People associate retirement planning with, well, something you need to think about when you’re old. I know for sure if I grabbed any one of my friends and asked them if retirement even ever crossed their minds, the answer will be a definite ‘no’.
The whole meaning of ‘planning’ is to start early and pace yourself out. People don’t realise that retirement planning is a big part of their financial planning. It is just as important as you saving for your wedding, a car, a house and saving up for your future kids. If you plan to retire at 55 and die at the average life expectancy of 82 years old, that’s 27 years of unpaid life you’ll have to amass savings for. Not to mention, the medical bills and unforeseen problems that will involve a huge sum of money.
According to SingStat 2016, Singaporeans under 30 spent a monthly average of $4,018, inclusive of education fees, household expenditure and so on. Most people don’t see this huge amount because their parents are paying for their education or they simply have not sat down to properly think about it.
However, the average amount believed to be enough to retire is $376,270. According to a Nielsen survey, 66% of Singaporean retirees wished they had started saving and planning for their retirement earlier.
Why do millennials need to start thinking about their retirement savings early?
The Power Of Compounding Interest
To maximise the potential of your money, the best way is to start early and starting in your 20s is the best way to do that.
Here’s what the benefit of time can give you:
|Starting Age Of Saving/Investing||Returns Per Annum||Monthly Amount Saved/Invested||Savings Accumulated By 60 Years Old|
*Data retrieved from POSB
So, a person who sets aside $1000 every month to save starting from 25 years-old at their first job, compared to someone who starts only 10 years later but puts in the same $1000 every month will save almost $200,000 more by the time they both reach 60 years-old.
Note: The official retirement age in Singapore is 62 years-old.
How To Begin?
Saving is an active, well-planned gesture, and it starts with bearing the right attitude and living more modestly.
1. Cut Down Spending On Trends
Part of living modestly is to not buy all the things you want. Keeping up with the trends can be extremely expensive. Brunches at cafes cost $20 a plate, an outfit can go up to $310 if you want to keep your Adidas and Champions, even taking Grab daily adds up to a lot of money over time.
Have budgeting in mind and always think if there is a more cost-efficient alternative. This mentality can be applied to every situation. For example, when you plan an overseas trip with your friends, see which credit cards get the most discounts when you’re booking flights and hotels. Getting bundle promotion or good cashback through websites like Shopback is a smart way to save money too.
2. Put Your Money Into A Savings Account
Firstly, separating your savings from your spendings is the basic step to control your expenditure.
Leaving your savings in a regular savings account that gives you high-interest rates can help you grow your savings.
According to the cheat sheet we rolled out for the best savings account in 2018, you can get up to 3% interest just by leaving your savings in a savings account.
You can calculate which Savings Account is the best for you with the savings account calculator here.
3. Top Up Your CPF Special Account
Topping up your Special and Medisave Account that guarantees you 4% interest can earn you good compound interest over time if you start early. However, you may not want to empty your entire Ordinary account into your special account if you are planning to use your CPF to pay for an HDB BTO or your children’s future tertiary education fees. For a more in depth breakdown of this, read here.
Further reading: 5 Minutes Guide To CPF
4. Begin Investing
To get even higher returns over time, you can begin investing with as little as $100 in STI ETF, Blue Chips and Robo-advisors.
These investments can give you from 5% to 10% potential returns if you hold on to them for a couple of years. Create a CDP account and set aside money you wish to invest monthly. Remember, you can always start small as long as you’re starting. Read more about monthly investments here.