What comes to mind when someone mentions the word “Retirement”? Are you concerned but don’t know how you can retire comfortably? Are you actively planning and confident of your future retirement? Or is this something you are not concerned with now?
Truth is only 14% of Singaporeans admit that they are financially prepared for retirement, yet 1 in 3 wish to retire before the age of 60, according to a Nielson’s Global Aging Report.
Here are 5 common mistakes that can jeopadise your retirement and how to avoid them:
1) Putting it off
“I am still young, I can plan for it later”
To young Singaporeans especially those in their 20s, retirement may seem like something happening too far in the future with plenty of time to think about it later. Meanwhile, there are so many important things to do with the money right now, like travelling, buying a car, furthering studies, getting married etc
The ironic thing is by the time we buy our first car and our first home, we would have depleted a significant portion of our savings for the downpayment, COV, renovation etc. With the car loan and mortgage to pay, plus children and aging parents to support, a big bulk of our income each month is gone.
Do you think it’s easier to save when you are young with no financial obligations or when you have a house, car, children and aging parents to support?
“I’ll wait til I get a pay raise, finish paying off my house/car/saving for my children’s education fees”
People often end up putting off planning for their retirement until the major financial commitments are cleared. The sad truth is we would have missed out on the opportunity of time and it might even be too late by then.
As the maxim goes, “Time is money”. The earlier you start, the more time you have for the power of compounding to work for you.
Consider the following example of 2 friends, Joyce and Ivy that illustrates the impact of a 10 years delay.
By delaying 10 years, Ivy ended up with 30% less retirement funds despite saving 3 times longer than Joyce
2) Underestimating the cost
“I am already saving for my retirement, it should be enough”
Great! You are already taking steps towards your future. Question now is “Are you saving enough to reach your ideal retirement?”
Here are some things to consider:
a) Do you know how much you need for retirement?
As a rule of thumb, if you wish to maintain your current standard of living, you need to plan for 50% to 70% of your monthly living expenses during retirement.
b) How long will your savings last?
Say you would like to retire at the current retirement age of 62 and expect to live til 85 years old, that is 23 years of income to cater for. And what if you outlive your savings? Saving up the entire sum of money can be challenging. For your info, to get $3000/mth for 23 years of retirement, you need to accumulate $1.2 million and even if you started saving from age 25, that means setting aside a hefty $996 per month! (CPF provides a useful interactive retirement calculator to help you calculate how much you need)
One solution is to generate some form of regular income during retirement instead of depending solely on our savings e.g annuity plans that pays out a income for life such as CPF life, or rental income and stock dividends. For more ideas and solutions, check out “5 Golden Tips to Retire on Time, on Target”
c) Have you factored in inflation?
As things become more and more expensive, our savings are in fact diminishing in value. With today’s rising inflation in the range of 5+% p.a. and incredibly low interest rates of 0.125%, can you afford to save extra 4% a year just to keep up? Or are you wisely investing the savings so that it can at least keep pace with inflation? Find out more about how you can invest with limited time, money and knowledge here
3) Emotions at play
“Let me finish paying off my house first”
Unlike our western counterparts, Asians typically have good saving habits and aim to be debt free. One of the major financial obligations that most Singaporeans have is our home mortgage.
I often hear my peers talk about their plan to use their bonuses or accumulated savings to pay up their home loan so as to shorten the payment period. Understandably many would like to clear their home loans as soon as possible so they have a fully paid up home or asset. The drawback of such an approach though, is that it leaves them with limited remaining funds for accumulation.
Especially since interest rates are so low nowadays, you can leverage on it to refinance your home at lower interest rates and invest your money to generate higher return.
“I need to upgrade my car, house etc”
Another common mistake is to sink in large sums of savings to buy a new car, update house and incur renovation costs all over again. Not only does this kind of expenditure not generate any form of return, it actually pushes one further away from retiring successfully.
4) Not plugging the holes
With the rising medical costs in Singapore, one major illness can wipe out a huge chunk of our hard earned savings and seriously set us back from our retirements pland.
“I already bought insurance”
Most Singaporeans have some insurance policies. Yet a good majority of people are not clear or can’t remember the coverage. What about you?
Are you certain what exactly you are covered for and what you are not covered for? Find out what to take note of here
What about your family members, especially aging parents and children? Are you prepared financially to handle the medical bills should something happen to your loved ones, or would you be forced to empty your savings and give up your retirement dreams?
Most Singaporeans are covered under basic medishield which helps to offset part of the hospitalization bills in government hospitals B2 wards and below. To ensure more comprehensive coverage, I usually encourage people to upgrade to private integrated plans. This can be done affordably using their medisave savings. Read more about the differences between basic and private shield plans and what to take note of here
Take steps to ensure adequate coverage for ourselves as well as our dependents so the financial burden does not fall squarely on our shoulders or worse on our children when they are about to take off in their career.
