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Your dream retirement is not so out of reach when you start your planning early

Retirement planning is more important than ever in uncertain economic times. As with all forms of savings, starting as early as possible enables you to take advantage of compound interest to reach your goal in a more efficient way. You can enjoy compound interest1 from any type of savings so long as you keep the interest gained within your saving vehicle. The earlier you start accumulating, the earlier you can reach your goals.
 

How compound interest works to make your money grow

Compound interest is interest that is charged not just based on the principal sum invested, but also on any interest that has been accumulated over time. As more and more interest accumulates over time, the growth of the principal sum accelerates.

For example, suppose you deposit S$1,000 into a savings vehicle that might offer you a non-guaranteed interest rate of 3% a year.

After one year, you would have earned S$30 (S$1,000 x 3%) worth of interest.

In the second year, you would earn an interest not just on your initial deposit of S$1,000, but also on the S$30 interest. This brings the interest earned this round to a new total of S$30.90 (S$1,030 x 3%).

Over time, the effects of compounding interest start to make a considerable impact on your wealth accumulation. If you leave your initial sum of S$1,000 savings untouched in this account over a period of 20 years, it will grow to S$1,860, almost double your initial deposit.

Therefore, in order to reach a financial goal, even if the amount you start with is not substantial, starting early and giving it enough time to grow is one way to go. 

How much do we need to retire comfortably in Singapore?

In a recent survey, about 51% of the Singaporeans polled believed they would need more than S$5,000 a month in order to retire comfortably.

In order to enjoy S$5,000 a month after retiring at, say, 65, one would need to factor in a retirement nest egg of S$1,500,000 to last to the age of 90. How much you need to set aside in order to reach the goal depends on your age and how many years you have left till retirement.

With an earlier start, one would need to set aside less per month than with a later start. The longer timeframe helps you gain more compounding interest, to make your savings work harder and accumulate more value over time. Given the same retirement goals, starting earlier grants you the ability get there by putting aside less money each month.

When preparing for retirement, it is also important to have insurance protection at the same time as you grow your wealth. The changing economic landscape and job instability such as retrenchment during your income earning years can knock you off track despite the best of plans. Health issues and the need for care arise with age, and a single health-related incident can wipe out all your retirement savings if you are not well insured.

Much as harnessing the power of compounding interest helps to accelerate the growth of your retirement savings, you may want to consider protecting what you save too.  A retirement insurance policy offers savings and protection at the same time so you can have peace of mind that your wealth is protected on your way towards your retirement goals. Some are even designed to protect you along the way to retirement, such as providing retrenchment benefits, and the freedom to put your premium payment on hold in times of difficulty, without setting you back from your retirement goals.

Case study: Starting early

Nora is a 30-year-old executive who had decided to start preparing for retirement. Having put in endless hours at work for a couple of years, she realized something had to be done if she wanted to slow down and enjoy life a little in her later years. She decided on the retirement age of 65, and reckoned she needs at least a guaranteed S$1,000 a month to last till the age of 85. That comes to a grand total of S$240,000.

From her take-home salary at the moment, she was able to set aside approximately S$500 a month. Having considered the available options, she decides to sign up for a RetireReady Plus II insurance plan, with a premium payment period of 20 years.

During the 20 years of premium payment, Nora is protected for retrenchment with the Retrenchment Payout Benefit. This benefit gives her a lump sum cash payout2 to tide her over in the event of her retrenchment. And when the going gets tough or if she decides to take a year off to travel during this time, she can pause her premium payment3 temporarily while the policy stays in force, diligently accumulating in value and protecting what she has saved.

Between the age of 50 and 65, Nora would then have completed the premium payment phase, and can sit back while her retirement fund continues to accumulate in value.

When she retires at 65, she will receive a guaranteed monthly income of S$1,000 for 20 years as planned. What is more, a non-guaranteed additional monthly income and a non-guaranteed cash bonus awaits her, ensuring a more comfortable retirement. She will also be protected in case of Loss of Independence4 (LOI), which, depending on the severity of the LOI experienced as per the LOI definition in the policy contract, may double the guaranteed monthly income amount to help support her needs.

Setting aside a monthly amount of approximately S$500 as premium payment for 20 years, Nora was able to secure more than a retirement fund, but also guaranteed monthly income and protection from the start to her later years.

Case study: A later start

At 45 years old, Raymond has the same retirement goals as Nora.

To forge ahead with his retirement plans, he knew he had to get around to putting his savings to work. He sets aside approximately S$1,200 per month, with a premium payment period of 10 years with RetireReady Plus II.

During the 10 years of premium payment, Raymond is protected for retrenchment with the Retrenchment Payout Benefit. This benefit gives him a lump sum cash payout2 to tide him over in the event of his retrenchment. And when emergencies arise, or if he decides to take a year off during this time, he can pause his premium payment3 temporarily while the policy stays in force, diligently accumulating in value and protecting what he has saved.

Between the age of 55 and 65, Raymond would then have completed the premium payment phase, and can sit back while his retirement fund continues to accumulate in value.

When he retires at 65, he will receive a guaranteed monthly income of S$1,000 for 20 years as planned. What is more, a non-guaranteed additional monthly income and a non-guaranteed cash bonus awaits him, ensuring a more comfortable retirement. He will also be protected in case of Loss of Independence4 (LOI), which, depending on the severity of the LOI experienced as per the LOI definition in the policy contract, may double the guaranteed monthly income amount to help support his needs.

Setting aside a monthly amount of approximately S$1,200 for 10 years, Raymond was able to secure more than a retirement fund, but guaranteed monthly income and protection from the start to his later years. While he started later than Nora and had to chase against time, RetireReady Plus II is designed to help him achieve his retirement goals.

Enjoying an early retirement does not mean having to save huge sums of money so long as you start as soon as you can. Manulife's RetireReady Plus II is an insurance plan for retirement that can be customized according to your needs and offers an option to receive a guaranteed monthly income5 for life. If you’re interested in learning about how RetireReady Plus II can help you with your retirement needs, speak to one of our financial consultants today.

 

Disclaimer:


RetireReady Plus II is 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. This article 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.


This policy is 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 web-sites (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 22 October 2020.

Speak to a financial consultant today!

 

Content Sources

1. https://www.investopedia.com/terms/c/compoundinterest.asp

2. An amount equivalent 40% of the total annual mode premium

3. Not applicable for single premium policy. T&Cs apply.

4. If the life insured is not able to perform any 2 out of 6 Activities of Daily Living, the Loss of Independence income benefit payable is equivalent to 50% of the Guaranteed Monthly Income, capped at a maximum of S$2,000 per month per policy. If the life insured is not able to perform at least 3 out of 6 Activities of Daily Living or diagnosed with loss of speech, loss of hearing or major head trauma, the Loss of Independence income benefit payable is equivalent to 100% of the Guaranteed Monthly Income, capped at a maximum of S$4,000 per month per policy

5. The Guaranteed Monthly Income (GMI), less any policy debt, will start one month after the policy anniversary immediately after the life insured reaches the selected retirement age and to the end of his/her selected income payout period.


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