Are you planning your retirement in Singapore? Building a retirement fund requires one to save enough money to pay your bills and continue living comfortably when you are no longer drawing an income. The thought of it may be daunting; it can feel like an impossible mission. But with early planning, building up your nest egg is more discipline than difficult.
The process of building a retirement fund typically involves a combination of consistent saving and long-term investments, but saving and investing for your retirement can look pretty different during your twenties versus your forties.
Building a retirement fund requires more certainty in your financial planning and less risk-taking. But first, you need to figure out how much you need in order to set a goal.
Setting up a retirement goal requires you to find out how much income you need when you have stopped working. To get an indication of this, use the following questions to help you:
● At what age do you plan to retire?
● How many years do you plan to be in retirement?
● What is your desired monthly retirement income?
One possible method could be using 70% of your last-drawn salary to find out how much you need each month1. If not, you can use an absolute amount you have in mind, taking into consideration the type of lifestyle you will lead during retirement.
First, figure out the amount you need annually before multiplying it by the number of years in retirement. For instance, if you need S$4,000 a month and plan to be in retirement for 25 years, the amount will be S$4,000 X 12 X 25 = S$1.2 million
Remember that this is only an indicative amount, and does not take into account your current liabilities, assets, and inflation rate. It is advised that you work with a financial consultant for a more accurate assessment.
While you can definitely save your way to a comfortable retirement, but is not the smartest way to do it. Why?
Saving your money in a normal savings account actually erodes its value due to inflation. There are many other better alternatives. More importantly, you want your money to work harder for you, which includes taking a certain amount of risk for higher potential returns. But a retirement fund needs certainty as well - you can't risk losing your savings because you need it as a stable income. So how can one balance between the need for growth and certainty of returns when building a retirement fund?
The key lies in considering these 6 factors:
Your risk appetite would change according to your commitments and goals at different points of your life. Generally, the younger you are, the more risks you could afford to take. This is because you would have fewer commitments at a younger age and more time on your hands to recover possible losses should you take a higher risk in your investments.
With that said, every individual has different life trajectories, and you should always assess your risk appetite depending on your lifestyle and goals before looking into building a retirement fund.
There are a variety of solutions that fits in with your financial needs at different life stages where you have different priorities and levels of risk appetite. A savings insurance plan provides a slow but potential growth of your wealth with relatively lower risks, whereas an investment-linked plan allows someone who is more investment savvy to take some risks to achieve potentially faster wealth accumulation.
Generally, a bigger portion of your retirement portfolio can be apportioned for higher-risk investments if you start in your twenties. As you progress nearer towards the retirement years, your portfolio should increasingly focus on investments/savings that has lower risk and provide stable returns.
You can consider allocating your investments into products suitable for different investment horizons (short, medium, and longer term) depending on your risk appetite. For example, a short-term investment can include some riskier assets such as single equities or investing in a fast-growing speciality fund. You should always keep in mind that with higher expected returns comes higher risks.
For longer term investments, you can consider a retirement investment-linked plan which utilises dollar cost averaging to accumulate wealth for your retirement fund.
is designed to optimise your chips on hand – be it time, the premium amount you can spare, as well as the option of free fund switching amongst its suite of curated funds – to help you get to your target retirement goal2.
Remember we said that if you choose to save your way to retirement by putting cash in a savings account, the value of your money will be eroded due to inflation?
While the average inflation rate in Singapore from 1962 until 2020 is 2.51%3, the rates are fluctuating over the years, with the last 4 years seeing inflation rates between -0.52% to -0.57%4. With the average minimum interest of a bank's savings account at just 0.1%5, you are definitely losing purchasing power over time.
So in order to ensure that the money you have now preserve its purchasing power during your retirement years, you need to choose savings or investments that give you a higher return.
Like how you shouldn’t put all your eggs in one basket, it is a better idea to have diversification in your retirement fund portfolio. Diversification not only helps you manage the risk of your investments, but it also involves re-balancing your portfolio to maintain the risk levels over time as different assets react differently to the same economic event.
And with a suitable insurance plan, you are able to protect the capital you’ve amassed from being wiped out by any of life’s unexpected circumstances like retrenchment, critical illnesses, death, loss of independence, etc.
Building a retirement sum is a long process - a study by Manulife shows that most Singaporeans start planning for retirement only around age 386. This may also be the reason why only two out of five Singaporeans feel confident about retiring comfortably.
By starting late, you may need to set aside a larger amount to get to where you want to be, but there are certainly options available that can fit into your budget without compromising too much on your lifestyle and helps in building up a retirement fund. You can work with a financial consultant to help you take a look at your current commitments to make saving for your retirement a sustainable habit and explore other available products if needed.
Many people neglect the payout mode when they do their retirement planning. With investments, you may not have the liquidity you need if you need to lock them in for a fixed number of years.
Thus, you need to consider when you will need the money and whether you have quick access to them. Take for instance, certain insurance savings plans require you to lock in the amount for a fixed number of years before you get a potential lump sum payout, whereas others may provide a yearly guaranteed coupon which you can consider using for a holiday or two.
Speak to your financial consultant to find out more about the that can give you a potential stream of cash.
Planning for your retirement can look like a daunting process - this is why you can achieve a stress-free experience with the help of a financial consultant. Keep in mind that there are no hard and fast formulas to how you build your retirement funds but keeping the above factors in mind will definitely help you work successfully with a financial consultant and .
These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs.
Your investments are subject to investment risks, and you may lose the principal amount invested. The performance of the Fund(s) is not guaranteed. The unit prices and any income accruing to it may fall as well as rise. The Fund Managers shall have the absolute discretion to determine whether a distribution is to be made in respect of the Fund(s) as well as the rate and frequency of distributions to be made. The intention of the Fund Managers to make the distribution and the distribution yield for the Fund(s) is not guaranteed, and the Fund Managers may review the distribution policy depending on prevailing market conditions. Distributions may be made out of income, net capital gains and/or capital. Past distribution yields and payments are not necessarily indicative of future distribution yields and payments. Any payment of distributions by the Fund(s) may result in an immediate decrease in the net asset value per unit. You should read the prospectus and the product highlights sheet and seek financial advice before deciding whether to purchase units in the Fund(s). A copy of the prospectus and the product highlights sheet can be obtained from a Manulife Financial Consultant or its Appointed Distributors.
This advertisement is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.
These policies are protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
We recommend that you seek advice from a Manulife Financial Consultant or its Appointed Distributors before making a commitment to purchase a policy.
Information is correct as of 23 August 2021
2 Dependable on how the investments performed throughout the policy term, whether basic premiums are paid on time and full; whether withdrawals are made; or whether dividends are withdrawn from invested funds
4 Inflation rate (2015 – 2019) https://www.statista.com/statistics/379423/inflation-rate-in-singapore/