When Should You Start Retirement Planning, Singapore Citizens?
Whether you’ve just graduated from school and are doing well in your new job or started a new job with better benefits a bit later on in life, it’s never too early to start planning for your retirement. Officially, Singapore retirement age is capped at 62 years old, but most businesses allow anyone beyond this age to continue working until they’re 67.
However, for those who have kept their retirement plans to a later stage, it isn’t too late for you. Even with less than 10 working years left, you can plan far enough ahead and won’t have to worry, if you know what you’re doing and have set aside enough to last the next 30 years.
However, planning earlier helps you ensure your future without worrying about your earning opportunities later on. It’s never too late to start planning — so let’s begin!
What Should You Consider When Planning Your Retirement
Retirement planning is all about imparting small amounts to your Central Provident Fund (CPF). However, given the ever-changing economy, your CPF savings might never be enough. For example, anyone who reaches the CPF Basic Retirement Sum (BRS) of S$83,000 by the age of 55 can receive monthly payouts about S$700-S$750 until the end of their life.
However, it’s greatly possible this amount will not be enough for you once you reach that age. If you’re 23 and meet the BRS maximum, even the highest monthly earnings may not suffice for you.
So, always consider other things that will dictate the total amount you’ll receive upon retirement, such as:
Your Current Income
Don’t worry if you’ve just started working on your new job and it’s not enough for you to save for your retirement needs. In fact, it’s important you learn everything your current position can provide to you and focus on your current cost of living needs. However, it doesn’t mean that the modest sum you’re earning as an entry-level employee isn’t enough to help you save up on your retirement plan.
There are other ways to go about it. The first S$6,000 of your monthly salary is subject to CPF contributions. Therefore, if you’re contributing S$6,000 monthly to your CPF, you can expect it to grow, especially when your employer is matching your deposits too. If you have enough left every month, you can use it as a contingency or emergency fund. We’ll discuss more of this later.
The Income You’d Like To Receive Upon Retirement Age
Everyone wants to earn as much as they are receiving during their highest employment position. While this is possible, it takes a lot of work and proper investment to do so. However, it’s important to be realistic when it comes to your retirement age income.
As we mentioned earlier, the BRS average of S$83,000 can give you about S$700-S$750 monthly. It’s possible to go beyond it, but it is no guarantee you’ll receive the same salary you’ve had at your highest employment position.
Therefore, it’s best to adjust your budget and lifestyle towards a reasonable monthly retirement income. However, if you have enough savings to invest in your own real estate and good blue-chip stock market options, it’s greatly possible to earn a higher income.
The Lifestyle You’d Want to Live Now and During Retirement
What dictates the actual income you’d like to have by the time of your retirement is the lifestyle you want to adopt by your retirement. If you think about it, you won’t have frequent dinners outside, and you’ll mostly focus your funds on your remaining mortgage payments, daily needs, monthly utilities, and other non-priority wants or needs.
If you plan to enjoy movies regularly, go out at least once a week to eat or just stroll around, and have enough for everything, then a modest sum is more likely the amount your lifestyle dictates you to have and work for during your employment years.
Earning Past Employment
Retirement isn’t all about saving money through CPF contributions and third-party life plans. It involves you making the right investments, allowing your money to work for you once your physique and age do not permit you to function mechanically and mentally for traditional employment.
You can earn money past retirement by making the right investments while you’re young. Take advantage of Singapore’s stock and foreign exchange market. Investing wisely helps you gain dividends that allow you to earn enough by just moving your investments into better avenues for growth.
Setting Your Retirement Age
Singapore retirement age averages around 62 years of age. However, you can still extend your retirement up to 67 years old. However, your employer might disqualify you for employment if your medical records indicate your incapacity to work.
While working beyond 60 years old is possible, you become a higher risk for employers. Therefore, your chances of employment will become slim. In this light, it’s better to set your retirement age at the earliest possible time and avoid extending it even if you’re allowed to work beyond retirement age.
Making The Right Investments For Your Future Income
Once you’re retired, you cannot set foot into an office again. You can still apply for menial jobs, but company owners are likely to turn them down due to your age. However, you can still earn money once you’re retired. You can receive a monthly regular amount from the Central Provident Fund, your stock market investments, business investments, or all of the above.
Making them work to your advantage as a retiree is a key to supplementing your future income once you’ve officially entered retirement.
Your Central Provident Fund Contributions
CPF accounts are part of Singapore’s social security system — and only available for Singaporeans born and will retire in the country. They’re available in four accounts:
- Ordinary Accounts with 2.5 – 3.5% interest rates
- Special Accounts with 4 – 5% interest rates
- MediSave Accounts with similar rates as special accounts
- Retirement Accounts similar to the rates as special accounts
The age of 62 is the average age of retirement in Singapore. However, CPF allows you to withdraw once you reach 55 years old if you own an ordinary or special account. It will transfer all your contributions from these accounts to form your retirement account.
