The majority of us put off retirement planning until later in life. However, this may be a bad idea because plans take time to yield fruit, and getting a head start is one of the best ways to make that happen.
The Straits Times (2021) reports that many Singaporeans prioritize the needs of their children before their own retirement plans. However , you have to remember that your child wants you to be financially ready for retirement so that they won’t have to worry on how they’ll manage to help you out in your golden years.
Planning ahead of time is especially important now that we are part of the sandwich generation. We should start talking about this during our first year as parents, especially if we don’t want to be a financial burden on our kids when we reach our 60s and beyond.
Instead, we should secure adequate resources for our own retirement, so that our children wouldn’t feel constrained by our choices when they reach adulthood. This decision can be more solidified once we face the strain of providing for a rapidly expanding family as well as for our own aging parents (who haven’t planned nor saved yet towards their own retirement).
Finding balance between completing obligations is essential
If you are concerned simply with meeting your immediate financial obligations, it is understandable that you could put off making plans for your retirement. Putting off your retirement preparations is a bad decision that will hurt you and your family in the long run.
Taking into account the fact that the average Singaporean intends to retire at the age of 60, we will need to save enough money to last for at least 25 years in retirement. If you begin saving for retirement at a young age, you will have more time to benefit from compounding growth.
But if you keep putting it off, you’ll need to set aside an even larger quantity of money later, and depending on your age and health, you may have fewer options to choose from. While it is not our intention to put our children or other loved ones in a position of financial hardship, we may realize that a lack of adequate retirement savings may force us to do so.
Here's how you can get started
To begin, calculate roughly how much money you will need during your retirement. With the availability of internet tools like Great Eastern Life’s calculator, estimating an amount we need for retirement has gotten a lot simpler.
By having a goal in mind, you can move backwards and determine specific actions to take to get there.
The next step is to make sure you have adequate protection in the event of a medical emergency or a serious illness. If you are responsible for supporting other people, whether they are small children or elderly parents, you should consider purchasing life insurance that includes critical illness coverage. Those who want to finish paying their premiums throughout their working years while still accruing cash value in their policy frequently favor plans with guaranteed earnings, as this cash value can be cashed out later to supplement one’s retirement income if needed.
Once you’ve taken care of the fundamentals, you may focus on ways to increase your savings through compounding interest.
Don’t put all your savings in the bank like what the majority of Singaporeans do. If you want to increase your wealth, you should learn more investment techniques instead to boost your retirement income.
The key to successful retirement plans
1. Determine CPF Life as your starting point
Make sure to include your CPF when doing the math. Learn how much of a financial footing you may count on from CPF Life to offer, as the national insurance annuity scheme guarantees a monthly payout for the rest of your life. Of course, you may not be able to retire comfortably by only depending on CPF Life, especially if you have an expensive lifestyle that you want to keep, so this is where you should begin accumulating the rest of your retirement savings.
2. Make the most of your current resources
The next step is to evaluate the means at your disposal. How much do you have stashed away in the bank? Are you content to let it sit in a savings account earning a pittance in interest or are you making an effort to increase its value by investing it?
In a Straits Times report (2020), it was shown that SRS contributions are not working efficiently for their owners, so savers must learn to take compensated risk towards a better financial future. This means that some of us may have idle funds languishing in our Supplemental Retirement Scheme (SRS) account. Insurance and direct investments are still the most common vehicles for people to invest their SRS funds in.
Insuring your retirement with a plan that lets you invest with money from your SRS account is a great idea. You can choose the length of your annual income stream for a period of 10, 15, 17, or 20 years with Great Eastern Life’s Retirement Income, and the total annual income you get could be up to 1.47 times* the single premium you paid.
It’s not surprising that plans that help you develop your wealth over the long term and save money toward your retirement income goal are so popular.
If you want to make sure that your retirement lifestyle is not hampered by rising inflation rates, you might see if your insurer gives you the option of receiving a stepped-up payout each year (similar to you opting for the Escalating Plan on CPF Life).
3.Establish a monthly savings goal and plan accordingly
You need to be disciplined about setting aside money every month for your retirement fund if you want to reach your goal. The earlier you get started, the easier it will be.
Putting down as little as $400 per month (or $5,000 annually) and letting it grow over time can have a significant impact.
If you pause for a while later in life, your money can still grow if it’s in the right places.
You should evaluate your level of comfort and competence with investing before deciding which tool to use to grow your savings.
Whether you want to do it yourself or hire a professional, there are a variety of investing strategies to choose from that may accommodate your level of discipline, knowledge, resources, and available time (or without it, when it comes to actively engaging on your own investments for development).
4. Consider your home’s value
Incorporate your property into your plans if you have one. Do you plan to stay in your existing home till the end, or do you hope to downsize (or “rightsize”) when you’re older and your children have left home?
You may be able to free up retirement funds by liquidating some of your assets.
5. Evaluate, modify, and improve
It’s a good idea to revisit your retirement strategy every few years to make sure you’re still on track to achieve your goals. Another ideal time to do so is everytime there is a major shift in your life milestones, as this may require a shift in your retirement goals.
For instance, if you have a large family, you might find yourself with less discretionary income to invest in their early years (when things like preschool and university fees add up quickly!). A more deliberate and aggressive risk approach (such as increasing your exposure to equities, for example) may be warranted, or you may need to delay your planned retirement age.
Conclusion
Making preparations for retirement does not have to be complicated. And the greatest part is, you get to ride the power of compounding your money over time, which means the less you have to put in initially, the more quickly and easily you can reach your retirement goals.
However, putting things off will make it that much more difficult to make up for lost time in your golden years.
It’s easy to put off or forget about retirement planning as we focus on more immediate goals, including advancing our careers and taking care of our families. Yet the steps are as basic as 1-2-3:
- Keep improving what you have at the moment.
- Save a certain amount regularly.
- Rather than keeping your money in the bank, invest it.
So, if you’re not already doing so, now is the time to start planning for your retirement and talking about it with your spouse, if you have one.