Retirement is always a hot topic in Singapore. The financial folks at DBS Bank have released the results of their latest survey, with a total of 1,000 Singaporean respondents, and it makes for troubling reading. According to them:
• 3 out of 4 survey respondents have no concrete financial plan for retirement, either leaving it up to fate or having a general vague idea without having any plans to execute it
• A quarter blames the confusing rules and regulations surrounding financial products and investments for their lackadaisical attitude towards retirement
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• 23 percent of those surveyed feel that they lack the adequate funds to start any investment plans
In the same survey, a large majority of respondents hoped to have a monthly income stream of S$3,500 for up to 20 years after retiring at the age of 65. Lofty ambitions, considering that DBS Bank’s experts have calculated that you need a retirement chest of S$900,000 to be able to fund such a lifestyle.
Sounds impossible in the world’s most expensive city? We’ve worked together with Tokio Marine Life Insurance Singapore’s Chief Actuary Alex Lee, and put together a simple three-step plan that will help you get started on the treacherous road to a pleasant retirement.
• Step One – Decide on your planned retirement age
Currently, Singapore’s statutory minimum retirement age is 62 with re-employment opportunities available until the age of 65, pegged to performance. Expect this number to rise in the future though as Singaporeans live longer. Former NTUC secretary-general Lim Boon Heng publicly suggested earlier this year that the retirement age should be upped to the age of 70. I’m sure many of us cannot fathom working to such an advanced age and to prevent our golden years from becoming an endless slog, Alex recommends that we start planning for retirement as soon as possible. The first thing that you can do is to decide the age that you wish to retire at. Alex provides four common benchmarks – 50, 55, 60 and 65.
• Step Two – Choose your desired retirement lifestyle and the monthly revenue you need to fund such a lifestyle
A 2013 global report compiled by HSBC revealed that a large proportion of Singaporeans see spending more time with friends and family as their most important retirement aspiration. Coming a close second was boarding a plane and jet-setting around the world.
The average Singaporean, Alex shares, requires about 70 percent of his or her last drawn salary to maintain his or her current lifestyle during retirement. We’ve put together a simple table that you can use to roughly estimate the amount you need to save annually based on your age, your current wage, and our expected monthly retirement stream.
(We’ve assumed that you want to retire at the age of 65, will require a monthly income for 20 years, and will have a wage increment of 2 percent, which is based on Singapore’s average wage increase before inflation.)
Note that the table above is a guideline and if you reckon that you can live a comfortable life with a monthly income of S$1,800 for 20 years, then your total retirement goal will be vastly different.
The best thing that you can do is to be financially literate (the wealth of articles on drwealth.com is a good start!), whether you’re already in our 20s or 30s. “Investing early makes your savings work harder…and the power of compounding would potentially give you better returns to offset inflation, which will help to meet your healthcare and other unforeseen expenses in your later years,” advises Alex.
• Step Three – Start cultivating and calculating your different income streams
A large majority of Singaporeans are aiming to rely on their cash savings to help fund their retirement, supplemented by their life insurance pay-outs and the money squirrelled away in their CPF account. As Prime Minister Lee Hsien Loong illustrated in his 2014 National Day Rally speech, your CPF funds are most likely not enough to fund a retirement that you would consider comfortable.
Furthermore, if your savings sit solely in a bank account, the effects of inflation and the rising cost of living will reduce the value of your savings over time.
That’s why it’s important to include secondary sources of income – property rental, financial instruments, stocks and shares, etc. – in your financial portfolio.
If you’re ready to take that first step to be financially solvent and worry-free during what is supposed to be the best time of your life, why not sign up for a free account with us? It’s completely free and will give you an exhaustingly detailed snapshot of your financial health as well as provide you with a myriad of other tools that will set you on your way to financial freedom.