Early Retirement In Singapore — Is It Achievable?
Early retirement is a major life goal for many working professionals today. However, it’s important to define what early retirement really means and whether it’s achievable.
There are many approaches that promise early retirement, such as the FIRE movement, which has become increasingly popular among young professionals in the West and is gaining followers in Asia. It involves retiring in your 40s (or even late 30s) by living ultra-frugally and saving up to 70% of your income.
While its emphasis on frugality and saving up for retirement isn’t a bad thing, it’s emphasis on “extreme” saving doesn’t take into account life events that require a sizeable investment — like having children and renting/owning property. In addition, there’s no emphasis on insurance, which can protect your hard-earned savings in case the unexpected happens.
Fortunately, early retirement can still be within reach even without extreme saving and frugality. By putting your retirement needs first, being prudent with your spending and growing your wealth through savings and investment-linked plans, it is possible to enjoy early retirement in your early- to mid-50s, and even in your late-40s, if you start building a retirement fund now.
But first, let’s address how much you’ll need to save for retirement in Singapore.
How Much Do You Need to Save for Retirement in Singapore?
This is probably the most important question you’ll need to answer before you can plan for retirement. Everyone has different ideas about what they want for retirement, and factors such as lifestyle, retirement age, desired monthly payout and the number of years you’ll collect a monthly payout must be taken into account. In addition, market factors like inflation, your annual increment and the return on investment (ROI).
Using this formula, you can get a ballpark estimate of much you’ll really need to retire early.
Desired Annual Retirement Income X Years in Retirement = Retirement Nest Egg Needed
Let’s use a simple example of how much John, a 25-year old working professional, will need to save in order to retire at 50 with a monthly retirement payout of $2,500 for 30 years.
Desired Annual Retirement Income ($2,500 x 12 months) X 30 years = $900,000
This is only a ballpark estimate though — it’s important to keep in mind that it doesn’t take into account market factors like inflation, your annual increment and the return on investment (ROI) on your retirement savings which can also impact your nest egg growth. It’s also important to remember that this sum doesn’t take into account important expenses such as additional healthcare protection, caring for your ageing parents or providing for your children’s education expenses and fees.
For a more detailed estimate of how much you can realistically retire with, check out Income’s retirement calculator.
How Can You Reach Your Early Retirement Goal?
Achieving your early retirement goal with a monthly payout that suits your desired lifestyle will require more than just your take home income and cutting some expenses. You’ll also need to generate additional income to help boost your nest egg growth — because squirreling away a proportion of your hard-earned paycheck will only take you so far.
By supplementing your monthly income with additional revenue streams early in your professional career, you can supercharge your savings and make early retirement possible.
Here are some ways you can supplement your income to grow your nest egg for early retirement:
- Use your skills to earn freelance income: Everyone has skills, many of which can be used to generate freelance income streams. Skills like writing, languages, music, design, research, marketing and more can be used to create side “gigs” that can provide additional income to grow your nest egg. For example, if you love playing the guitar, you could try giving lessons on the weekends to earn more cash.
- Develop passive income streams: Passive income is about investing in something that can generate returns over time with little effort. Perhaps the most accessible way to generate passive income is through investing in dividend stocks, which provide regular payouts based on the company’s profits. Another way to generate passive income is to rent out a room if you own property.
- Look at retirement plans (annuities): Retirement plans, also known as annuities, are another way to set aside money for retirement that provide flexibility over what you want to pay for premiums (e.g. $1,000 a month), how long you want to pay premiums (e.g. 20 years) and what payout period will be (e.g. monthly payout across 30 years). Annuities provide a passive income stream that can make up a valuable component of your early retirement plans.
Creating new revenue streams is important — but how you allocate your additional income is just as important when it comes to fulfilling your early retirement goals. It may be tempting to use some of this income for big spending purchases, but it’s better to prioritise your retirement goals first, by taking steps like topping up your Central Provident Fund (CPF) retirement savings .
Buying a retirement plan is a great first step towards making retirement planning a priority in life. Learn more about how Income’s Gro Retire Flex can help you build your wealth and provide regular payouts to supplement your retirement fund. You can also visit Advisor Connect to speak to a trusted expert about these plans.
Ready to put your retirement first?
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.