Too many of us think saving for our retirement can wait until we earn more and can therefore save more later. We may also be too caught up with our current spending patterns or with our plans to upgrade to a nicer home. But by the time we are in our 40s and 50s, we may not be any better off if we are providing for both our parents and children.
There is never a “good” time to start planning for our retirement. But there are advantages to starting early. If you start early, you will have a longer time horizon and that means more time to grow your savings. If you have made investments, a long term horizon will also help to ride out short-term price fluctuations on your investments.
But, if you start late, you will have to work harder at growing your retirement savings. If you cannot afford to lose money, you should avoid investments that come with higher risks. You may even need to think of delaying retirement provided you remain employable.
How should you start saving for your retirement?
Step 1: Define your retirement goals
Ask yourself when you would like to retire and your preferred lifestyle during retirement. Work out how much money you will need when you retire to provide for your desired lifestyle. Many financial planners would generally recommend that you should aim to be able to draw an amount of at least two thirds of your last drawn monthly income. However, do note that the amount will vary from person to person, depending on the lifestyle each person wants to have.
Singaporeans are living longer and healthier with average life expectancy for males and females higher than before. Hence when you are planning for your retirement, do take note of the number of years you would expect your savings to last you, as you would want to avoid a situation where you outlive your retirement funds.
There are many online tools that can help you with the computations. The CPF retirement estimator gives you a quick overview of how much you need to set aside for your retirement.
Step 2: Assess your current situation
Work out how much money you can expect to have from your savings account, CPF savings, insurance policies, and investments when you retire. Aim to pay off any outstanding loans and liabilities before retirement to minimise debt obligations during your golden years.
If some of these savings and investments are also needed for your other goals like paying for your children’s education, do consider making a financial plan that can help you carefully allocate your resources towards all your financial needs and goals.
Calculate the difference between the funds you expect to have at retirement and the amount you will need. Work out how much you need to start saving each month from today in order to make up for this shortfall.
Use the CPF retirement calculator to provide a more detailed review of your current financial situation. It can also help you see if you are on track to meeting your retirement goals.
Do also review your insurance coverage. Healthcare costs will rise very quickly as you get older and could derail your financial plans. If you do not have any insurance coverage, you may wish to consider purchasing coverage for possibilities such as disability, critical illnesses, personal accident and hospitalisation. If you have purchased health insurance coverage, you should ensure that your retirement years are covered, and/or explore possible options where you can stop paying premiums once you reach retirement age but still continue to enjoy the coverage.
Step 3: Get started on your retirement savings plan
Put in place a plan to help you save and / or invest regularly to accumulate your retirement savings.
If you are new to investing, do read up our section on investing. It is important that you understand your personal circumstances such as how much you can afford to invest and your risk profile – how much money you can afford to lose, before you begin to examine the wide range of products available. Take time to choose products that you understand and are suitable for you. A well-diversified portfolio will help to spread the risk and balance the fluctuations in the value of your investment.
The government has also put in place the Supplementary Retirement Scheme (SRS) which provides tax benefits to encourage saving for your retirement. Learn more at the Inland Revenue Authority of Singapore website.
Monitor your plan regularly and make changes to the plan according to your changing needs or appetite for risk. It is only natural that as you get older, your appetite for risk will fall and conservative investments become more attractive. You may find that you have to put aside more in savings or even delay retirement if you remain employable.
If you cannot afford to lose money, do not take on investments with high risks in the hope of achieving your desired retirement lifestyle. Instead, reconsider your desired retirement lifestyle and revise your expectations to a lifestyle that is more achievable within your means.
The CPF Board also offers two types of annuity plans. These plans can be purchased with your CPF savings under CPF Life. Find out more at the CPF Board website.
Stretching your retirement funds
During retirement, it is important to manage your funds prudently. Make sure you focus on maintaining a healthy and active lifestyle with a balance of social activities to keep you occupied.
