[Sponsored article] You might hear the words “financial freedom” spoken by young professionals as they start saving and looking forward to a time when they can afford not to work. Planning for retirement is complex, particularly as people in their 30s and 40s have competing demands on their income. Understanding the basics of financial planning, and having the ability to make the right decisions, helps you to make your money work harder for you, bringing financial freedom closer. Start goal setting The cornerstone of good financial planning is to set out short-term and long-term financial goals. You may want to retire aged 65, but also aspire to buy a home, which requires a deposit. Whatever your aims may be, it is important to have an idea of how much money is required to meet your targets, and what the timelines are for achieving each goal. The next step is to take a look at your income and outgoings, and to calculate how much you can afford to save each month. Be prepared to cut down on some non-essential spending to save more and achieve a goal more quickly. The process of saving money is known as wealth accumulation and is one of the three key pillars of life planning, according to Manulife Hong Kong, an expert in retirement solutions. Don’t delay One of the most common mistakes people make in their 30s and 40s is waiting too long to start planning for retirement. A study last year by Hong Kong’s Investor and Financial Education Council (IFEC) found that just 21 per cent of adults in the city were currently saving for retirement with a plan. Retirement may seem a long way off, and it is tempting to allocate more money to short-term goals, but the power of compound returns means the earlier you start, the less money you need to set aside each month to achieve the same end goal. Let‘s assume you hope to have retirement savings of HK$7 million at age 65. If you start saving at age 25, about HK$6,000 will need to be set aside each month to reach that goal, assuming an annual return of 4 per cent. Starting at age 40, you would need to set aside about HK$13,700 per month to achieve the same target. The IFEC study found that 85 per cent of retirees said if they could start again, they would begin saving for retirement earlier. Get smart on saving Another mistake commonly made in financial planning is underestimating the savings needed during retirement. Start by working out how much money is required every month to cover your daily expenses and pay for the sort of lifestyle you want. It is important to factor in the impact that inflation will have on your living costs, to help prevent the value of your savings being eroded. One way to beat inflation is to target products that give returns the potential to grow. It is therefore important to learn about products that may offer different ways to accumulate wealth in the long term. One long-term savings plan offered by Manulife is ManuGrand Saver 2. This product offers policyholders potential long-term savings including non-guaranteed annual dividends and non-guaranteed terminal bonus. The savings plan also provides policyholders with a realisation option, by giving them the flexibility to lock in gains on the 15th policy anniversary, or every anniversary thereafter to meet their financial needs. Plan for the unexpected Accumulating wealth is one of the pillars of life planning, and protecting your health is another. Being able to cover unexpected expenses such as medical bills without derailing your long-term savings plan is key. Having insurance cover for critical illnesses is a good way to protect your wealth from unexpected medical fees and unforeseen living expenses. ManuBright Care 2 Plus covers up to 112 critical illnesses and diseases, and offers extra coverage for cancer treatment, heart attacks and strokes, after the first major critical illness claim. Set your retirement income The final stage of the planning process is to increase your retirement income. A passive income is considered one of the top three pillars of an ideal retirement, with only good health and maintaining a high standard of living considered to be more important, according to Manulife . La Vie 2 guarantees a regular annual cash payment starting from the first policy anniversary, equal to 5 per cent of the notional amount of an insurance policy until the age of 100 of the insured party. The product is one way a passive income can be secured in retirement. While this all may seem a long way off in your 30s or 40s, planning ahead and seeing what products are currently available will help you understand how much you need to accumulate to reach your retirement goals. While the planning process may sound daunting, it is an important step to achieving your retirement goals. The IFEC study found that 37 per cent of working adults were confident they would have sufficient retirement funds, compared with 21 per cent who anticipated a shortfall in savings that meant they may need to delay retirement or rely on family support. Disclaimer: The above article only provides an overview of selected Manulife insurance plans for general reference. The content above does not contain the full terms of the policy(ies), and the full terms can be found in the policy document(s). Please visit Manulife’s website for the product leaflets, which include more details about their products, including a section called “Important Information” that shows the product risks.