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Early Retirement Planning: Why should it start?

When we think about retirement, it is often filled with images of a carefree life, travelling with our spouses, spending happy times with our family and friends, being in the pink of health and staying active. But the reality might be a little further than what we imagine.
Why should retirement planning start as early as possible?

We could be living a little cash-strapped since we will not be earning an income. Our monthly spending will have to be adjusted since we didn't take into account the effects of inflation and our holiday plans may not materialise.


According to the DBS-Manulife Retirement Wellness Study1, a survey conducted to uncover retirement attitudes and expectations in Asia, it was found that Singapore pre-retirees felt less prepared for retirement financially relative to health and social aspects. Similar sentiments are shared by millennials as well, where nearly one-third that responded to the Manulife Investor Sentiment Index (MISI) survey2 expect to retire broke.


There are many reasons to push back the need to save for retirement - having more immediate needs, saving for other things (house, wedding, child's education), using the money to invest, wanting to travel more when you are young. This happens to everyone, but there are compelling reasons for us to start planning for retirement now.

We are living longer

Why should retirement planning start as early as possible?

When it comes to life expectancy, Japan naturally comes to mind. Images of a contented-looking elderly living a peaceful, quiet life in the countryside, being active and eating a healthy diet give us reasons to believe these are reasons for their longevity. But who would have thought Singaporeans are ranked just 2 places behind Japan in global life expectancy?

According to the World Health Organisation, Singapore is ranked fifth in the world3 for average life expectancy, just behind Japan, Korea, Spain and Switzerland. The average life expectancy in Singapore was 83.22 years. In Singapore, women can expect to live for 85.45 years, while the average male expectancy is 81.05 years.

That said, it also means that we need more retirement income to last us through our golden years. With our official retirement age set at 62 years, it means that we need our retirement income to last us for about 23 years.

You can make an estimate of how much you need by using 70% of your current annual income and multiplying it by 23 years.

Did the amount shock you? Maybe it is time to start thinking seriously about your future.

We can't rely entirely on our CPF

If you thought, "Hey I've got my CPF savings to cover me for my retirement income", you may want to think again. There is no doubt that the system of compulsory savings is great as a tool to help Singaporeans save for our retirement. However, if you are planning to only set aside the basic retirement sum of S$93,0004 in 2021, you can only expect a monthly income of S$770-S$830.

Will that be enough for your monthly expenditure? Is that sufficient to support a retirement lifestyle of your dreams?

The good news is that when you start planning early, you've got lots of time to ensure you have a supplementary income that can be used to enhance what you will be getting from your CPF savings. This can come in the form of investment-linked insurance plans or insurance savings plans. The key is to start early so that you can reap the potential benefits when you are ready to retire.

Inflation: our money will be worth less in the future

Many of us who are saving money would most likely keep it in a savings account in a bank. While we know that the interest payments are very minimal, it seems like a 'safe' option - after all, it is not exposed to the dangers of theft or fire. But we may not be aware of the detrimental effects of inflation that can decrease the value of our money sitting in a savings account.

With average inflation in Singapore at just above 2.51% from 1962 until year 20205, you may not feel the pinch of inflation slowly eating into your savings. But with the average interest of a bank's savings account at just 0.1% to 0.8%6, you are indeed losing purchasing power over time. The ultimate impact of this is that the S$50,000 you have today in the bank will probably be only worth around S$34,000 in twenty years. That's a huge loss of your purchasing power, isn't it?

Not only do you need to start saving, you need to do it smartly and identify ways to preserve the value of your money as well.

One way to do this is to make use of investment-linked plans or insurance saving plans that may potentially give you higher-than-inflation returns without taking on too much risk.

Taking care of our dependents as well

As we move towards our retirement years, we would need to think about our dependents and their quality of life after we are gone. While we may imagine our retirement years to be happy, in good health and surrounded by our family, sometimes, life can take a turn for the worse when we least expect.

This could be a sickness that requires a huge amount of money for treatment or expensive long-term care that we didn't plan for, which could place a financial burden on our loved ones. It is thus important to ensure we've got our healthcare expenses covered with the appropriate insurance.

For those who have dependents, you may want to think about leaving them with a sum of money that can help them maintain their quality of life after you have passed on. This can be in the form of a life insurance that you've paid for.

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Take action now - 3 simple steps

With these compelling reasons for you to start planning for your retirement plan early, here are three simple steps for you to take action now.

1. Set up a retirement goal

In order to start planning for your retirement, you need to start with knowing how much you'd need for your retirement. As a general guide, you can use 70% of your annual income and multiply it for 21 years.

For instance, if you are drawing an annual income of S$60,000, you can multiply S$42,000 by 21 years, giving you the total retirement income of S$884,000. You need to also take into consideration the impact of inflation, which would likely come up to a cumulative 20% increase over 2 decades, bringing the total amount to slightly over S$1 million.

Why should retirement planning start as early as possible?

2. Set up a monthly budget

You might be surprised by the amount of money you need; it is common for many of us to underestimate how much we need in our golden years. But if you start early, you've got time on your side. Remember you've still got your CPF savings to help you as well.

Now that you know how much you'd need, you can start setting aside a fixed amount of money per month towards retirement savings. Remember that putting your money in the bank is not the best choice, so be open to using alternative methods to help you save instead.

3. Work with a financial consultant

If you are not sure about the retirement insurance saving plans you have, it is best to discuss with a financial consultant. They will be able to recommend products that are appropriate to your financial goals and aspirations, as well as suited to your risk appetite, so as to better prepare you for your dream retirement.

With more time on your side, saving for retirement early allows you to slowly build your nest egg. But it is never too late to get started on planning for that dream retirement of yours either, and there are many different solutions to get you where you want to be.

Speak with our financial consultant today to help discover the different products Manulife has to help secure your financial future in your retirement years.       

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    Information is correct as of 14 Jan 2021

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