Your To-Do List For Recession-Proof Retirement Savings
You’ve spent the last few years working hard while diligently building your retirement savings. It seems like you’re on track towards a comfortable retirement in Singapore. But then the COVID-19 pandemic came out of nowhere, causing Singapore to enter a recession in 2020.
Nobody knows how long or how deep this recession will be, but don’t let that frighten you. While there’s never a guarantee that you won’t face financial challenges during this time, there are still ways to protect your nest egg from it.
Here are some tips that may keep your retirement savings recession-proof.
Figure Out How Much You'll Need
The concept of retirement can mean many things to different people so it's important to first think about what kind of retirement you'd like to have.
What kind of lifestyle do you expect? Apart from having enough funds to cover your basic needs, do you still want to eat out and go on holidays? Or would you be happy living a more simple life with your loved ones?
Once you determine the kind of activities you'd like to partake in when you retire, you'll have a better idea of the financial commitment you'll need for it. Use a retirement calculator to help you plan for your retirement fund.
Stay ready for emergencies
Financial emergencies can strike at any time, but they’re far more likely to happen during a recession. You might need to take a pay cut, go on unpaid leave, or go unemployed for several months. Without a cash safety net, you might end up borrowing from your retirement accounts, and risk the comfortable future that you’ve been saving so hard for.
If you don’t already have a robust emergency fund, now is the time to start building one. Ideally, you should have around three to six months of living expenses saved in case of emergencies. Keep this in a high-yield savings account that you can access in a pinch, and without penalties.
Next, take steps to protect your finances against accidents and medical emergencies. To ensure you’re prepared in case of medical situations or hospitalisations that may arise, make sure you have adequate health and life insurance. These will serve to ensure your retirement funds aren’t touched in the event you need to seek medical treatment.
Similarly, protect against emergencies involving your home, your car or critical illnesses by getting the appropriate insurance coverage. All this provides financial cushioning against emergencies that may arise and help you avoid taking money out of your retirement fund to deal with immediate needs.
Pay off or avoid taking on new debts
Taking on debts is common during good times because you can comfortably pay the monthly instalments without making a dent on your retirement savings. During a recession, however, the risk of taking a pay cut or losing your job increases. If this happens, you’ll struggle to pay off your debt, and you might not have anything left to contribute to your retirement accounts.
While good debt like your mortgage can’t be paid off quickly, you should prioritise paying off bad debts and avoid taking on new debt altogether. Bad debt includes car loans (since cars depreciate in value very quickly in Singapore), credit card debt, and other unsecured short-term loans with high interest rates.
So make sure you pay your credit card bills on time to avoid the high interest rates, and avoid taking loans for big-ticket purchases until the economy gets better.
Live within your means
The key to building recession-proof retirement savings is to live simply and cut down expenses. By doing so, you’re less likely to struggle with debt and expenses during financial emergencies, and more likely to live comfortably no matter how the economy fares.
When living within your means becomes a habit, you’ll still be alright even if you or your spouse gets retrenched during a recession because you’ll be used to living on less.
Keep contributing to your retirement accounts
It might be tempting to stop putting money aside for retirement, and use that for emergencies instead. However, if you can still afford it, keep contributing to your retirement accounts and try your best to stay on track with your retirement plan.
Be on top of things when it comes to your CPF funds. Do regular checks on the amount that you have in your account, find out when (and how much) you'll be able to withdraw from the fund, and also ensure that you know about all the benefits under it. Find out what schemes you're eligible for and how you can maximise your financial potential through them.
In your 20s? Start saving for retirement already.
At this age, you probably feel like retirement is too far off into the future to start preparing for. But recession or not, you should start thinking about getting a retirement plan as soon as you can afford it.
This is because the longer you have until retirement, the more time your money has to grow. You also have fewer financial responsibilities at this age, which means you can have a tidy sum stashed away and get a head start on building your nest’s egg. If in doubt, you can always start small and layer on additional plans as you progress in your career.
Gro Retire Ease is a retirement savings plan you can consider. It gives you the flexibility to save over a period of 10 or 15 years, or up to age 50, 55, 60 or 65, depending on your lifestyle and financial ability. You’ll be able to choose when to start receiving and how long to receive your monthly cash payouts as well. You will also get additional coverage with the Disability Care Benefit, which covers conditions such as loss of use of one limb, or loss of sight of one eye, which are typically not covered in other insurance savings plans.
Gro Prime Saver is another option that gives you guaranteed cash benefits till age 100, starting after the fifth policy year. You can choose to pay your premiums over five, 10, 15 or 20 years, and there's guaranteed acceptance regardless of your health condition. Plus, it'll also give you peace of mind with coverage for illnesses and in the event of total and permanent disability (TPD before age 70), so you never have to be a financial burden to your loved ones.
With the right foresight and financial preparation, a happy retirement can be achieved. Speak to a financial planner online or consult our digital advisor, Sage, for help with your own retirement plans.
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.