Ponder over these things if you want to be on track to building your retirement fund

two elderly persons sitting on a swing

Whether you’re young or old, it’s never too early to start thinking about saving up for retirement. After all, it’s the best way to guarantee a comfortable life after you cross that critical stage.

However, you must start planning to make sure everything gets taken care of. Even though it might seem scary at first, have no fear. By reading this article alone, you’re already making that crucial first step.

It takes dedication and discipline to get where you want to be, including consistent savings and investments. You’re going to need to consider various factors specific to you and figure out how to handle risk best.

When jumping into retirement fund planning, it’s best to set a particular goal to build around it. Let’s dive right into the things to ponder over.

Your retirement goal

retirement savings in a coin jar

Image Credits: Mint

To get a basic idea of how much money you need to have after you retire, you must consider what age you want to retire and what you envision your lifestyle to be. After that, there are several methods to give you an estimate of what you might need.

Take advantage of the Central Provident Fund (CPF) Board’s tools to help you with your planning:

You can also do a quick computation to see how much you will need if you plan to retire for a certain number of years. For example, if your retirement will last 20 years and you require S$5,000 a month to get by, you will need S$5,000 x 12 months x 20 years = S$1.2 million.

Just keep in mind that this doesn’t include other factors like assets and liabilities. Those who want a more accurate number should seek a financial consultant’s assessment.

Things to think about

#1: Inflation rates
Singapore's inflation rate

Image Credits: Statista

Singapore’s inflation rates have averaged at around 2.51% from 1962 up to 2020 and have fluctuated recently within the last four years at percentages between -0.52% and -0.57%.

If you haven’t started investing already, consider doing so because your money will lose purchasing power if it sits in a savings account.

#2: Risks
a man reaching for an apple on stacked chairs

Image Credits: wsj.com

Risk can be defined as the degree of uncertainties in an investment decision and/or possible financial loss. The younger you are, the more risks you can afford to take. If you’re a little older, it might be riskier to invest a lot of money and potentially lose it all when the market is greatly affected.

Therefore, it depends on what point you are at in life. Be sure to consider how much risk you’re willing to take on and set up some plans accordingly.

#3: Diversification
never put all your eggs in one basket

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“Never put all your eggs in one basket” is a tactical move that makes perfect sense in several areas of our lives. This includes investments and fund management.

For healthy risk management, diversification in your retirement portfolio is always crucial. Balancing your investments means that there won’t be a disaster for you if one industry crashes in the market.

The importance of diversification in investing is not to be taken lightly. For more details on the technique to reduce potential risks, click here.

#4: Time horizon
investment-horizon

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Try to identify what time horizon your investments are geared towards, whether short, medium, or long-term.

If you’re leaning towards short-term, you can afford to go for riskier investments, potentially earning you higher expected returns. On the other hand, if you’re long-term, you will want to invest in lower-risk funds that provide stability and predictable returns.

In general, if you start your retirement journey when you’re young, you can invest with higher-risk investments and slowly transit to low-risk ones in the future.

#5: Payout mode
savings against time

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Take your payout mode into account.

Sometimes, insurance savings plans, for example, will need you to lock in your amount for several years before you can even access it. If liquidity is important to you, pay attention to the fine details of your plans you’re considering and consult a financial planner for elaborate help along the way.

Search on the internet, and you will find a couple of retirement savings plans. We will list some here for your perusal:

Final thoughts
a women writing down something on her notebook

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You will already be way ahead of the curve if you start early and stop putting off retirement planning.

A study has shown that Singaporeans start planning for retirement at around 38 years old. That’s why within the age group, only two-fifths of Singaporeans feel confident with a comfortable retirement. See if you can look for little areas around your life where you can save some money to invest without affecting your current lifestyle or budget.

Oh yes, before we let you go, have you heard of CPF’s Matched Retirement Savings Scheme (MRSS) for senior Singaporeans?

MRSS is ideal for those aged 55 to 70. As the Singapore government will match every dollar of cash top-ups (annual cap at S$600) made to the Retirement Account, this is one way to increase monthly retirement payouts effortlessly.

Help your parents, aunts, and uncles check if they can tap on the scheme using the MRSS eligibility checker here!

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How To Save For Retirement As A Young Adult

Time is of the essence. Crippled with all the uncertainties brought by the pandemic, having reserved funds can help cushion the blow of unforeseen events such as pay cuts and layoffs. Saving money is important, especially when your finances are limited. Consider saving money to grow your emergency and retirement fund.

Retirement may seem like a long walk ahead for someone in his or her 20s or 30s. However, it is best to start saving for retirement before you hit 35 years old because your priorities will change at that time. Financial priorities such as spending for a wedding, an education loan, house loan, and other major transitions may occur once you hit your 30s. Typically, you spend more money on yourself during your 20s. Why not consider spending more money for your future?

In your early 20s, you may save at least 5% of your income or sign up for your employer’s Retirement Plan. Avoid debt as much as possible and get educated about your finances. Widen your financial knowledge by reading financial books on investments and business opportunities. Pay off your debt, if necessary. It makes sense to pay off your debts or at least your high-interest debts before you save for your retirement. Not all debts are created the same. Pay off your high-interest debts first followed by the lower-interest debts.

