Retirement, at its core, is the time in a person’s life when one can decide to permanently withdraw from the workforce, essentially putting their active working life behind them. In Singapore, the minimum age of retirement is currently 62—a rule that is mandated by the Ministry of Manpower in accordance with the Retirement and Re-employment Act (RRA). This means that a person is afforded protection from being forced by their employers to retire before this mandatory age.
A lot of young Singaporeans, however, believe that fear of being forced into retirement should not be the highlight of one’s life when one reaches this age. On the contrary, they see retirement as something to look forward to. For them, retirement is not even an option but a given. After all, who doesn’t want to enjoy a life free of worries and responsibilities when they get to the age of 62? However, retirement remains to be a matter of choice that ultimately depends on how well and how early you plan for it. No matter how much you would like to retire, you’ll probably continue working well into your old age if you’re not financially prepared.
In this article, we’ll talk about a few retirement planning tips that you can take into consideration now when you’re still young, active, and healthy.
Know the Signs of Retirement Readiness
As already mentioned, retirement is mostly about being able to choose whether or not to continue working. However, you can’t just throw in the towel and decide you’ve had enough of working life while hoping for all of your financial obligations to magically disappear. For the most part, you’ll know that you’re ready to retire if you can fulfill the following criteria:
- You have a place to call home and you no longer have to pay mortgage or rent.
- You don’t have any outstanding debts or liabilities.
- You have proper insurance coverage where medical expenses are concerned.
- You have enough savings to pay for the lifestyle you desire, or you have passive income streams that can support you even if you’re not working anymore.
In short, you’re most likely ready to retire if you’ve achieved financial independence.
Take Stock of Your Personal Financial Goals Early
Each person’s circumstances are different from others, which means everyone will have different financial goals as well. For someone who’s about to have their own family, for example, these goals will likely include saving enough money to finance their children’s education. Conversely, someone who doesn’t plan to have children might want to be able to pay off their housing loan on time in order to save more money during retirement.
Don’t be afraid to aim for huge, long-term goals. The prospect of trying to achieve them can seem intimidating, but start early enough and you’ll find sooner or later that no goal is too big to realise.
Work Towards Saving and Investing As Much Money As You Can
Anyone who knows a thing or two about saving and investing knows that the earlier one starts setting aside money, the better. This is because of the impact of compounding returns, which takes into account the cumulative effect that a series of gains will have on any amount of capital that is invested over time.
For example, if Person A started to set aside SGD 200 every month 30 years ago and the investment grew 5 per cent per year thereafter, that person will have contributed a total of SGD 72,200, and the value of their money will be SGD 163,317 today. Conversely, if Person B started setting aside SGD 450 every month only 20 years ago, that person will have contributed a total of SGD 96,400, but the value of their money will be worth only SGD 159,777 today given the same annual rate of growth.
Indeed, it’s ideal to start saving and investing as early as possible, but keep in mind that it is never too late to start saving and planning for retirement either. As the adage goes, “the best time to invest was yesterday; the next best time is today.”
Rely on Your CPF Payouts, but Also Diversify Your Retirement Portfolio
As you may already know, Singapore has the Central Provident Fund or CPF, which is the mandatory savings and pension plan. It is aimed at helping working Singapore citizens and permanent residents fund their retirement, along with their housing and healthcare needs.
Currently, all members of the CPF will be able to withdraw up to SGD 5,000 their CPF savings beginning at age of 55. Aside from that, as a CPF member, you can also withdraw your remaining CPF savings (the balances under your Ordinary, Special, and Retirement Accounts) after setting aside the required Retirement Sum. If you’re a CPF member turning 65 from 2023 and thereafter, note that you can also withdraw up to 20 per cent of your Retirement Account savings as a lump sum once you turn 65. This is an important piece of information to know if you’ve been asking yourself “can I withdraw my CPF after 65?” Additionally, you can also choose when—between the ages of 65 to 70—to start getting your monthly CPF payouts.
While you can definitely top up your CPF savings and opt to start your payouts later to be able to get larger monthly income after retirement (your income increases by up to 7 per cent for every year you defer the payouts), it still makes perfect sense to diversify your retirement portfolio to bolster your retirement nest egg. A retirement plan from a private bank, insurer, or another financial institution can help you receive more income after retirement, and you might even get additional insurance coverage if you take out a plan that offers insurance protection aside from retirement income.
Explore Other Streams of Income
It’s also important to establish passive income streams early, especially if you’re not earning as much as you like or as much as you need to in your current job. If you have a spare room in your flat that is currently gathering dust, consider renting it out to a tenant. If you have a creative hobby or interest that you can turn into a small weekend business, do it.
Additionally, you can explore investment vehicles that offer higher rates of returns for the money you invest, like stocks, exchange traded funds (ETFs), and real estate investment trusts (REITs). Alternatively, taking out an endowment plan will allow you to combine savings, insurance, and investment all in one go. Just remember that investment options that offer higher returns also usually carry more risks than their lower-yield counterparts.
In any case, the idea is always to find ways to maximise the savings you get, and also to optimise the way your money works for you.
Be Cognisant of the Effect of Inflation
Inflation has a big impact on the amount of money you’ll have when you retire. With an annual inflation rate of just 3 per cent, you can expect the cost of living in Singapore to double within your lifetime—after 24 years to be exact. This means any amount of money you have now will be worth just half of what it once did in just 24 years. If the annual rate of inflation were to be greater, the time it takes for your money to lose value will also be faster.
A quick way to calculate the impact that inflation might have on your money would be to divide the number 72 by the inflation rate. The quotient will show you how many years it will take for the cost of living to double. For example, if the inflation rate were 4 per cent annually, the cost of living would double every 18 years. If the inflation rate were 5 per cent annually, the cost of living would double much faster at just 14.4 years later. This technique would be able to help you compute how much you need to save in order to be financially independent during retirement.
If you are still in your 20s, you should realise as early as now the importance of saving and preparing for your retirement. You are at the prime of your life and you should leverage the time you have on your hands to ensure that your retirement years will be comfortable, secure, and worry-free.
Ranted by Guest Writer