Planning for retirement is not the easiest thing to do, but it is especially important to start early so that you will be able to enjoy your later years without worrying too much about your finances. By starting early with your retirement planning, you will be able to leverage on the benefit of compound interest to help you reach your retirement goal.
How much do you need to retire in Singapore?
The retirement age stands at 62 currently, and it will be raised to 63 on 1st July 2022. By 2030, it will progressively be raised to 65 years old. Life expectancy of individuals born in 1990 is expected to be 73.5 and 78.8 for males and females respectively. For those born in 2017, the life expectancy rises to 81.9 and 87.6 for males and females respectively. This is summarised in the table below.
According to Lee Kuan Yew School of Public Policy, one will need a minimum of $1,379 to cover the daily expenses, with a huge portion spent on food and drinks. Assuming that there is zero inflation, no additional amount needs to be forked out to pay for medical bills, and that the individual is living alone, the retirement sum ranges from $140,658 to $373,984.80.
If you wish to retire at 55 years old, an additional savings of 10 years – and this comes up to $165,480. For those who plan to retire even earlier, at 45 and 35, an additional $330,960 and $496,440 will be needed on top of the minimum retirement sum at 65 years old.
Singaporeans and Permanent Residents of Singapore will be able to tap on CPF Life payouts once they reach the age of 65. This will help to offset the required sum to meet the basic retirement needs. To estimate the amount of monthly payout that will be made available to you, check out this tool by CPF (note: this is only for CPF members between the age of 55 to 79).
When should you start planning for retirement?
Most people think that it is way too early to start their retirement planning in their 20s and 30s, but it is actually best to start planning as early as possible. By doing so, you will have a longer timeline to save and grow your money. This is illustrated in the scenario below.
From the table above, it is clear that the earlier you start, you will be able to accumulate a large amount, even if the monthly contribution towards retirement is lesser. In this case, Wendy is able to save $5,240 more than Marcus, even when she saved $180 less every month and both individuals are investing their monies with a 4% return rate.
How to plan for your retirement in Singapore?
As mentioned above, one will need around $1.3k to retire in Singapore. However, this is only if you are comfortable with living frugally. The first step to retirement planning is to understand the kind of lifestyle that you want to lead after retirement. Some questions to ponder about during this step are:
· What will you be doing after retiring? How much do these activities cost?
· Any plans to travel?
· What kind of food will you want to enjoy – hawker food, café, or restaurants?
· Will you be taking the public transport, private hire, or driving your own motor device?
The second step is to decide your personal retirement age. The recommended retirement age is currently 62, but you can choose to retire before then if you wish to. By knowing your desired retirement age, you will be able to work out how many years you have left to save and how much you will need to retire comfortably. This concept of retiring before the official retirement age has led to the FIRE movement – Financial Independence, Retire Early.
After calculating how much you will need during your retirement years, you will need to estimate a reasonable amount for your health expenses and another sum for unforeseen events. This step should not be skipped over, even if you have health insurance, MediShield Life and/or CareShield Life as these products might be insufficient to cover the expenses. Using this calculated amount, determine the actual amount that you will need to retire.
Lastly, with the retirement planned for, it is time to get into action. In order to retire early, you will need to start hustling to increase your sources of income, and not make extravagant purchases. Investing a portion of your income will also help to increase your retirement savings, but it is crucial to understand your own risk appetite before you invest in any product.
Retirement might seem very far away, but it takes consistent effort to build up your retirement nest. Thus, if your situation allows, it is best to start planning for your retirement to leverage on the advantage of compound return. Ultimately, there is no loss on your side if you start saving for your retirement earlier.
Keen to start planning for your early retirement but unsure of how to get started? Drop us a message on our contact form or WhatsApp us here and we will get back to you shortly! Our personalised approach to your query will surely help you to kickstart your retirement journey smoothly.