The next step is to set up a budget. Systematically allocate your income onto distinct categories and stick to that budget. Do not spend beyond what your budget is for that month. This allows you to save regularly rather than arbitrarily. Make critical decisions about your expenses and cut down the unnecessary, especially when you hit your late-30s. Ideally, this is when you hit maximum savings. By this time you should have at least S$50,000 to your Retirement Savings.

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The third step is to seek for an employer that supports your goals. If your employer offers Retirement or Pension Plan then embrace this company benefit. As a young adult, you may also invest your money in accordance to your financial goals.

Lastly, you are saving money for your retirement to prepare for the unexpected. Contemplate and reconsider the realistic measures that are suited for you and your lifestyle. Seek the financial experts’ help as much as possible. Then, plan your exit with joy because you are well prepared for it.

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Delayed Retirement Age And Other Changes In Singapore Retirement

Despite the economic headwinds, the retirement age will begin to shoot up in 2022. Manpower Minister Josephine Teo highlighted they “did not arrive at this date lightly even though towards the later part of our deliberations, it was clear to us that the economic conditions have changed quite considerably.” All that is left for us to do is to adapt to the recent changes in the retirement age and CPF contributions.

INCREASED MOM RETIREMENT AGE

Foresee a gradual increase in Ministry of Manpower’s retirement age. Currently, the official retirement age is 62 years old. This number will increase to 63 years old in 2022 and to 65 years old in 2030. Do you think a higher retirement age is desirable?

Nonetheless, Prime Minister Lee Hsien Loong greatly emphasized that there is no change to the CPF payout ages and withdrawal. You may withdraw money from your CPF RA upon reaching 55 years old and start receiving CPF LIFE payouts from age 65. All these were discussed during the National Day Rally.

ALTERED EMPLOYMENT PROCESS

Possibly one of the most affected with the changes in the retirement and re-employment age is your employer. It is completely legitimate to work up to the MOM re-employment age. Your employer cannot deny you that.

At the moment, the re-employment age is 67. It will increase to 68 years old by 2022 and eventually become 70 years old by 2030. It is highly encourage that employers equip these employees with necessary training and skills to help them tackle the contemporary positions.

In light of the aging workforce, the Tripartite Workgroup on Older Workers made several other suggestions to restructure the work environment in Singapore.

RAISED CPF CONTRIBUTION RATES

Aside from the changes in retirement and re-employment age, the CPF contributions for workers beyond age 55 will be raised. This will be felt from January 1, 2021 onwards. The extra CPF contributions will go straight to your CPF Special Account.

When the CPF contributions for the 55-60 years old age group increases by 2021, the allocation for your CPF (SA) will jump from 3.5% to 5.5%. The rest will remain the same.

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May these guidelines and significant changes help you decide for a better future ahead!

Sources: 1 & 2

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Countdown To Retirement: The Final 5 Years

One of the most significant transitions in your life is about to begin. In a blink of an eye, you have reached your 60s. Retirement may not be a pressing concern for most of your working life, but it is surely happening soon.

The sense of urgency stimulates your awareness. You will begin to pay close attention to insurance commercials and to the company’s retirement benefits. You will go through your CPF savings and analyze whether it is enough. How about your investments? Is your money invested on an aggressive portfolio or not? More importantly, do you have a last will and testament?

Many of us consider retirement as a vague and seemingly distant concept rather than something happening in the near future. With this mindset, you may not be able to prepare well it. Use the last five years to examine your financial situation. Make the appropriate moves to substantially improve your life during retirement.

CLOCK: FIVE YEARS BEFORE RETIREMENT

There is no doubt in the saying: “the first cut is the deepest”. You can call it a rude awakening, but this initial step will dictate your future actions. Examine your overall financial situation.

Be honest with yourself. How much have you saved up while you were working? Do you have other streams of income that can generate enough cash to cover your fixed expenses in retirement? How much can your CPF cover?

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I understand the brewing worries tied up to these numbers. It is time to face your fears! Know that there is still time to change your investment strategies, to eliminate unnecessary expenses, and to re-frame your retirement expectations. Seek the help of a qualified financial adviser who specializes in retirement planning. He or she can sort out all your concerns including the making of you last will and testament.

CLOCK: THREE YEARS BEFORE RETIREMENT

While work can be stressful, it can also give a sense of accomplishment. What will happen once it is taken from you?

Aside from organizing your financial plans during retirement, you must determine how you will occupy your time. Many of us forget this aspect of aging. It is important to contemplate on how you will occupy yourself in retirement. Consider the Psychological or emotional impact of not having a steady job or not having a routinely “purpose”. Your feelings may be similar to undergoing loss.

Yesterday, my grandfather told us that he is planning to travel overseas. He wants to dedicate this time of solitude on searching for peace and happiness. This may sound cliché to some, but he never had the time to travel on his own. You may want to spend your retirement touring the world. Like my grandfather, consider what will bring you happiness.

