Retirement planning for Millennials

By Lorna Tan

NAV TL;DR

If you don’t have time to read through the whole article, you can check out our short version below.

• Success in financial planning usually comes from making suitable big financial decisions compared with focusing solely on small expenses.
• It is prudent to simultaneously plan for long-term goals alongside short- and medium-term objectives.

Retirement may seem very distant and daunting for millennials in their late 20s and 30s who typically have more pressing goals like annual vacations, getting married, and buying their first home.

But ask any retiree on how prepared they are for their golden years, and most would likely wish that they could give their younger selves financial advice to plan simultaneously for their long-term goals alongside their short- and medium-term objectives.

Don’t blame the coffee and avocado sandwiches

Much has been said about cutting back on coffee-drinking and avocado toast-eating habits. The idea is to reduce discretionary spend so as to build savings and investments, to achieve a comfortable retirement.

However, focusing on your $7-lattes might divert much-needed attention away from the bigger decisions. This is because the smaller transactions would only improve your financial situation marginally and would not secure your retirement on their own. Other small financial decisions include reducing the incidence of fine-dining or doing self-care instead of buying a spa package.

So, while small expenses do add up over time, success in financial planning usually comes from making suitable big financial decisions compared with focusing solely on small decisions. This is because bigger expenses impact your savings efforts more and they will have a more significant cumulative effect on your nest egg.

For instance, your home is likely a big-ticket item that requires a huge financial outlay. So, opting for a smaller affordable home can mean that you can contribute more savings to your war chest to invest for the future.

Statistics indicate that in Singapore, the average homeowner aged 50 & above has about 60% of their wealth locked in their property. So, avoid the undesirable situation of spending so much on your home that you are too stretched to fund other lifestyle expenses and your golden years.

Having a holistic financial plan (you can set up one with the digital tool DBS NAV Planner) will give greater clarity on the inter-relatedness in your decision making so you can take advantage of big and small transactions to fulfil your objectives. You can still have your avocado toast with latte, and eat it!

Here are 5 retirement planning tips for millennials:

1. Pay yourself first

Your income (from working) is a very important component. The higher it is, the faster you can save to build emergency cash of at least 3 to 6 months, before investing your surplus cash flows to make your money work harder for you.

The ‘pay yourself first’ approach helps you save a pre-determined amount once your monthly paycheck comes, before you start spending it. A related strategy is to set up a realistic budget with spending targets to curb unnecessary spend to grow your savings.

Another form of forced savings is your Central Provident Fund (CPF) accounts, as a certain portion of your pay is contributed there. Understanding how to maximise CPF schemes and leverage the interest rates go a long way in retirement planning, for example by making the maximum contribution through top-ups.

2. Get adequate protection

Having adequate insurance cover when you are younger ensures insurability, affordability of premiums and helps to cushion the cost of treatment without having to dig into your savings. While you do not need to have insurance for everything, it is prudent to figure out the things that could set back your financial situation or derail your financial goals.



To help you decide what insurance you need, make a list of the risks or events that concern you. Assess the likelihood of the event happening and the financial loss you may suffer if so. Consider how you would cover the financial loss. For example, large hospital bills or a loss of income due to the inability to work while recuperating from a critical illness, could set back your retirement goals if you don't have savings or insurance to cover them.

3. Building passive income flows

When you retire, the focus shifts from accumulating wealth to that of decumulation, which is the conversion of your assets to income streams to fund your expenses. Yet, most people do not know how to do this optimally.

As such, it is important to consider having a sound decumulation plan and start building passive income flows to fund your future retirement needs and wants. Examples of these income sources include CPF LIFE payouts, Supplementary Retirement Scheme withdrawals, bond coupon payments, rental, insurance, stock dividends, investments, and so on.

4. Retirement income insurance

One decumulation solution is receiving payouts from a retirement income insurance plan. According to the Life Insurance Association, this solution has grown in popularity among Singaporeans as an avenue to supplement their retirement income. It typically offers a combination of fixed and variable payouts over a specified time or for life. The premium payment may be paid in one lumpsum or over a limited period. With Singaporeans living longer, some insurers are offering policyholders increasing flexibility in their retirement income insurance policies (such as RetireSavvy – a fully digital retirement plan). This includes the flexibility to do premium top-ups, defer the retirement age, adjust the income payout period, and customise their retirement payout allocation such as by putting aside part of the proceeds to be paid out in a lump sum upon retirement with the balance as regular income payouts.

The flexibility means that millennials can start with smaller amounts and increase the premiums as their financial situation improves over time. By doing so, it helps to address the “fear” of committing to saving for the “stranger” of their future selves.

5. Commitment to long-term investing

It is never too early to set up a retirement plan. The earlier you start, the longer the time horizon is for your funds to compound and grow. It helps to give you a long-term investing perspective and better understanding of your risk profile and needs, while you are working towards short and mid-term goals like settling down and funding the children’s education. At all times, do not to lose sight of your long-term financial needs.



In addition, knowing that you have time in the market increases your confidence that you should be able to ride out the volatility in the investing environment. You can ignore the noise in the market and minimize adverse knee-jerk reactions.