06 Apr 2021
Your kids are now potty-trained, and talking your ears off about red “water-lemons” (watermelons). Your parents are comfortably retired, secure in the knowledge that you’re there for them.
What about yourself? How can you know if you’ve saved enough for your retirement?
The world’s population is aging, and so is Singapore’s. For retirement to look the way we want, it is probably wiser to have our own retirement stash.
At the current rate that our population is aging, the number of working-age citizens available to support senior citizens will fall from 4.3 in 20181 to 2.4 by 20302. It’s too great a burden to rely on the next generation as a retirement plan.
A good rule of thumb is the replacement rate (or replacement ratio), which is calculated in this way:
Replacement rate = income after you retire / income before you retire
The recommended replacement rate varies from around 60 to 80%.
Whether this is enough will depend on:
Also, remember that what appears adequate now may change over time as a result of inflation.
(Analyse your real-time financial health with the NAV Planner tool.)
If you plan to retire at a certain age and with a certain sum, it’s important to start as early as possible. Calculations published by US financial planning website NerdWallet shows why.
Say you plan to retire at 67 with $1 million, and can grow your money by 4% each year.
And that task gets harder with each passing year.
Many vehicles can take you to the destination of “enough money” for your retirement. But they boil down to savings, investment and insurance. Savings is the safest but slowest route. Make it go faster with cashback bonus schemes, or interest rate bonuses that are earned by taking your transactions into account.
Investing is generally a much faster route over time, if your risk and return are properly managed. Some common vehicles are stocks, bonds, unit trusts, exchange traded funds (ETFs) and regular savings plans (RSPs).
Insurance is the third way you can use to plan for your retirement planning besides savings or investment. In addition to providing higher returns than savings accounts do, insurance is relatively safe.
Most insurance also provides some simple protection (through riders) so that minor incidents will not derail your retirement planning. That said, you should probably not rely totally on these growth-oriented policies for your protection needs.
Browse through protection plans, and health insurance plans if you want coverage to:
But if your main objective is income for your retirement, endowment policies (e.g. SavvySpring – Receive $150 cash reward when you apply by 25 April!) and investment-linked policies (ILPs) can help you with that. Both types of policies provide a payout upon maturity. You also get a choice between policies that offer a lumpsum payout, or regular income stream.
The difference lies in who decides what to invest in. With endowment policies, your insurer decides according to their mandate. With ILPs, you choose which sub-fund to invest in, and can switch between sub-funds for free with some providers.
1 Source: Population.sg https://www.population.sg/articles/are-the-old-age-support-ratio-trends-similar-across-different-working-age-groups
2 Source: Population.sg https://www.population.sg/articles/the-ageing-crisis-that-isnt
Disclaimers and Important Notice This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
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