Do not be afraid to explore hobbies or join social group within your neighborhood. These things will keep engaged once you are retired.

CLOCK: A YEAR BEFORE RETIREMENT

During this time, your primary goal is to cut down your debts and spending. This is where your retirement budget comes in handy!

You will probably experience a considerable drop in income once your paychecks go away. Following this logic, your retirement expenses should not necessarily mirror your current expenses. You need to adjust your lifestyle following a monthly budget that will include costs like healthcare and leisure activities. Know how much you can realistically afford with the help of your financial adviser.

Lastly, you must take a look at your investment portfolio. If your savings appear to deliver the income you need in retirement, some experts recommend to pull back on your stocks. Use this money to invest on short-term investments or other conservative asset classes. I am not saying that you should suddenly become a risk-averse investor. Instead, you need to make more calculated moves. Growing your portfolio over the next couple of decades entails exposure to stocks.

Image Credits: pixabay.com

Ultimately, preparing for retirement will support the remaining years of your life.

Source: NY TIMES

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The Risky Assumptions When Planning Your Retirement

Have you ever wondered how much money do we need in our silver years to be able to afford our desired lifestyles? Most adults would be relying solely on their CPF funds to finance their retirement. Asset-rich but cash poor retirees could be thinking of renting their HDB flats out to supplement their retirement funds. There are indeed several ways to build up our retirement income. However, we must be mindful of avoiding some of the dangerous assumptions when planning for our retirement.

Oversight To Account For Inflation

Inflation can have a big impact on retirees even if they have been historically low. According to Monetary Authority of Singapore, Singapore’s historical core inflation averaged an annual 1.7% since 1990. While 1.7% per annum may not appear alarming, it will compound to a staggering 66% over a span of 30 years! If you are a retiree receiving a fixed amount of stipend, the value of your money will decrease with each passing year. Hence, your retirement funds will be eroded by inflation if they are not carefully managed. Unfortunately, inflation does not stop just because you have stopped working. Therefore, it becomes important that your investment grow at rates that are at least equal or better than the rate of inflation to protect the value of your retirement funds. How do we then continue to enjoy the taste of life at our retirement years without feeling the pinch of inflation, especially when we have stopped working and receiving salaries?

Reliance on Rental Income From Property

Some adults plan to rely on rental income from investment properties to supplement their retirement funds. However, with the recent cooling measures announced in July 2018, investing in a second residential property is increasingly out of reach for most working adults.

Some retirees might be thinking of renting out the vacant rooms in their HDB flat especially as their children gradually might have left the home that they grew up in. However, this option comes with its own set of inconveniences. It could take a couple of months before a tenant can be found. There is also the administrative hassle of providing tenant’s details to HDB for record-keeping. Of course, all these pale in comparison to stories of horror tenants who damage the HDB flat or are tardy in their rental payments. In such circumstances, renting out their HDB flats may not be the best option to supplement your retirement income.

CPF LIFE Alone Might Be Insufficient

For a retiree who sets aside the maximum Enhanced Retirement Sum (S$271,500), the monthly payout from CPF LIFE is expected to be about $2,000 per month. If this amount is sufficient to pay for your daily expenses during your retirement, then this is definitely a good safety net for you to rely upon. However, it is not true that all Singaporeans and Singapore Permanent Residents can depend on their CPF funds to finance their retirement entirely. In fact, it is widely reported that almost 4 in 10 CPF Accounts do not even have enough funds to meet the Basic Retirement Sum. For the group of retirees who do not generate enough funds from their CPF LIFE payouts, it is necessary to generate extra income from alternative sources such as investments.

Future-proof Your Retirement Funds With The AIA Retirement Saver (III)

Given that young professionals lead hectic lifestyles, they may not have the time and energy to plan for their eventual retirement. Yet, planning ahead to future proof our retirement is essential and the AIA Retirement Saver (III) is one of the ways to do that. The AIA Retirement Saver (III) is a simple and hassle-free retirement solution which provides a guaranteed stream of retirement income for 15 years. Your hard-earned savings is safely secured since the capital is guaranteed; you will get back every dollar that you contributed at your desired retirement age. On top of that, you will receive potential monthly dividends which could help to cushion the impact of inflation. Premium payment duration is also flexible; single lump sum, 5 years, 10 years or simply pay till your desired retirement age – 55, 60, 65 or 70. It is easy to get started because no medical underwriting and check-up is required. In essence, the AIA Retirement Saver (III) is truly an easy and stress-free solution tailored to any individual retirement plan.

Conquer The Uncertainty & Plan For Your Desired Retirement

With the AIA Retirement Saver (III) solution, individuals can cast aside their retirement worries as their savings will be in the good hands of professionals. The AIA Retirement Saver (III) can be an additional pillar to supplement your retirement funds. As it can be tailored to maintain the purchasing power of your retirement funds, you can be assured that you will still be able to enjoy your desired lifestyle during your twilight years. Don’t leave your retirement to uncertainty. You can certainly plan for the uncertainty by taking action now.

 

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