Retirement planning aims to put your finances in order after leaving your career. Retiring planning includes 5 steps: starting retiring planning, figuring out how much money you will need, prioritizing your goals, selecting investment accounts, and choosing investments.
An Etiqa Insurance Singapore Retirement Survey 2022 says 48% of the local population is not confident about retiring. Singapore has one of the longest life expectancies in the world: 85 for males and 88 for females.
In this survey, most respondents are worried about finances and health post-retirement. They wish for financial independence and good health while being anxious about running out of funds due to the 2 former factors in retirement. Retirement planning is never more urgent than now.
Read Also: CPF Life vs Retirement Sum Scheme
5 World Experts’ Advice on Retirement Planning
By following the advice of these experts, retirees can develop comprehensive retirement plans that ensure a comfortable and secure future. Here are the insights of five world experts on retirement planning, including Suze Orman, Jean Chatzky, David Bach, Ric Edelman, and Teresa Ghilarducci.
1. Suze Orman
Orman advises living within your means, prioritizing retirement savings, and investing in low-cost index funds.
- Meet both ends: You should live by what you can afford and need. Besides, clearing up existing debt and avoiding further one make your life easier. As you grow older, the earnings power may decrease, and some expenditures like healthcare will increase. You should make your living style sustainable by adjusting your spending to what you are capable of.
- Prioritize your retirement savings: Returns from your investments lessen your effort on savings for retirement. Investments with the potential for high returns involve higher risks. If you are busy, you should invest in low-cost index funds which grow with the market.
- Save 10%-15% of income for retirement: Regular savings create nest eggs for future retirement wealth. You should put aside a portion of your income for long-term investments. Besides, a government-sponsor retirement account should be a good venue because your investment can grow tax-deferred.
2. Jean Chatzky
Jean Chatzky suggests women take control of their finances and utilize multiple retirement accounts.
- Women to control finance: Women should take the lead concerning their financial future. Besides careers, they should plan for an independent financial retirement. Therefore, proactive management in this area is more crucial than ever to gain fruitful and decent financial retirement.
- Understanding your retirement plans: A retirement plan is not a put-aside box where you let it go without further follow-up. Regular reviews of your scheme on your investment strategies and savings ratios reflect your changes and attitude towards your retirement life in the future.
- Multiple retirement accounts: You should secure your retirement with more than one retirement account. Besides CPF savings, you can utilize the tax deduction benefits offered by Supplementary Retirement System(SRS). The benefits are threefold: reduce your taxable income, investments grow tax-free, and withdrawals partially tax-free.
Bank deposits are a secure source of savings, as the Singapore Deposit Insurance Corporation guarantees them. However, you should have an investment account to increase your returns in addition to a traditional individual retirement account.
3. David Bach
David Bach recommends automating finances, saving small amounts consistently, and utilizing the compounding interest effect.
- Automate your finances and savings: Disciplined savings behavior helps you create retirement wealth. Imagine you create a savings plan where you put in several hundred dollars. 10 years from now, you may be amazed to see it grow to 5 to 6 figures in your account with a compounding effect.
- Save minor, grow big: The concept encourages you to spend less from your running expenses, and the saved money can add to significant amounts over time. More than that, every time you put the saved dollars into your retirement account, which can return significant profits in the long run.
- Save now, starting with the remarkable compounding interest effect: You should use the magical compounding interest effect to grow your wealth. 1 dollar with an annual 8% interest rate today will grow to $S4.66, close to 5 times your investment in 20 years from now.
4. Ric Edelmen
Ric Edelman advises a comprehensive approach to financial planning, maximizing savings contributions, diversifying investments, and regularly reviewing and adjusting retirement plans.
- Comprehensive approach to financial planning: Eric says people should adopt an all-embracing approach toward retirement planning. To ensure an achievable retirement target, you should cover a wide range of related topics like tax and retirement income planning, besides investment management. This approach ensures goals are realistic and achievable.
- Maximizing savings contributions and diversifying investment portfolios: Leveraging your tax benefits by saving in tax-advantaged retirement accounts, you can gain the most from savings from your tax-exempt contributions besides investment returns in your retirement years. Diversifying investments can reduce your chance of loss while you still grow your gold nest. Exchange-traded funds are good investment tools for savers.
- Reviewing and adjusting your retirement plans: You should review your retirement plans in 2 ways: a fixed schedule and an ad-hoc basis. You are better positioned to adjust retirement plan changes subject to personal and external factors.
5. Teresa Ghilarducci
Teresa Ghilarducci advocates for a universal and simple retirement system to ensure all members of society have a secure and comfortable retirement.
- Broken retirement system: The current system, flawed with loopholes, requires significant reforms. It cannot make everyone save for retirement due to individual circumstances and personal objectives. The government should overhaul the whole system for retirees to have a decent and secure life at retirement.
- Universal retirement system: The government should develop an overall retirement system to cover classes in our society so that members can access retirement benefits from the system. Society can be a fair one for all.
