How to retire if you start planning in your 40s

By Elena Owyong, 29 November 2017 5101

In your 40s but don’t have enough savings in your bank account to retire? You are not alone.

In fact, 1 out of 3 Singaporean adults does not actively plan for their retirement, according to a 2016 survey conducted by Nielsen. Most of these people are bogged down by short-term and mid-term financial priorities such as their daily expenses, children’s education, paying for a property mortgage, as well as a lack of knowledge of when and how much to save.

While late retirement planning means that you lose out on the accumulated interest earlier on, there are still some ways to make your money work for you. We will show you how in this article.


Do the math 


Calculate how much you need for retirement, based on your desired lifestyle and health status. Image credit: Pexels

Assuming that you are 40 years old now and that you want to retire at 67 years old, you still have 27 years to catch up. However, you need to know exactly how much to prepare for retirement.

The Central Provident Fund (CPF) has a retirement calculator that helps you determine the amount of savings you need based on your expected retirement age and lifestyle. Alternatively, you can also use Income’s retirement calculator.

While you are planning, think of your health status as well. This is an often-neglected consideration which will determine if you need to buy additional health policies to supplement your existing one.


Invest in financial products with lower risk 


Financial products with lower risks help you to build up your nest egg for retirement. Image credit: Pexels
Given that your savings are insufficient, you need to increase them by investing in lower risk financial products that still provide reasonable returns, such as endowment plans.
An endowment plan is a type of insurance that provides basic insurance coverage, helps you to save over a specific period of time and possibly provide a lump sum benefit upon maturity of the policy.  

Gro Flex Saver is an example of an endowment plan. It has a wide selection of policy terms and premium terms that allows you to save and enjoy guaranteed yearly cash benefits after 2 years while protecting you. It also provides guaranteed acceptance which means that your policy will be accepted regardless of your health condition. 


40 years old

infographic-image Mr Lee signs up for Gro Flex Saver (5-Pay-15) with a sum assured of $50,000. He pays a yearly premium of $11,763 for five years.

42 years old

infographic-image infographic-image

Mr Lee accumulates his yearly cash benefit1 of $2,500 with Income at an interest rate of up to 3.5% p.a.2
Mr Lee receives a yearly cash benefit1 of $2,500 every year.

45 years old

infographic-image Mr Lee stops paying premiums.

55 years old

infographic-image infographic-image
Upon maturity of his policy, Mr Lee can receive a total projected payout of $89,9733 (projected yield: 3.32% p.a.)3.

Upon maturity of his policy, Mr Lee can receive a payout of $48,2803(which consists of the guaranteed maturity benefit $27,500 and the non-guaranteed bonuses and interest $20,780). Together with the guaranteed yearly cash benefits he had already received, his total projected payout is $80,7803 (projected yield at maturity: 3.25% p.a.)3.

The above figures are for illustrative purposes only.

1You will start to receive 5% of your sum assured as your yearly cash benefit starting from the end of the 2nd policy year if you have paid the premiums for at least 2 years. You will continue to receive your cash benefit at subsequent policy years if the insured is still alive and your policy has not been converted to paid-up or ended.

2Interest rate of 3.5% per annum is not guaranteed. Prevailing interest rate at the point of deposit will be determined by Income.

3The figures in the illustrations are not guaranteed and is projected based on the assumption that the Life Participating Fund earns a long-term average return of 4.75% per annum in the future. Returns are projected based on estimated bonus rates that are not guaranteed. The actual benefits payable will vary according to the future performance of the Life Participating Fund.

© 2017 Income. All rights reserved.

You can also consider enhancing your plan with the Cancer Premium Waiver (GIO). This rider will kick in and waive your future premium payments if you have any major cancer during the rider term. You can refer to the website here for the relevant terms and conditions.

Although it is tempting to make up for lost time by investing in products with higher returns, these products also come with a correspondingly high risk. Should the investment fail, you will may lose your capital and even incur a debt.


Downsize your house, upsize your savings


As you age and your children get married in the future, it may be tough to clean and maintain a large house. Thus, it may make sense to consider downsizing your house so that you can use the profits from the property sale for investment. An advantage of downsizing your house is that you pay lesser property tax and enjoy higher government rebates.

In Singapore, property tax is determined by the Annual Value (AV) of your property. You can use the following formula to calculate your property tax.

Annual Value (AV) X Property Tax Rate = Property Tax Payable


2017 Property Tax by housing type

HDB Flat Type  2017 Property Tax Payable
  1-and 2-Room Flat   $0
  3-Room Flat   $0 - $18.40
  4-Room Flat   $52.00 - $100.00
  5-Room Flat   $83.20 - $131.20
  Executive Flat1   $95.20 - $143.20

1 This does not include Executive Condominiums. Credit: IRAS

As shown from IRAS’ 2017 property tax details above, owners of smaller flats pay less property tax and this could lead to greater savings for your retirement years.


Top-up CPF for additional interest


There are multiple benefits when you top up your Central Provident Fund (CPF). Firstly, if you use cash to top-up for yourself, you get to enjoy tax relief equivalent to the amount of your cash top-up, for up to $7,000 for each calendar year. Moreover, the savings in your Special Account and Retirement Account can earn an interest rate of up to 6% per annum.  


Reduce your spending


This may sound daunting if you are used to spending what you earn but you can start small by saving $100 every month. Every little bit counts. Your $100 savings per month will amount to $1,200 a year (or an additional $32,400 over 27 years till you reach your retirement age at 67 years old). You could be getting even more from accumulated interest if you put your money in a savings plan or from the returns of an investment product.  
There is still hope even if you start retirement planning late. The key is to be discerning in selecting your financial products and save diligently. Start today by asking our digital advisor, Sage, for advice on what savings plans can best suit your needs.


Important Notes:
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.