4 signs you'll be able to retire comfortably (or not)
If you think your job is a pain right now, wait till you're still attending meetings at 65. There's no fun in having to work till retirement age, unless you want to. And that choice makes all the difference. The bad news is that Singapore is expensive, so you need to start planning and saving early. Here are some of the signs you're going to make it (or not):
Sign #1: You have a clear idea of how much you need at retirement
"Make more money" is not a financial goal. "Make enough to spend $3,000 a month, after retirement" is a clear financial goal. While some amount of guesswork is unavoidable, you can't plan for retirement with no specific numbers; that's like playing football without a goalpost.
So start by working out your income replacement, or the amount you want to be able to spend once you stop working. Remember that this amount covers more than three meals a day - commonly overlooked costs include:
- Travelling after retirement
- Home maintenance
- Fixing or replacing your belongings (Laptops, clothes, shoes, and so forth seldom last 20 years)
- Medical costs
- Birthdays, weddings, new year celebrations, and other like events
In general, your lifestyle will not be too adversely affected if you can get an Income Replacement Rate (IRR) of 70%. This means that if you’re earning an income of $4,000 a month, an IRR of 70% would mean that you need the equivalent purchasing power of $2,800 a month after retirement. Income’s retirement calculator helps give you an estimate of the amount you need for a comfortable retirement. Here are the steps the calculator will bring you through based on the following scenario:
This means that if you’re 35 years old, and you wish to retire at 65, you will need $6,796 in future to sustain your current lifestyle (taking into account a 3% inflation rate). To make things simpler, there are 2 ways to achieve this.
- Have a lump sum of $1,634,328 when you retire at 65 years old; or
- Set aside $1,952 on a monthly basis from now onwards, taking into account a 5% rate of return.
It's important to know this figure, as you can adjust your savings to match the target amount. At the same time, it's also important to have some flexibility while saving to hit this amount (see #4).
Sign #2: You understand the amount you save may matter more than slight differences in the rate of return
Most endowment plans can provide modest (non-guaranteed) returns of about 3%-4% per annum.
Now these numbers may look small at the outset, and you may be tempted to go after riskier investments for higher returns. But before you stake your retirement on an extra 1%, here's something wiser people know: The amount you set aside matters more than that extra 1% return.
For example, you save $2,000 a month, and get a potential return of 3% per annum. After 25 years of compounding, you would have potentially saved approximately $894,000.
Now, say you set aside just a little less - about $1,500 a month. You buy a riskier investment that compounds at 4%, and get very lucky (nothing goes wrong). At the end of 25 years, you would have around… $773,000. You actually made less despite taking a bigger risk. So: The amount you set aside is more important than an extra percentage point in returns. Think about that before taking on riskier products.
Income’s Gro Retire Ease, easily available online, can provide a guaranteed yield at maturity of up to 2.70%^ per annum, and you can also be assured of a steady stream of income in the form of guaranteed monthly cash benefits during your payout period. In addition, you may also receive a non-guaranteed cash bonus on top of each monthly cash benefit – this will boost your returns and your total projected yield at maturity to up to 4.84%^ per annum.
^Depending on specific parameters selected.
Sign #3: You bother to take precautions and stay healthy
Look after your physical well-being if you want to retire comfortably; there are some things no amount of money can replace You know the obvious reason: few things are more expensive than getting sick in Singapore.
Remember that, even if you hit your retirement goals and can afford basic healthcare, you won't retire comfortably if you're stuck with serious health conditions.
Take steps to ensure that your lifestyle won’t be compromised even with unexpected events. Some endowment policies could provide you with protection while you save. For instance, if you are planning your retirement with Income’s Gro Retire Ease, you would receive additional benefits should you be diagnosed with a disability such as loss of use of one limb, loss of sight in one eye, loss of hearing, or loss of speech. This means that the original amount you planned to save and grow under this policy will not be affected.
Get more information and a quote for Gro Retire Ease here. Remember that without insurance, a single bad accident can derail all your financial planning.
Sign #4: You have some flexibility in your financial plans
The key to investments is having the flexibility in suiting your current needs. With plans like Gro Retire Ease, you can have the flexibility you need as it provides you with the following options:
- Choice of premium term – 5 years, 10 years, up to 5 years before retirement
- Choice of accumulation period
- Choice of payout period – 10 years, 20 years, 30 years
- Choice of saving by budget, or choosing your desired retirement income
This article is meant purely for informational purposes and should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income products mentioned are specified in their respective policy contracts. For customised advice to suit your specific needs, consult an Income insurance advisor.
This advertisement has not been reviewed by the Monetary Authority of Singapore.