One of our community members asked a question on retirement planning that got us thinking, “How do I know if I am ready to retire?”. We have pulled out some of the suggestions from other fellow community members and created a checklist to help get you started!
1. Decide Your Age Of Retirement
Before you can even think about your plans for retirement and what you would like to do, identify the ideal and most realistic age for your retirement. Although the actual age of retirement is 62, most Singaporeans set retirement at the age of 65 because CPF payouts are given at that age. We may not like to talk about this but as we get older, health problem starts to set in. We have assumed 73 to be the maximum age we have in good health.
| Retirement Age | Average Number Of Years in Good Health | Years To REALLY Enjoy Retirement |
|---|---|---|
| 50 | 74 | 24 |
| 55 | 19 | |
| 62 | 12 | |
| 67 | 7 |
Don’t limit yourself to retiring at 62! Instead, consider re-employment where you will be given the opportunity to work for another 5 years to the age of 67. By doing so, you continue to supplement your income and earn additional medical benefits.
2. Predict Your Future Expenses
This is the fun part, identifying the lifestyle you would like to live. Is it your dream to travel the world and go on regular holidays or do you want to have a nice quiet life and spend time with your friends?
Now that you have decided on your ideal lifestyle, estimate the monthly expenses to sustain such lifestyles and start saving towards that annually.
In a related article on retirement, we estimated $600,000 to be the amount needed to retire at the age of 62. Assuming you start saving at the age of 25, you will have to save $1,361 every month bringing that up to $16,332 annually. Now if you keep that up for 37 years, you will hit $600,000!
Apart from that, you will also have to think about the expenses you might be spending on. Many experts use the lazy way to estimate expenses by assuming 70% of your current income is what you will be spending, it is best to do the math.
The brings me to the most important formula that we can use for retirement planning: FV=PV (1+ I) ^ N.
This helps you calculate how much you would need or want for retirement using the amount you are currently investing, your interest returns, and a number of years left before retirement.
| Formula | Definition |
|---|---|
| Future Value (FV) | The amount you would want to spend or have during retirement |
| Present Value (PV) | Current sum of money that is being invested. Does not include any assets that has no returns. |
| Interest Rate (I) | Most basic form is CPF with interest of 4-5% High risk=high returns! If you want a high return look for investments with high interest rates |
| Number Of Years (N) | Represent number of years left BEFORE retirement. |
Read also: How Much Singaporeans Need To Save Now To Retire At 55 or 62 Years Old
4. Identify Sources Of Funding
Knowing that we need to save a large sum we need to identify sources of funding that will help us save money before or during retirement.
As mentioned above, your CPF retirement fund is your most basic form of savings that you will have. If you have the Basic Retirement Sum (BRS) of $83,000 in your account you will receive monthly payouts of $700-$800. If you happen to have a larger sum in your CPF account, you will be able to have larger payouts:
| CPF | Total Savings | Monthly Payout |
|---|---|---|
| Basic Retirement Sum (BRS) | $83,000 | $700-$800 |
| Full Retirement Sum (FRS) | $166,000 | $1,280-$1,380 |
| Enhanced Retirement Sum (ERS) | $249,000 | $1,860-$2,000 |
To further supplement your retirement, consider investing in STI ETF and REITs to improve your financial portfolio and to increase your passive income which will allow you to earn some money without having to put in a lot of work.
Here are some ways to earn passive income:
With this simple checklist, you can set a clear goal for your retirement. We said it before and we will say it again “The best time to plant a tree was 20 years ago. The second best time is now.” Join a community where you can expand your financial knowledge and gain insights into investing, saving and a lot more!
