Retirement planning is something that many young families neglect or put on hold as financial resources tend to channel into the immediate need of raising a young child. But as we all know, this can prove to be detrimental in the long run, when age catches up and you find yourself in an unfavourable position to retire to pursue other things in life.
In Singapore, the official retirement age is 62. However, CPF monthly payouts only kick in at the age of 65. So if you plan to retire at the age of 62 or earlier, you will have to plan ahead.
Start as early as possible
The earlier you start planning for retirement, the more time you have to compound your money put aside. Supposing you are like the average Singaporean who requires about $1,200 per month when you retire, you will need $14,400 for every year after you retire. And this is not taking in account inflation!
So if you retire at the age of 62, you will need $43,200 to sustain you for the next 3 years before you can tap into your CPF payouts at 65. And if you plan to retire any earlier, say at the age of 55, you will need to have $115,200 set aside. This is assuming that your children are all grown up and working by then and does not require any financial support from you. We also assume that you are leading an average retirement lifestyle, without extra frills or extravagant holidays.
Make your retirement savings work for you
Building your retirement stash is not just about saving diligently. It is also about growing your retirement portfolio. In Singapore, many families recognise the need to make their money work for them, but not every family has the resources to do so adequately. Having said so, many young families do at least have insurance policies that not only protect, but also have a savings component in the form of endowment plans or investment-linked policies (ILPs).
On top of that, families can look into transferring CPF Ordinary Account funds into the CPF Special Account, since the former grows at just 3.5%, while the latter grows at 5% for the first $20,000 and 2.5% to 4% for the amount exceeding.
Many young couples can also invest in index funds or equities, as a safer alternative to stock investing if they are not investment-savvy. For the risk-adverse, fixed deposits is one way to grow your money, even though its returns are often below inflation rates. And lastly, many Asian families have aspirations to purchase a second property not only to realise potential upside in the long run, but to possibly pass on to their children some day.
Repay home loans using cash
Many families rely on their CPF monies to pay their housing loans. However, money in your CPF account is really meant to support your retirement in future. What?s more, money in the CPF Ordinary Account earns an interest of 3.5% per annum, and money in the Special Account earns more, which is not bad considering it is completely risk-free, and does not requiring any monitoring or transaction fees, as opposed to investing through financial institutions. By paying with cash instead of CPF, you will likely be more prudent with your spending.
Diversify
There are many ways to save or grow your retirement stash. For better retirement planning, actively pursue more than one saving or investment paths to reap the many benefits of diversifying. If you are in your 20s and 30s, you can afford to take on bigger investment risks, as compared to a couple in the 40s, who will have lesser recovery time should their investment falter. Furthermore, diversifying will give you greater flexibility when you finally need to pull money out.
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