Use a budget to help you keep track of your finances. This will help you track your retirement income as well as your expenses. Your retirement income may depend on investment income as well as withdrawals from your savings. If your investment income is irregular in terms of payment amount and timing, you may need to adjust your withdrawals from bank savings to ensure you have sufficient income. If you have fixed deposits, do remember when to roll over the deposit and when to make transfers into your current account for daily living expenses.
Use the budget to manage your spending too. If you are spending your retirement funds too quickly, find some discretionary expenses that you can reduce.
Here are some tips:
- Instead of high teas at nice eateries, invite your friends over for pot-luck
- Attend social activities at your local Community Centre
- Make or bake gifts for your friends and family instead of buying them expensive gifts
- Use public transport like buses or trains.
- Make full use of concessions for seniors, whenever possible.
Investing for seniors
Whether you are still building your retirement savings or investing spare cash after setting aside enough for your basic needs during retirement, most seniors would probably agree that they cannot afford to lose money when investing.
Before you invest, do set aside sufficient funds for daily needs and emergencies. Generally, you should avoid products which can cause you to lose your capital or cannot be easily liquidated for cash. Consider products which generate a regular income at regular intervals.
Build and maintain a diversified portfolio using more conservative/low-risk instruments. It takes time and effort to monitor your investments on a regular basis, so do avoid any investment that could add stress and affect your well-being.
Here are some things to consider if you are investing:
i) What is your investment objective?
Are you investing to earn a regular income? Are you investing to preserve your capital sum? Or are you investing a small part of your funds to grow your capital or hedge against inflation? How does the product you are considering achieve these objectives? Does it complement the rest of your portfolio of investments or add more risk?
ii) How much risk can you afford to take?
Know your risk profile well: Are you a “conservative” investor who cannot afford to lose capital? Can you afford the possibility of losses that come with products that offer higher potential returns?
If your retirement savings are not big, you probably shouldn’t take too much risk when you invest. You may not have the luxury of time to earn back what you might lose if an investment turns bad.
iii) What is your investment time horizon, i.e. the amount of time you have to invest to achieve your financial goals?
Generally, the shorter your time horizon, the less risk you should take with your investments. If you are likely to need access to your money at short notice, do not invest in products that cannot be liquidated easily or that will impose penalty charges for early withdrawal.
You may wish to allocate or “bucket” your investments into products suitable for different investment horizons (short, medium and longer term). If you stagger your access to funds at different intervals during your retirement years, you could consider adopting different investment objectives for each period. You might consider conservative or more liquid investments in short-term “bucket 1” to cover your immediate living expenses. Bucket 3 could aim for some growth to hedge against possible inflation risks and for withdrawals in periods further away.
This approach may not suit everyone, so do take time to carefully consider whether it suits you in terms of your personal circumstances, risk appetite and also how well you understand the various financial products. You will need to be able to assess whether a product is conservative, liquid or allows for some growth, and is suitable for the objectives you have in mind.
iv) What are your responsibilities and rights when investing?
If you are an experienced investor, you probably know what to avoid:
- Do not invest in “hot picks” or “trendy stocks” just because others are buying them. Read up on the investment and understand the risks involved. Make sure that you are comfortable with the potential risk and returns before you invest.
- Do not invest in products you do not understand or find unsuitable. Read the investment documents thoroughly. Find out how returns are generated, the risks involved, whether there are critical terms & conditions and also the fees & charges which would reduce returns to you.
- Do not be enticed by gifts and promotions or promises of high returns. Always remember that the higher the returns promised, the higher the risks you may have to bear.
Ask for assistance if you are not conversant in English or find it difficult to understand the information. You won’t be the only one, so don’t be shy. Bring someone who can explain the information to you when you meet your financial adviser.
v) Monitor the performance of your investments regularly to ensure that they continue to deliver the returns you expect and meet your needs.
Review and rebalance your product mix from time to time so that they still meet your investment objectives.
This information is prepared in collaboration with the Association of Banks in Singapore, the Consumers Association of Singapore, Gerontological Society, Life Insurance Association Singapore, Investment Management Association Singapore, National Council of Social Services and Ministry of Social and Family Development.