Planning For Retirement in Singapore? Here Are 5 Areas to Look At
So, here is the question: how much does one need to retire comfortably in Singapore, and what is the best way to save for your retirement?
In late May this year, a study conducted by the Lee Kuan Yew School of Public Policy revealed that the average single Singaporean aged 65 and above requires at least S$1,379 monthly to support his/her basic way of life.
If you want to travel the world, or indulge in luxury goods and fine dining, the amount needed will be much steeper.
It was also observed that a part of the ageing population was unable to retire financially independently. They had to rely on funds from family members and dipping into their own savings pot.
Slightly over half (55%) of those reaching 55 years old had enough saved in their CPF to meet the Basic Retirement Sum. This means that the other half do not qualify for even the basic annual payout of below S$800.
DollarsandSense released their findings on the amount of CPF a regular salaried employee drawing a monthly pay of S$1,500 would accumulate from age 24 to 55:
It shows that by age 55, the individual would have amassed a total of S$309,910.04, well within the S$176,000 CPF Full Retirement Sum for retirees turning 55 in 2019.
And yet, reality cannot be further from this, because the typical Singaporean would spend a significant portion to buy and service their HDB flat mortgage.
Taking account of inflation, what you have saved today will be worth significantly lesser tomorrow.
With these obstacles in mind, how do you retire comfortably as early as possible?
Read on to find out.
1. Build Your CPF Savings
Considering the scenario we just mentioned, how do you increase your CPF effectively?
The funds in your CPF Ordinary Account (OA) appreciate with a 2.5% per annum interest. On the other hand, the funds in your Special Account (SA) gain 4% interest yearly. At one glance, you understand that money in your SA grows faster than in your OA.
Unlike stock investments, you do not need to do anything to gain this stable interest. Therefore, transferring the funds in your OA to your SA ensures that your money has a high future value for retirement.
Now if you transfer all your OA to your SA, then how are you going to for your housing loan?
If you can afford it, pay off your mortgage in cash instead of from your CPF. Using cash means that your OA funds can continue building at 2.5% interest annually, or 4% when transferred to your SA.
And if you choose to top up your CPF with cash, you can also get up to $7,000 of tax relief.
2. Start Early and Make Money Work for You
There is no golden rule to starting your retirement planning. However, the earlier you start saving and investing for retirement, the more you benefit from time.
Apart from saving your salary, you can also use cashback tools like ShopBack, credit card promotions and other discounts to maximise every cent spent and save even more. An extra tip: park your emergency funds in a high-interest savings account like the UOB One, OCBC 365 or DBS Multiplier.
Compounding interest snowballs to a significant amount and produces wealth gains over time, and you only need to reinvest your profits (dividends, interest earned) and time to make this work.
For example, a S$10,000 principal invested at age 20 will climb exponentially to S$70,000 by age 60, based on a 5% interest rate. Of course, this rate is based on a well-researched and diversified investment portfolio.
If invested at age 30, it would result in a yield of S$43,000 at age 60, and S$26,000 if invested at age 40.
Always remember to reinvest your money so that it will continue multiplying.
3. Property Investment
Another way to increase your savings is to invest in the private property market.
But of course, you will need capital to start. That’s why you should start saving as early as possible and make this option a possibility
Rental income is one passive income stream.
You can rent out your property and use the rental income to pay off your existing mortgage on that property and use whatever left to cope with your own home.
By buying and selling properties wisely, you can gain massive profits that balloon over time.
FIRE is an acronym for Financial Independence, Retire Early.
An increasingly popular financial movement, FIRE involves extreme savings and investments from young in order to retire early.
Participants save up to 70% of their income now and commit to a frugal and minimalistic lifestyle.
Of course, you should weigh your priorities – is it worth it to sacrifice your quality of life today for extraordinarily high rates of savings?
Will you be able to cope with minimal luxury purchases, minimal overseas trips, and even cutting back on your favourite restaurants?
Owning a car will be difficult, and you may have to stick to public transport, even private hires like Grab will be a luxury.
5. Plan for Long-Term Care
Having Long term care policies ensure that you are always ready for potential disabilities.
With old age comes many medical problems.
One illness or accident is enough to wreak havoc on your body. You may permanently need to be cared for or return for regular check-ups and trips to the hospital.
When this happens, no amount of money saved will be enough to pay off the costs incurred.
Your retirement funds would have been painstakingly built up for naught.
Being prepared with sufficient insurance policies like critical illness and life plans offer you peace of mind against the potential onset of medical problems.
It covers you throughout your retirement and allows you to stay financially independent even if sickness occurs.
To combat the hefty costs of long-term care, you can upgrade your ElderShield plan to ensure that you are financially ready for long-term care!
So there you go! Here are 5 areas to look at when planning for your retirement. Which one will start off with?
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