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How should you start saving for your retirement?

Too many of us think saving for our retirement can wait until we earn more and can therefore save more later.

Moneysense on 03 Sep 2012

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Publisher: Moneysense


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We may also be too caught up with our current spending patterns or with our plans to upgrade to a nicer home. But by the time we are in our 40s and 50s, we may not be any better off if we are providing for both our parents and children. 


There is never a “good” time to start planning for our retirement. But there are advantages to starting early. If you start early, you will have a longer time horizon and that means more time to grow your savings. If you have made investments, a long term horizon will also help to ride out short-term price fluctuations on your investments. 


But, if you start late, you will have to work harder at growing your retirement savings. If you cannot afford to lose money, you should avoid investments that come with higher risks. You may even need to think of delaying retirement provided you remain employable.


How should you start saving for your retirement?

Step 1: Define your retirement goals 

Ask yourself when you would like to retire and your preferred lifestyle during retirement. Work out how much money you will need when you retire to provide for your desired lifestyle. Many financial planners would generally recommend that you should aim to be able to draw an amount of at least two thirds of your last drawn monthly income. However, do note that the amount will vary from person to person, depending on the lifestyle each person wants to have. 


Singaporeans are living longer and healthier with average life expectancy for males and females higher than before. Hence when you are planning for your retirement, do take note of the number of years you would expect your savings to last you, as you would want to avoid a situation where you outlive your retirement funds.


There are many online tools that can help you with the computations. The CPF retirement estimator gives you a quick overview of how much you need to set aside for your retirement. 


Step 2: Assess your current situation 

Work out how much money you can expect to have from your savings account, CPF savings, insurance policies, and investments when you retire. Aim to pay off any outstanding loans and liabilities before retirement to minimise debt obligations during your golden years. 


If some of these savings and investments are also needed for your other goals like paying for your children’s education, do consider making a financial plan that can help you carefully allocate your resources towards all your financial needs and goals. 


Calculate the difference between the funds you expect to have at retirement and the amount you will need. Work out how much you need to start saving each month from today in order to make up for this shortfall. 


Use the CPF retirement calculator to provide a more detailed review of your current financial situation. It can also help you see if you are on track to meeting your retirement goals. 


Do also review your insurance coverage. Healthcare costs will rise very quickly as you get older and could derail your financial plans. If you do not have any insurance coverage, you may wish to consider purchasing coverage for possibilities such as disability, critical illnesses, personal accident and hospitalisation. If you have purchased health insurance coverage, you should ensure that your retirement years are covered, and/or explore possible options where you can stop paying premiums once you reach retirement age but still continue to enjoy the coverage.


Step 3: Get started on your retirement savings plan 

Put in place a plan to help you save and / or invest regularly to accumulate your retirement savings. 


If you are new to investing, do read up our section on investing. It is important that you understand your personal circumstances such as how much you can afford to invest and your risk profile – how much money you can afford to lose, before you begin to examine the wide range of products available. Take time to choose products that you understand and are suitable for you. A well-diversified portfolio will help to spread the risk and balance the fluctuations in the value of your investment. 


The government has also put in place the Supplementary Retirement Scheme (SRS) which provides tax benefits to encourage saving for your retirement. Learn more at the Inland Revenue Authority of Singapore website


Monitor your plan regularly and make changes to the plan according to your changing needs or appetite for risk. It is only natural that as you get older, your appetite for risk will fall and conservative investments become more attractive. You may find that you have to put aside more in savings or even delay retirement if you remain employable. 


If you cannot afford to lose money, do not take on investments with high risks in the hope of achieving your desired retirement lifestyle. Instead, reconsider your desired retirement lifestyle and revise your expectations to a lifestyle that is more achievable within your means.


CPF Life

The CPF Board also offers two types of annuity plans. These plans can be purchased with your CPF savings under CPF Life. Find out more at the CPF Board website.

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