Are you planning for retirement yet? We hate to break it to you, but you should’ve started sooner. Here’s what you need to do to enjoy your golden years.
Inflation is real, and it’s kicking our butts. To illustrate, let’s go back to the 90s when a cup of coffee at the hawker centre cost 40 cents. Today, you pay around $1.20. That’s a three-time price increase, yikes! It doesn’t help that we’re living in Singapore, recently ranked by Julius Baer Group as the most expensive city in the world. Our country also emerged tops (alongside New York City) in The Economist Intelligence Unit’s Worldwide Cost of Living 2022 survey. Typically, we’d rejoice at high rankings, but being dubbed the most expensive place to live in is nothing to shout about.
To rub more salt into the wound, it was recently reported that a 12-year-old Australian multi-millionaire threw a lavish “retirement party” ahead of her move to Singapore. Meanwhile, I’m over three times her age and still wonder if I can save enough to retire comfortably when the time comes. I suspect I’m not alone in this predicament.
Are you in the running to become the next top retiree?
According to Singlife’s Financial Freedom Index 2023, 70% of those polled said they’re not confident they can retire anytime soon. Merely four out of 10 have started planning for retirement and can estimate how much they’ll need. In another survey conducted by Income Insurance in September 2021, a third of participants said they’d rather work until they’re unable to do so, while the remaining hope to retire by 65. What about you? Which side of the fence are you on?
We get it: retirement planning doesn’t sound like much fun. But just because you’re still young and agile doesn’t mean you can’t (or shouldn’t) prepare for your future. Plus, planning for your golden years isn’t an easy, one-off exercise. You’ll have to assess and adjust your plans continually.
Seow Kai Lun, managing editor of The Simple Sum, an online platform that delivers easy-to-understand and entertaining personal finance tips, suggests drawing up a projected retirement expenses plan. It should include daily expenditures such as meals and housing, healthcare costs, emergency funds, and your retirement lifestyle.
“For most people, retirement is when they imagine travelling the world or pursuing hobbies they never had the time for when they were younger. If there’s anything on their retirement bucket list that’ll cost money, they should have enough set aside to pursue it,” she explains. So take a moment to think about the lifestyle you want to have at that stage of your life.
Being debt-free during retirement is another thing Kai Lun highlights. Regular payments should be included in the projected expenses, and this includes housing and car loans. Although, let’s face it: no one wants to pay off debts in their golden years.
All that sounds simple, right? Well, not quite – we need to talk about inflation too.
How inflation (and age) factor into retirement planning in Singapore
Things in Singapore are getting more expensive each year because of the GST increase and inflation silently killing our purchasing power over time. A survey carried out by Milieu Insight and Seedly in 2022 found that eight in 10 Singaporeans’ personal financial situations have been severely affected by inflation. Rising prices are most likely to affect lower-income groups and the older generation. When it comes to retirement planning, over 30% of the survey respondents believe their preparations will be impacted by inflation.
This is why Kai Lun advises factoring inflation in when preparing for the future. “For example: if we estimate needing $5,000 a month for retirement in today’s currency, that means we’ll need $9,057 in 30 years. That is if we assume inflation to be 2% annually.”
If you’re curious about how much to set aside for the future, CPF’s Retirement Estimator can help you compute. I’ve tinkered around with the calculator, and the results stressed me. But don’t panic when you see the final numbers! The estimator’s a good gauge for understanding how inflation impacts your life and retirement later.
Besides rising costs, life expectancy also plays a part in planning for retirement. The average life expectancy for men in Singapore is 80.7, while it’s 85.5 for women. As women are expected to live longer, they’ll need to save more for when they’re older. That’s why it’s also pertinent for them to plan early, given that they’re more likely to have an income break when they decide to have children.
There’s a silver lining to all this, though. Tan Chuan How, Income Insurance’s chief agency officer, notes the emerging trend among women in Singapore being more proactive about retirement planning. Ultimately, age and gender shouldn’t matter – everyone should take the necessary steps to secure their retirement.
Better late than never – though earlier is best
So, when should we start saving for retirement? Ideally, as early as possible.
“Although retirement planning may seem far off, don’t be misled by this illusion. The sooner you start funding a retirement account, the more time you’ll have to accumulate savings for your dream retirement lifestyle,” says Chuan How. He encourages taking up a flexible plan that jives with your desired retirement age and the payouts you want to receive to support your retirement lifestyle. That way, you don’t have to worry about money after you stop working, since you’re getting a certain level of guaranteed income.
However, not everyone can start saving for retirement or set aside money every month. If you’re in the same boat, Chuan How suggests adjusting your monthly expenditure by prioritising your future needs and deciding what to cut back on. He also recommends growing your CPF retirement savings by investing through the CPFIS scheme or topping up your Special Account.
There’s one myth that has to be debunked, and that is the idea that savings and CPF are enough to fund your retirement. That largely depends on the lifestyle you envision during your golden years – just banking on savings and CPF alone may not be truly sustainable. Both Kai Lun and Chuan How advise taking the time to look at investment options or other financial instruments that can help you grow your retirement pot.
If you intend to invest, assess your risk tolerance. You want to grow your money, not lose it! Tip: UOB’s risk profiling page can determine your risk appetite and plans to consider. According to Chuan How, investment plans, additional healthcare protection, savings, and CPF can help supplement your income during retirement and cover medical costs.
Kai Lun also recommends partaking in passion projects or part-time work after officially retiring. She firmly believes there’s potential to continue earning an income even beyond retirement and re-employment ages in Singapore. This can mean starting your own home-based business, working at a restaurant, or taking up paid volunteering work.
So, is it possible to retire comfortably in Singapore?
This topic left me pondering all the more after my financial advisor asked about my ideal retirement age. Can you retire comfortably in Singapore, even with rising costs and inflation? What it looks like differs for every individual. That’s why you must assess your expectations around retirement. Do you plan to travel extensively and see the world? Or perhaps you’re happy to lead a quiet, simple life.
I haven’t thought about what I want to do after I retire, though I hope to stop working when I turn 65. What about rising costs and inflation? They’re inevitable, so the only thing I can do is diligently ensure I have enough money for my future.
Kai Lun says your best chance of comfortably retiring is understanding what you need in terms of planning and the type of retirement you want. Be mindful when taking care of your finances. Eventually, you’ll have enough for a smooth retirement in Singapore. I mean, who wants to worry about money when they’re old and grey? Definitely not me.