You are young, driven and chasing your dreams. Retirement is probably the last thing on your mind.
However, there is no better time than now to start planning for your golden years, as you have the benefit of a longer runway to let your money grow.
We speak to 3 young Singaporeans who have started taking steps towards achieving their ideal retirement to find out how they are going about it.
1. When did you realise the importance of financial planning?
Aaarti: It was when I was 19, just before I entered university. The realisation came when I found out that half of my salary from my part-time job had to go to something as basic as transport and I was struggling to pay for my expenses. That, plus the fact that I wasn’t receiving pocket money anymore, prompted me to start looking into my finances.
Eugene: I started planning my finances at 28 after speaking to my insurance agent who educated me on what I can do with my CPF and savings. It also helped that I had older friends who shared with me some of the expenses that one will face as you get older.
Kenneth: I only started at 27. I remember reading about someone who saved $100k before he turned 30. I was quite impressed then, considering how I had been working for a year, but was still living pay cheque to pay cheque without any savings. The article motivated me to start saving and planning. I eventually achieved my goal to save $100k after my 30th birthday, even though I missed the target by a couple of months.
2. Has your job and lifestyle influenced your spending habits? If so, how?
Aaarti: I lead a pretty active lifestyle but I try not to spend too much as a result of it. For example, instead of going to the gym, I bought weights from Carousell at a really cheap price and created my own "home gym".
My job involves travelling for conferences. I usually extend my trips since the flight tickets are already sponsored by my company. But even after saving on flight tickets, I still travel on a budget and don't splurge.
Eugene: Being in the advertising industry as an account manager requires me to network to know new people and get new leads. My entertainment and food spending grew significantly after I started in this role.
3. At what age do you plan to retire? How do you envision your retirement lifestyle?
Aaarti: I’m hoping to retire by 50. I want to own a house with land so that I can keep and start an animal rescue home. I hope I can also travel and explore the world when I retire.
I have an investment plan that will mature when I’m 50. I’m glad I purchased it at 20 as the premium was really low. I’m planning to use most of the lump-sum payout for travelling in my golden years and the remainder for the rescue home.
Eugene: I aim to retire by 55. I can imagine myself playing with my grandsons and trying new things.
I began saving towards my goals when I started work at 25. To ensure that my savings beat inflation, I put my savings in a savings plan that has better returns than a normal savings account. When I get the payout at 55, it should provide me with enough money to cover my monthly basic needs till at least age 85.
I am also growing my CPF savings through the CPF Investment Schemes (CPFIS).
Kenneth: I’m not planning to retire in the traditional way. To keep myself active, I will continue working but at a slower pace and take up a consulting or teaching role when I’m around 50. By then, any income will be a plus and not a need.
I’m planning for my retirement income to come from my investments and dividends. Hopefully some rental yield as well if my property investment plans go well.
4. How is CPF part of your retirement plan?
Eugene: I'm tapping on the CPFIS to grow my savings. I keep myself up-to-date on the latest investment trends so that I know which investments are worth my time and money. This way, I can get better returns than the 2.5% interest rate in my OA. With my CPF savings, I’ll join CPF LIFE, which is a life annuity scheme, so that I’ll have a lifelong monthly payout to support me even if I live beyond 85.
Kenneth: I mostly use my CPF savings by leveraging it for housing loans. I took the longest home loan period possible, so that I can reduce my monthly repayments. This keeps more savings in my CPF accounts to earn interest. At the same time, I can enjoy net interest earnings from the difference between the bank loan and CPF interest rates.
It also ensures that the drawdown rates from my OA account is minimal, so that even if I were to be unemployed for 2 years, there would still be more than sufficient funds to service the loan. So anything I get from my CPF savings for retirement is a bonus on top of other retirement savings.
5. Have you or do you plan to save more in your CPF Special Account to grow your retirement savings, i.e. via cash top-ups or transfers?
Eugene: Not at the moment as I need more cash flow currently, I’m getting married in a couple of years' time, so I will need to have my savings in cash or in my OA to buy a house.
But I know it's important for retirement so for now I top up my dad's CPF savings so that he can have a stable income after he fully retires. He doesn't really need the cash right now since he's still employed so we decided to save it in his CPF and earn interest.
In time to come, I do see myself saving more in my CPF accounts to hit the Enhanced Retirement Sum (ERS).
Kenneth: Not yet, but if I do, it’s because I’ll get to enjoy tax relief!
6. What are some saving and spending rules you follow to ensure that you will achieve your retirement goals?
Aaarti: I usually ask myself if it’s a want or need to prevent unnecessary spending. If it’s a want, I always wait for another 2 weeks just to make sure that I really want it instead of making impulsive purchases. This has helped me save a lot of money.
Eugene: I usually keep to a rule of saving at least 30% of my income every month. I also put my money into different areas in order to keep the money growing and be sure that I’ll be financially secure by the time I retire.
Kenneth: My policy has always been to save before I spend so I allocate my budgets according to this, based on my gross salary:
• 40%: Savings + Insurance
• 20%: CPF (retirement planning)
• 10%: Allowance for my parents
• 10%: Travel
• 20%: Discretionary expenses
To motivate myself, I’ve also set down financial milestones to hit, in terms of net worth and salary. For example, I want to hit $500k by 40 and then $1 million by 45.
As our interviewees have shared, it’s never too early to think about retirement. Envisioning your retirement lifestyle today can help you plan ahead as you will have a clearer idea of how much savings you’ll need.
To get started, find out if you are on track to realising your dream retirement with the CPF Retirement Calculator!