5) Giving up
“I probably can’t afford to retire anyway, worst case I’ll just keep working”
This is the saddest mistake of all. After spending over 40 years of your life working, do you still want to continue reporting to work at 65 years old, answering to bosses 20 years your junior, taking a pay cut and not having the freedom to enjoy life like you do now?
Moreover, that’s provided one is still able to continue working. As one ages, health problems become increasingly common. What if we forced to stop work because of illness or disability? Where will the source of income come from and worse who will pay for the medical bills?
Retirement is not an impossible dream, with early planning and prudent personal finance, it is something within everyone’s reach.
Recently a friend of mine shared with me an inspiring story about her parents and how they are now enjoying the fruits of their efforts. One day she brought up the topic of retirement with her mum. To her surprise, her mum who has been a seamtress all her life told her “We have planned for our retirement already, no need to worry about us”. Turns out that her mum and dad, who never earned more than $3ooo/mth, have over the years, through frugal living and prudent money management, set aside enough savings to last them a comfortable lifestyle for more than 20 years. They even took inflation into account! This coming from a simple Singaporean couple with modest income and no financial background, yet managed to raise and send 2 children to university, own their property and retire with diginity.
This true example shows that it is possible to retire with dignity in Singapore, as long as we start early, have the discipline to stay the course and make wise financial decisions along the way.
Life is too short to be spent working away. It’s meant to be lived, and enjoyed doing the things you love to do, spending it with people you care about and experiencing the pleasures of life. Take active steps today and work towards your own retirement with ease and confidence!
To Your Success and Happiness,
Yong Hui
Hi,
I came across your blog when I was searching around information of early retirement in Singapore. That few reasons you stated here summarize quite nicely what mistakes people made when planning their retirement.
I am more a saving people than income generator. I believed by learning more life skills and reduce our expense to a very low percentage of our income, we can achieve retirement much earlier than the conversional retirement at 65. Of course investment is a important skill we need to learn to make our saving work harder than lying in the bank account generating maybe like 0.05% annually.
Something I always curious about the retirement number is why the number 1 million always pop up when we talk about retirement? Is this some kind of number recommended by government or financial institute have some kind of calculation that concludes every Singaporean need to retire with at least 1 million in bank? Maybe you can give me more detail explanation on this issue.
I agree with your point where people tends to spend money on bigger house, newer car when they receive a pay raise or other source of extra income, lifestyle inflation is everywhere and not only limited to Singapore. It is very difficult to control one’s desire when the choice of indulgence appear in front of you and I think that’s why so few people succeed in retire early or ever retire at all.
I ever read a book about strategy to retire early, there are some interesting point brought up by the writer. The writer wrote about the shortcoming of having just one very focused career and almost know nothing else about other area of life. He think that this strategy is very dangerous because a shift in technical demand will wipe out the usefulness of the professional and this professional now left with a high spending life style and no income. He was suggesting that we improve ourself in as many area of life as we can. It won’t be necessary to earn money from every area of life but at least learn some skills in certain area that reduce your expense.
For example, get to know your bicycle more so that you won’t need to go to the bike ship every time some small little part of your bicycle is not working. Or learn how to cook a simple healthy meal, this is good for your body and your wallet too. Car repair might be too difficult to learn but at least learn something about how to maintain a car well. But the important point you want to think about maybe is whether is that car needed in the first place?
Hi Kian Hwee,
Thank you for your comment and sharing of your views. Yes, its true indeed that learning more life skills can be helpful in many ways and saves money as well!
As for your question about the retirement number, my answer to that is everyone has their own number and it depends very much on the kind of lifestyle they desire. Being prudent with our spending and keeping our expenses low will definitely help in reducing the retirement fund required and help us achieve retirement (and freedom) much earlier.
Just nice I am working on my next blog article on “How much you need to retire” that will address your question in greater detail, so stay tuned!
Great to see that you are saving well and sharing useful information at your early retirement blog :)
Hi Yong Hui,
Thanks for your reply. I guess you are right when talking about retirement number because everyone has different view on what kind of life style they want to have, and everyone has different income level and saving rate.
I have written one article on the importance of define your own enough talking about this topic, I believe it is very important to define how much do we need to retire at the life style we want to have. The calculation became complicated when we need the specific number because of so many variable like investment return, inflation, accidental expense or just lack of planning.
Anyway, I will be waiting for your next article on “How much you need to retire” to gain some insight on it.
See you soon.
/Kian Hwee
Hi Kian Hwee,
The latest article on “How much do I need to retire” is out, you can check it out here https://yonghui.sg/how-much-do-i-need-to-retire/1131