- Simple retirement system: The new system should be fair, simple, and accessible to all members of our society to prevent discrimination and hatred and reduce poverty and unfortunate groups.
How Much do You Need for Retirement Planning?
The amount you need for retirement planning in Singapore depends on several factors, including your lifestyle expectations, healthcare needs, and the duration of your retirement.
As a general guideline, financial experts suggest aiming for a retirement income that replaces at least 70% to 80% of your pre-retirement income. This means that if you earn $5,000 per month before retirement, you should aim for a retirement income of $3,500 to $4,000 per month. To achieve this income level, you may need to accumulate a retirement fund of $1 million to $1.5 million, depending on your retirement duration and expenses.
You can accumulate this amount through a combination of your CPF savings, personal savings, and investment returns. However, it is essential to note that everyone’s retirement needs and goals are different, so it’s best to consult with a financial advisor to determine your unique retirement needs and plan accordingly.
Steps to determine how much you need for your retirement plan:
1. Determine your retirement expenses: Retirement experts advocate the living costs at retirement should be 70%-80% of your current expenses covering housing(water, electricity, property tax, or internet), healthcare, food, and transportation & entertainment.
2. Identifying sources of retirement income: Retirement sources are income channels you will get at retirement. The more retirement sources you have, the more likely you will reach your retirement target. Let’s stock the retirement sources you may have when you leave the workforce.
- CPF accounts – Mandatory savings accounts allow you to begin withdrawing your savings at 55. You can convert to CPF Life for monthly cash payouts from your CPF retirement account at age 65.
- Family support – Most retirees get financial support from their families if they have children in the early days.
- Property Monetization or rental – You join government-sponsored schemes to monetize your existing houses and increase income. You rent out your second or other houses to increase your income.
- Work after retirement – Retirees may work part-time to supplement their income resources.
- Investments – Besides CPF, you make investments like stocks, bonds, and mutual funds. The investment can be a valuable source to supplement your income.
- Insurance plans and annuities – Valuable savings sources that you can convert to a life annuity to increase your income at retirement
3. Determining your retirement savings needs: The figures for calculating the savings needs are (expected annual expenses – expected annual income) x 25. The difference between the two estimations is the yearly amount you should save for retirement needs. 25 is a factor experts advise as a rule of thumb for the total savings needed for a general retirement life. The savings target is all you need to start accumulating for retirement life. As you delay one more year, you may have to increase your savings to compensate for inflation and shorter periods for earning returns.
4. Understanding potential risks to your retirement savings: You may encounter risks on the journey to achieving your goals. Understanding and avoiding risks likely incurred increase your chance of success in reaching your target.
- Healthcare costs: Retirees face increasing healthcare costs due to longer lifespans and declining health in old age. Healthcare costs are becoming a larger expense in retirement at a faster rate than other expenses. Good nutrition and regular exercise can also lower the risk of illness and decrease healthcare expenses.
- Longevity: The United Nations projects the average age of Singapore’s population will rise from 84.07 in 2023 to 87.28 by 2050. The low mortality rate will grow afterward. Being proud of the improving living standard as a Singapore citizen, however, you must save more to spend at an older age. It may be hard for you to build up the deficiency of savings when you get older because of loss of earnings power.
- Inflation: Like other countries, Singapore suffers high inflation as January’s CPI rises 5.5% faster than in more than 14 years. However, the average inflation has been 2.57% for the past 30 years, which is lower than the current 2 years. In the long run, you should increase your savings at a rate beating the average inflation to keep the living standard intact at retirement. Inflation differs in goods and services, so does it affect people differently. You may regularly check price rises in goods or services impacting you most if you adjust your savings needs.
- Market volatility: You may postpone retirement if you are tied with high-risk investments this year. Over the past 2 years, stocks, bonds, and other ETFs have undergone bumpy roads in investment markets. People may need to examine their plans ahead of retirement in the next 2 years as most of their current investments go south due to rising interest rates and recession fears. However, you should keep investing as risks from market turmoils have little impact on long-term investments if you do not plan to retire in the next 3 years. You should talk to trusted retirement and investment advisor in designing a fit-for-yourself retirement plan.
Retirement Planning Case Study
Mr. Tan is a 55-year-old Singaporean who plans to retire at the age of 65. He has been working as an accountant for the past 30 years and has accumulated around S$600,000 in his Central Provident Fund (CPF) account. Mr. Tan is concerned about how much he needs to save for retirement and what he can do to maximize his retirement income.
1. Identifying Retirement Expenses
Mr. Tan’s monthly expenses are estimated to be around S$3,000, which includes housing, food, transportation, healthcare, and entertainment. He does, however, expect his retirement expenses to be roughly 70% to 80% of his current expenses. As a result, he expects his monthly retirement expenses to be between S$2,100 and S$2,400.
2. Checking Sources of Retirement Income
He wants to withdraw his CPF savings when he reaches 65, resulting in a monthly cash payout. He also plans to monetize his property and rent out his second home to supplement his retirement income. Then, he also plans to work part-time to supplement his income and increase his returns through stock and mutual fund investments.
