your choice. A will therefore is an important estate planning tool to ensure that your wishes are followed with minimum delay and costs. For the estate planning process, observe the following steps.

1- Estimate the fair market value of your assets. Remember your personal balance sheet? This information can be retrieved from there.

2- Write down the list of beneficiaries of your assets.

3- Determine how you wish to transfer your assets to your beneficiaries. You can specify them in a will. Some assets like insurance policies and CPF or pensions automatically go to your immediate family members if you do not leave behind a will. You can also distribute your assets by giving them as gifts or transferring to a trust. Gifts and irrevocable trusts can help to reduce your estate duty. Unlike a will, assets in a trust can be distributed directly to your beneficiaries without going through a lengthy probate process.

4- Execute your estate plan by writing a will or setting up a trust.

5- Review your estate plan from time to time, ensuring it reflects changes in your financial and personal circumstances. In case you are taken ill or permanently disabled, a durable power of attorney is a useful tool for protecting your assets value in your estate planning as well.