Retirement Life
4 December 2024
Enhancing Your Financial Wellbeing
We’re all living longer, so the challenge we face is less how to live a long life but a healthy one where wellbeing is paramount. Without quality of life, a long life is a far less attractive prospect.
Your general wellbeing is made up of six pillars:
1. Emotional wellbeing
The ability to cope with the normal stresses of life.
2. Physical wellbeing
The ability to maintain a healthy quality of life and have the energy to handle daily activities.
3. Social wellbeing
Having meaningful relationships, a sense of belonging and social connectedness.
4. Intellectual wellbeing
Being purposefully and intellectually engaged in something you like doing.
5. Spiritual wellbeing
The purpose and meaning of life that stems from faith, beliefs, values, ethics and moral principles.
6. Financial wellbeing
Being financially secure.
Calculate what you could draw in retirement.
While money often becomes a focal point of retirement planning, financial wellbeing is only one aspect of being able to live a good life. There is little point being super wealthy if you’re too physically ill to travel or participate in leisure activities, or if you’re cut off from society through a lack of social connections. However, being in good financial shape can certainly help you achieve the other five pillars.
The Retirement Commission, in its recently released National Strategy for Financial Capability 2025-2027, defines financial wellbeing as “the extent to which someone is able to meet all their current commitments and needs comfortably and has the financial resilience to maintain this into the future”. It goes on to say that: “Financial wellbeing is a complex and dynamic process that depends on various factors and skills. Two key components are financial literacy, which is the knowledge of financial concepts and products, and financial capability, which is the skill and motivation to use that knowledge and make good financial decisions.”
In a nutshell, enhancing your financial wellbeing is about using your financial literacy and capability to ensure you are financially resilient both now and in the future. While it is easier to achieve financial wellbeing when you have higher than average wealth and income, these are not essential ingredients. In fact, having a lot of money at a point in time is no guarantee of future financial wellbeing as poor financial decisions can erode wealth quickly. This became evident during the Global Financial Crisis of 2008 when fortunes were lost with poor investment decisions.
The key elements of financial wellbeing for retirees have a slightly different emphasis than for those still working. That’s primarily because in retirement, the focus of money management shifts from creating wealth to decumulating wealth.
In retirement, it is no longer essential to save, but strong budgeting skills are needed to ensure that spending is kept within available income, otherwise retirement savings will be used up too quickly. Investment management skills are needed but with differences. While working, investment strategies are geared towards creating wealth over the long term. In retirement, the aim of investing is to:
- Ensure you have money available for spending when you need it.
- Provide for unexpected expenses.
- Invest money safely (and that doesn’t mean conservatively) until such time as you need to spend it.
- Keep ahead of inflation over the long term.
- Strike a balance between investment risk and return that is appropriate for your goals, your investment time frame, and your risk appetite.
- Ensure that investment capital is not run down too quickly, nor too slowly.
- Consider the transfer of wealth to beneficiaries.
In terms of both financial literacy and financial capability (knowing and doing), there are significant differences between what is required in retirement and what is required in your working life for financial wellbeing. Some upskilling is therefore required when you transition to retirement.
Key skills include budgeting on a limited income, the ability to plan future spending needs, understanding basic investment principles such as risk management and diversification, as well as how best to combine income and capital to fund planned and unplanned expenses. Take the time to acquire the necessary knowledge and skills for achieving financial wellbeing in your retirement or, alternatively, seek professional advice and support.
Project your retirement income.
Written by:
Liz Koh
Liz Koh is a money expert who specialises in retirement planning. The advice given here is general and does not constitute specific advice to any person.
Invest with Lifetime for a retirement income managed for living.