If you’re currently at the peak of your career or recently became new parents, retiring may seem like a distant dream.
However, we will eventually stop working, whether by choice or by circumstances. This means that retirement planning is an actual “exit plan” and is important to have. Yet, it’s commonly brushed aside due to other priorities.
With a decrease in income (or maybe, zero salary), expenses like bills and spending are still incurred. Time is also a bonus when considering compounding interest!
How do I start planning for retirement?
Has COVID-19 stopped parents in Singapore from retirement planning? Start by doing an honest self-check like a personal financial check-up and work towards finding out if your retirement dreams are feasible.
If you are confused and unsure how to start, here’s my 8-step to help you discover how to attain your retirement goals!
Easy guide to planning for your retirement: 8 simple steps to achieve your goal
It may seem like rocket science with plenty of calculation to be done. With these 8 steps, you can determine how much you need to save and work towards securing a comfortable retirement.
Step 1: Determine retirement age
The first step is to decide how old you wish to retire. This will help you estimate the number of years for which you need to save. Consider your personal goals, health, and financial situation when making this decision. Note that the earlier your dream retirement age, the shorter a period you have to work on accumulating the savings needed.
Jenelle’s retirement planning tips: The retirement age in Singapore is 63 as of June 2022. By 2030, the retirement age will be 65. This means that employees are protected from the possibility where employers may ask them to retire due to age.
Step 2: Estimate life expectancy
Next, estimate your life expectancy. This is instrumental for determining how long your retirement savings need to last over a specific number of years. You’ll also need to take into account factors such as your family’s health history, your desired lifestyle choices, and overall well-being.
Step 3: Calculate retirement income
Calculate your desired retirement income by reviewing your current lifestyle and expenses. Note down expenses such as housing, healthcare, transportation, and leisure activities. Are there other possible expenses that may surface?
Jenelle’s retirement planning tips: My advice to clients who are working towards retiring – aim for a retirement income that is at least 70-80% of your pre-retirement income.
Step 4: Assess current savings and investments
This takes more effort and is an integral information you will need when planning the finances. Evaluate your current savings, investments and any other investment vehicles, such as the Central Provident Fund (CPF) in Singapore. Remember to take into account the rate of return on these financial instruments and review how they will contribute to your pool of retirement savings.
Step 5: Calculate the shortfall and account for Inflation
At this stage, subtract your current retirement savings from the amount required to meet your retirement income and expenses. This will give you an idea of how much additional savings you need to accumulate before retirement.
To set these financial figures against reality, don’t forget the impact of inflation on your retirement savings. Inflation erodes the purchasing power of money over time, so it’s necessary to account for this when calculating the amount required to save. Use a realistic inflation rate to adjust your retirement income needs accordingly.
Step 6: Calculate the required savings amount
Using the information obtained from steps 1 to 5, calculate the amount required to save today. Decide on an investment strategy that aligns with your risk tolerance and time horizon. This may involve investing in stocks, bonds, mutual funds, or other investment vehicles. Reach out to a financial advisor in Singapore, or use retirement planning calculators to obtain a more accurate estimate based on your specific circumstances.
If the calculated savings required seems unattainable, you may need to reassess your retirement goals or consider adjusting your savings plan. This could mean increasing your savings rate, reducing expenses, pushing back your retirement age, or exploring additional investment opportunities to boost your retirement fund.
Step 7: Consider tax implications
Many of my clients often forget this step when calculating how much they need to retire comfortably. Do take into account any tax incentives or benefits available for retirement savings in Singapore. This may include tax relief on CPF contributions, cash top-ups, SRS contributions, or other retirement-focused investment schemes.
Step 8: Monitor and review regularly
After determining the amount required to save today, monitoring and reviewing your retirement plan regularly is vital. This helps ensure that you stay on track as you work towards your retirement goals. Life circumstances and financial goals may change over time; adapting your savings and investment strategy accordingly is part of future planning too.
The best retirement plan in Singapore, is to get started soonest. It is perfectly fine to start small and work progressively towards the required retirement fund. With this guide, I hope you are able to calculate the amount required to save today to retire in Singapore and work towards living out your desired retirement lifestyle. Need help to work out a stress-free retirement plan and gain more clarity amidst the financial jargons and fine prints? Get in touch with me and I’d be happy to get you on track!