Save for a safe retirement in Singapore
Published on
30 Nov 2019
Published by
Prime
In Singapore, the number of people expected to retire this year is about 300,000. A recent survey by HSBC shows that seven in 10 people working in Singapore above the age of 45 would like to retire within the next five years. Without sufficient savings and investments in place, many might find themselves financially unable to do so.
WHAT IS RETIREMENT?
The term retirement has gradually evolved over time. Some years back, retirement was all about working for a company or an organisation until you hit the 60-year-old mark. From there, it was straightforward – your working days were over, assuming you had saved up for your retirement throughout your working years.
But the term has evolved a few years down the road: Retirement means something different now - it has evolved to the fact that people want to stop working earlier than the official retirement age and do something else that they’re happier doing while still bringing in enough income to support them in old age through various investment vehicles.
Here is how you can really evaluate and plan for a safe retirement.
Current savings
The amount of savings you have now could really tell how much of beefing up you are required to do. You might wonder how much you really need in your retirement years, but it’s different with different people, based on factors like lifestyle, income requirements and many more. As a Singapore resident contributing to the Central Provident Fund, you can calculate and see how much savings you have and do the same for retirement funds. Do you have any shares earmarked for the long term? If things continue as they are, what are you likely to have when you hit your ideal retirement age?
Improve your current saving
With knowledge of how much savings you have in hand, it is time to maximise that. Based on the term retirement, which means saving a fraction of what you are earning, we have seen that it might not be enough. If you have pensions or retirement funds, are they earning as much as they should be? A little work now could mean you reap a lot more cash in the future.
Other ways to improve current savings
Do you know that the biggest threat to retirement is inflation: Your money will not be worth as much 20 or 30 years down the road. So as much as we’d like to rely on only savings, it’s not that simple.
There is always the option of investing your money in shares, and that is where value investing steps in. Value investing is an investment strategy that involves buying stocks for a price less than its intrinsic value; ie. the real worth of the stock based on how much the company is worth per share. This can be mathematically calculated based on the company’s income statement, balance sheet and cashflow statement. As an investor, we seek companies that are incorrectly valued by the market to the downside and thus have the potential to increase in share price when the market corrects its error and returns the share price to the correct valuation.
WHY INVEST?
Many people tend to think that saving for their retirement can be delayed till they earn more and can therefore save more later in life. They tend to be too caught up with their current spending patterns or with plans to upgrade their current life. But by the time they are in their 40s and 50s, it might be hard to start saving for their retirement.
There is no good time to start planning for our retirement, but there are advantages to starting early. Starting early allows you to grow your savings; starting late may mean that you will have to work harder - taking inflation into consideration, you might also find that time is running out to meet your retirement plan.
If you want to know the various ways in which you can keep and grow your retirement savings, here’s how:
1. Investments
As stated earlier, waiting for retirement can have its disadvantages, such as inflation and realising that the sum you have saved is insufficient to support your needs after retirement. The first thought should be, what should you do to keep your savings and also increase them by investing in blue chip stocks or undervalued stocks? Investing in undervalued stocks is an age-old strategy used by renowned investors such as Warren Buffett. In simple words, you should buy stocks when the price is below the real worth of the stock. After buying the stocks, the stock price will rise gradually over time to meet the stock’s real underlying value.
2. Insurance policies
You may also protect your savings through insurance policies. Insurance companies offer a variety of policies from life policies to whole life insurance and all these are designed to provide for retirement. But you need to first research on the insurance company you want to deal with, to see if you are able to work with their insurance plans.
3. Put your savings in your SRS
The Supplementary Retirement Scheme (SRS) is another layer above the CPF. Contributing money to your SRS provides tax relief, which is an advantage. In addition, when you start withdrawing from your SRS after retirement, you are only taxed on 50% of the amount withdrawn. However, there is a penalty if you withdraw before retirement. Besides getting the normal tax on the amount withdrawn, you will also need to pay an additional 5% for the withdrawal. As such, there is less flexibility with your money.
4. Exchange traded funds
Also referred to as the Straits Times Index Fund (ST Index Fund). You can start buying these for as little as S$100 a month or more, depending on your investment appetite.
The ST Index fund reflects the returns from the Straits Times Index, and has generated annualized returns of 5% to 8% over a 10-year period. One advantage to the ST Index fund is that it has low fees, as there is no need to pay an expert to help you buy the shares. It is a simple matter of buying a ETF that tracks the Straits Times Index Fund.
Source: Prime Magazine Aug - Sep 2017 Issue. Reproduced with permission.
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