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For many millennials, retirement can seem incredibly distant. Some of us may have just started our careers, and so Singapore’s current retirement age of 62 might as well be a lifetime away. I spoke to some people to get their thoughts on retirement and if they’ve started saving yet.
The youngest person I spoke to was Bob, a 24-year-old software developer. “I’ve started saving in general, but haven’t really thought about saving specifically for retirement,” he said. When asked why, he said that he’d rather save up for a house first.
Sarah, a 27-year-old product manager, agreed with Bob. She said she knows that she should be thinking about it, but, “There are too many immediate goals for me to think about now. Saving for my future house is my top priority.”
Family responsibilities are a priority for 25-year-old UX designer Charlie, who hasn’t had a chance to start saving yet because he is helping his family with their financial commitments.
All three of them acknowledged the importance of planning for retirement, but other priorities are getting in the way. None of them have started saving specifically for retirement, but they have expressed a desire to start doing so as soon as possible.
Failing to make adequate plans can result in some disadvantages that you might regret with age.
Starting to save later in your life could result in insufficient funds to tide you through your retirement years. Let’s take a look at the estimated expenses you will need after retirement.
|Housing and utilities||200|
Source: Channel NewsAsia
These figures make for a fairly modest lifestyle, but can definitely increase depending on the level of luxury you prefer to have during your retirement.
The life expectancy of Singaporeans is 82.6 years. That is 20 years more than the retirement age, so you will need a minimum of (1,400 x 12) x 20 to live comfortably, which comes up to S$336,000.
If you’re currently 27 years old and have a take-home salary of S$3,200/month, you will have 35 years to save S$336,000. This is assuming you save 25% of your salary, which is S$800/month.
The figure you have to save each month will progressively increase the longer you delay, so it’s best to start as early as you can. Of course, the calculations above are not taking into account the amount that you will receive through CPF LIFE, which will help during your golden years but shouldn’t be your only source.
Another big factor that must not be ignored is inflation. The figure above may be enough for a retiree today, but in 35 years, that same amount is going to be worth a lot less. If you spend $500 on food every month today, factoring in a modest 1.5% inflation rate would mean you will need $850 in the future instead.
The later you start saving, the more difficult it’ll be for you to keep up with inflation since you’ll be working with a smaller savings balance after you retire.
Furthermore, in the unfortunate event that inflation spikes in the years just before your retirement, the dollar value of your savings will decrease even further. The only way to avoid this consequence is to plan to hedge against inflation by investing in instruments that provide returns that are higher than the projected inflation rate.
Being forced into a situation where you aren’t able to retire is unpleasant. Savings that are insufficient to support your monthly expenses would mean the need to continue working to make ends meet.
Unfortunately, with globalisation and technology, senior citizens in a few decades might find it tougher to get a job as compared to the present.
In Asia, the concept of filial piety is quite widespread. Children are often expected to – and do – take care of their parents in their old age. However, your children are not “recession-proof”, and they are not immune to unpredictable events such as retrenchment.
Having sufficient funds in your retirement years empowers you to be independent, and your children will have less to worry about financially. This will allow them to plan for their own retirement more comfortably.
Retirement planning should be a key consideration from the moment you start working. It’s hard to predict what will happen in the future, but being prepared now can prevent regrets you might have in your retirement years.
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