I’m going to tell you a scary story. And this story is real. Listen carefully. Young workers in Singapore are at risk of a shortfall in retirement income, despite widespread and high levels of private savings, according to findings by the International Longevity Centre – UK (ILC-UK). If retirement is important, then planning for it is absolutely essential. But many often fail to see it until it’s too late. Here’s the top retirement myths that Singaporeans believe in.
To many people, retirement seems to be a faraway concept that they don’t need to grasp so early. After all, many associate retirement with “old”, “elderly”, “for people over 50s”. The truth is, you’ll enjoy so many more advantages if you start early. Why is it so? Just look at the chart below. Assuming the compounding interest to be the same throughout, people who start investing at the age of 25, earns close to 2 times more than the ones who start only 10 years later, when both of them turn 61 years old. That’s the magic of compounding.
If you don’t start saving now, you’re throwing away the power of compounding returns, which is one of the most powerful tools to help you achieve early financial freedom.
Many people believe that they can work past age 65. They think that by the time they reach retirement age, they would have accumulated certain savings for the next 20 years. However, not all things can go accordingly to our expectations.
Half of all early retirements are due to illness or disability. In addition, as economy slowing down, more people are being retrenched. Finding good paying jobs later in life can be difficult, that’s why many people are struggling to cope with lives once they are hit by retrenchment. The bottom line: Working past retirement age because you want to is a great goal, but it’s probably best not to rely too much on this income when making your retirement plans.
If you are brought up in a traditional family, your parents would have probably reminded you again and again – save your money in the bank. And so the money lies in savings accounts, earning low interest rates that barely keep abreast of inflation rates. As the result, the $50,000 in your bank today may just worth less than $30,000 10 years later. What is more saddening to see your retirement fund that you earned through hard work going to drain? In addition, with the government’s announcement to increase the GST rate from 7% to 9%, it means that cost of living will also be increasing, thereby reduce your savings even faster.
By now you should have already know it well, things in Singapore are getting more and more expensive. Price of condos are similar to that of landed properties in other developed nations. Buying a car easily cost you more than $100,000. There are tons of luxury items that many of us want, but they are different from what we really need. Yet many of us deem them to be necessary expenses, without thinking twice about affordability and how the money can be better used for retirement. So the next time you are going to spend money, ask yourself, is this a need or a want?
Here’s something you can consider: investing in stocks to help you generate a stream of passive income to cover your high expenses, while providing you the opportunity to save money from your active income. Read here to find out how you can do that!
Contrary to the popular myth, your Central Provident Fund (CPF) savings may not be enough to sustain the lifestyle you desire during retirement. Also, keep in mind that your CPF savings depends on how much you earn during your working years. If your income is relatively low throughout the years then you can expect to receive lesser payouts than your “higher earning” friends. Thus, your CPF savings may not be enough. Also, if you exhaust your account earlier on to pay for your HDB flat then you shall expect to receive lesser payouts. In addition, the payout eligibility rate has been increasing, with the current age being 65 years old. Considering the minimum sum for the retirement account is $155,000, it means you can only withdraw $5000 (this figure may not be the same in the future) from your CPF at the age of 55.
This could be a major mistake unless your parents are extraordinarily rich and have health so bad you can rely on them dying soon. Otherwise, there are too many unknowns to plan your retirement for this outcome.
And even though you manage to inherit their fortune, if you don’t know how to manage it wisely, it’s just a matter of time before you spend it all. William Graham Sumner once said: “Property left to a child may soon be lost; but the inheritance of virtue… will abide forever. If those who are toiling for wealth to leave their children, would but take half the pains to secure for them virtuous habits, how much more serviceable would they be. The largest property may be wrested from a child, but virtue will stand by him to the last.”
If you want to learn how to grow your income and comfortably enjoy retirement in Singapore, register for our free investing workshop below:
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