Singaporeans are clearly ready to enjoy the good life when they retire. Many want to spend more time with their family, whether to help take care of grandchildren or catch up with children over a good meal or more. They also want to eat their favorite foods, engage in meaningful activities such as volunteering or helping in the community, or take classes. Some also want to travel so that they can finally visit places they have read so much about or reminisce on the good times they had in their favourite city.
A surprising number of elderly Singaporeans also plan to work. A survey last year by The Council for Third Age (C3A), an agency which promotes active ageing in Singapore, found that 40 percent of respondents plan to find part-time flexible work and 18 percent plan to start a new career.
Retirees face Financial Constraints
The difficulty with retirement for many people, and a likely reason for the large number of people wanting to work, is that many of the elderly do not have enough money. Investment management firm BlackRock found in another survey, also conducted last year, that 72 percent of Singaporeans are concerned about being able to live a comfortable retirement. Nearly half of the respondents in the C3A Survey similarly said they were hindered in doing what they want because of a lack of money.
A significant reason for that shortage of funds, according to a survey conducted by Nielsen in September 2015 that was commissioned by Income, is that retirees between 60 and 70 years old say they’ve only saved about one-third of the funds they perceive to be sufficient for retirement.
One-third also said, not unexpectedly, that they are financially worse off than when they were employed. About 60 percent of these people said they cannot retire comfortably because they only started saving when they were about 45 years old, which was too late.
Compounding the issue, as Deputy Prime Minister Tharman Shanmugaratnam said recently, is that “many Singaporeans in that older generation are asset rich and cash poor.” While their home may be valuable, it doesn’t provide any income unless they downgrade to a smaller flat, sublet part of it or sign up for a reverse mortgage.
The Intention-Behaviour Gap of Young Singaporeans
While younger Singaporeans say they plan to do better than older Singaporeans and are willing to save for retirement so they can live comfortably, turning that intention into action is difficult.
The Nielsen survey found 86 percent of Singaporeans between the ages of 25 and 35 are willing to set aside $300 a month to accumulate $1 million by the time they retire at 65. However, these respondents also said that prioritising retirement planning is impeded by short-term and mid-term financial commitments as well as a lack of knowledge about when and how to save. Many of them are either not saving sufficiently for retirement or not putting any money aside.
Moreover, 33 percent of non-retirees are not planning for retirement at all. 40 percent said the reason is a lack of understanding about the options available, while another 25 percent said they did not know how much is needed or when to start planning.
Saving Effectively for Retirement
The key to overcoming these challenges and having enough money to live comfortably in retirement, whether you’re in your twenties or forties or even older, is to start saving and investing. The three most important steps, as financial planner Robert Berger wrote in US News, are to pay yourself first, control your spending, and understand compound interest.
To pay yourself first, you can take money out of your salary every month and put it into a retirement account. Controlling your spending means using your money to pay for things you really need, such as food or housing, and cutting out the frills, like drinking a latte or buying an extra electronic gadget.
Once you change your spending pattern, you’ll start to have money to put aside for retirement. The earlier you start saving, the sooner you’ll be able to take advantage of compound interest, whereby interest is paid on interest and principal in the amount you save. If you put $10,000 into a fixed deposit at the age of 25 and earn 5 per cent for 40 years, you’ll have more than $70,000 when you retire at age 65. If you wait until you are 45 to put that $10,000 into a fixed deposit and only save for 20 years, on the other hand, you’ll only accumulate about $26,000.
Putting money into a time deposit these days is hardly going to earn 5 percent, however, so other alternatives may be preferable.
One option is to invest in shares, either by selecting specific companies to invest in or by investing in Exchange-Traded Funds (ETFs) such as an STI ETF. An alternative is to invest in bonds, for example by purchasing a bond fund such as the ABF Singapore Bond Index Fund or by buying Singapore Savings Bonds.
Another option is to purchase an insurance plan such as the Income Endowment Plan, which gives you a lump sum payment when your policy matures. A 45-year-old man who signs up for a $100,000 insurance plan and pays $5,827 every year for 20 years, for instance, could receive a projected value of about $161,000 when he turns 65.
If you prefer regular annual or monthly income, you can consider an insurance plan such as Income’s VivoCash, which enables you to receive regular yearly income up to age 100, or FlexRetire, which gives you monthly income after you retire.
Regardless of how you plan to use the funds you accumulate, and whether you start by saving a little or a lot, the key to a comfortable retirement is to start saving as soon as possible so that you can take full advantage of compound interest and enjoy retirement comfortably whenever you stop working.
by Richard Hartung