Singapore’s Ministry of Manpower makes it a point to adjust their interest rates towards predicted economic inflation. The tempting 4-5% increased interest rate after 55 years of age due to the Retirement Account transfer is one of the biggest reasons most delay their retirement until later on.
As we mentioned earlier, if you reach the BRS average of S$83,000 total contributions, you can receive S$700-S$750 monthly after you’re eligible to withdraw monthly payouts.
Making The Right Investments
Aside from CPF retirement contributions, you can make the best investments that will increase your income. When we speak of investments, they don’t have to be monetary or financial maneuvers. It can be a minor lifestyle or budgeting adjustment or adopting best investment practices to improve your knowledge — that in effect, improves your overall income — too.
Once again, you must be realistic about your income after you’ve retired. You should expect a more grounded lifestyle after your retirement. The lavishness and extravagance you expect during your retirement will inflate the future income you need — and place immense pressure on your shoulders to fulfill such a huge amount of income.
Prioritize everything you’ll need once you’re retired. You need just enough to pay the rent or the remaining mortgage payments, utility bills, emergency fund contributions for possible medical services after accidents or diseases, and some of your affordable yet necessary wants. After all, we all still deserve to unwind even if we’re retired.
Long or Short
You won’t find a long discussion and tutorial about investing in the stock market here. However, “long” and “short” positions are two important terms you need to learn about investing in stocks. Keeping a long position means you’ll hold on to your stock.
Doing this is viable if you have blue-chip stocks from renowned companies. Those are truly expensive, but they grow exponentially, especially if they’ve performed exceptionally well for the year. Alternatively, short positions mean you’ll hold your stock only for a short time because you predict it will drop exponentially within a few months.
Then, after selling, you’ll buy it again once the price is more affordable, and you predict the prices will rise. Careful use of these two techniques can help you make huge profits. However, it can lead to huge losses too, so be careful!
It’s a rule of thumb for many beginning and successful investors: never put your eggs in just one basket. Depending on just one industry, trade, and even the stock market is never a good way to invest. For example, if the agriculture sector sees a recession, you’ll lose everything if you’ve only made agricultural investments.
Wise investors diversify in markets that have the best potential to grow. If they spot underdog industries seeing a huge rise, they can spend less to buy stocks from that industry and watch their investments grow as large as possible.
Level of Manual Management
You can be very hands-on with your stock market portfolio. Doing this is ideal if you’re always watching the news or your current employment exposes you to accurate and fact-supported industry reports. However, if you intend to, you can have brokers make investments for you.
Hedge funds are another good alternative, but it’s quite expensive to be included in the fund. However, make sure you’re well-versed in the stock market even if you leave all the work to a professional. Making sure the economic and market improvements translate to your income is important work that you should check to make sure they’re achieving it for you.
Length of Time You Can Invest
The key to knowing whether you’re a long or short position trader is you finalizing the length of time you can spend investing. The principle is similar to working on your retirement at a young age: you can save beyond the average BRS amount and not worry about retirement.
While it’s easy to lose money with the wrong investments, the stock market allows you to save up enough to buy blue-chip investments through your employment income. You can choose between being a long or short-position trader.
On the other hand, if you started planning your retirement a bit later in life, you can adopt a short position. In fact, you might even have less risk appetite — meaning you can’t make risky investments because it will be difficult to recoup enough for your CPF contributions.
The length of time you can invest will affect the quality of your choices and the final investment amount too.
Plans Fail, So How Will You Adapt?
Having a plan is always a huge part of living. However, plans will inevitably fail. It’s important to have a plan B and other contingent measures to stem the failure. In doing so, it gives you enough time to learn from your mistakes and adapt to the situation.
The best way to adapt is to assume that your plans will fail. When you assume you would, you’ll need to have the following:
A contingency fund is your “safety net” when the stock market plunges with you caught in a failed short position. It allows you to address your basic needs and helps you avoid failing to contribute to your CPF. With a contingency fund, you can treat miscalculated investments as only being minor setbacks.
Moneylender Loans and Services
If you failed to have a contingency fund, you can always count on moneylender services in Singapore. The Ministry of Law oversees the Registry of Moneylenders, the official list of all Singapore moneylenders allowed to provide personal, business, and other types of loans. You can use 365 Credit’s services if you’re in a pinch because of a failed investment.
In Case of Emergencies
Contingency funds are useful in covering your losses. However, emergency funds will handle the fees needed in case you need medical assistance. Having these funds allows you to avoid missed payments due to untimely CPF payouts too. Make sure to set aside amounts for both your contingency and emergency funds.
Proper Planning and Investing is the Key to a Smooth Retirement
Retirement isn’t the end-all, be-all of your income. By making contributions to your CPF and planning your long or short-position investments, you can increase your total retirement income by a huge mile. By following this guide, you’ll find it’s truly easy to have a smooth and hassle-free retirement.