3. Determining Retirement Savings Needs
Mr. Tan’s estimated savings need based on his expected retirement expenses is (S$2,400 x 12 months – S$0) x 25 = S$720,000. To reach his retirement savings goal, he must save approximately S$6,000 per month for the next ten years.
4. Understanding Potential Risks to Retirement Savings
Mr. Tan is aware of the potential risks to his retirement savings, including increasing healthcare costs, longevity risk, inflation risk, and market volatility. He plans to maintain a healthy lifestyle to reduce his healthcare costs and invest in low-cost index funds to minimize market volatility risk. Furthermore, he plans to review his retirement plan periodically and adjust it based on his personal and external circumstances.
5. Expert Advice on Retirement Planning
Mr. Tan follows the advice of five world experts on retirement planning, including Suze Orman, Jean Chatzky, David Bach, Ric Edelman, and Teresa Ghilarducci. He plans to prioritize his retirement savings, automate his finances and savings, diversify his investments, and maximize his savings contributions to CPF and Supplementary Retirement Scheme (SRS).
6. Mistakes to Avoid in Retirement Planning
Mr. Tan plans to avoid ignoring his future retirement needs, failing to diversify his investments, ignoring tax implications, and taking on too much debt. He plans to keep track of his living expenses, exercise regularly to maintain good health, and reduce his debt as early as possible.
7. Conclusion
Mr. Tan understands the importance of retirement planning and the potential risks to his retirement savings. He plans to follow the expert advice on retirement planning and avoid common retirement planning mistakes. With a comprehensive retirement plan, Mr. Tan aims to enjoy a comfortable and secure retirement life.
| Name | Mr. Tan |
| Age | 55 |
| Expected Retirement Age | 65 |
| Current Monthly Expenses | S$3,000 |
| Expected Retirement Expenses | S$2,100 to S$2,400 per month |
| CPF Savings | S$600,000 |
| Retirement Savings Target | S$720,000 |
| Monthly Savings Needed | S$6,000 |
Mistakes to You Avoid in Retirement Planning
- Ignoring future retirement needs: Post-retirement inflation on food and groceries is a problem a retiree faces in keeping the budget in check. Besides, increasing healthcare costs are a headache and can go beyond a retiree’s control power. Except for regular reviews on your living style, exercise is an excellent behavior to reduce your long-term health costs.
- Failing to diversify your investments: You will recall an ever-green saying in the investment world: “Don’t put all the: eggs in one basket.” Bank failures and investment mistakes cause retirees high costs in their retirement planning.
- Ignoring tax implications: Maximizing your tax benefits is one way to increase your retirement benefits. As mentioned, income saved from tax can grow significantly due to the compounding effect if put into the investment. Moreover, withdrawing your savings at 65 from your retirement account, like SRS, can reduce an extra tax concession of up to 50% on withdrawn amounts. Therefore, you have tax benefits for both sides.
- Taking on too much debt: Too much debt is toxic to your financial well-being. It not only erodes your hard-earned savings if you have high debt, particularly in a rising interest rates environment. Reducing debt is another retirement planning strategy to preserve your wealth. You can reduce unnecessary spending, move your existing debt to loans of lower rates, and set up a schedule to pay off debt as early as possible.
Why is Professional Retirement Planning Advice Important?
Planning your retirement is a big step forward. Seeking professional help is another. Without professional advice, such as retirement, tax, or investment experts, you may miss opportunities or fail to take advantage of rules related to increasing your retirement benefits.
The following considerations are why you should look for professional advice.
- Retirement regulations: Singapore has enacted retirement laws like CPF and SRS-related laws to encourage retirement savings. These regulations provide savers with incentives like reducing taxes for contributions and withdrawals. A trusted retirement consultant should give valuable advice on maximizing the benefits of investing in various retirement accounts.
- Investment strategies: Financial investing is a sophisticated job. You are only halfway to achieving your retirement goals without a sound investment strategy. A sound investment strategy involves asset allocation based on your risk tolerance, investment horizon, retirement goals, and post-retirement expectations. A responsible investment advisor gives you worthy input on strategies to reach the target.
- Monitoring and regular reviewing: Don’t underestimate the process! You should watch and review your retirement portfolio regularly for several reasons:
- Your retirement goals have changed and require plan modifications
- The investment climate has changed, and you must adjust your portfolio to meet your target
- New retirement regulations have occurred, and you may alter your retirement plan accordingly. Professionals offer a helping hand on those aspects.
Final Thoughts
Retirement planning is an important financial project for post-career living, which involves knowledge of regulatory, tax, and investment planning. You should seek professional advice to plan a comprehensive, realistic, and achievable retirement plan to reach your target. One thing is sure: you should start saving now no matter the situation.
Key takeaways
- Spend what you can afford and invest in low-cost index funds
- Understand your retirement plans and save on multi-retirement accounts
- Save small now and grow big later with the compounding interest effect
- Comprehensive approach to financial planning and maximizing your contributions and investment returns
- Create a universal and straightforward retirement system for an equal society
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