Retire With S$1 Million – even if you haven’t started to save

April 4, 2010 – 4:07 PM

Start saving early and it could make a world of difference to your retirement plans. Time is your best friend as you will find in this story. Here, we assume five individuals at different stages of their life, from those earning at entry-level, to those close to retirement age. All aim to achieve a monthly income of S$2,500 during their retirement years from age 62 to 82. We also taken into account that the inflation rate stands at 3% per annum, meaning that the general cost of goods and services rises by that amount each year.

Further, we assume that whatever the investors save during their pre-retirement days will earn 8% annually. After they hit the age of 62, we assume that the return on their savings drops to 4% per annum as they take less risk in their investments. This simple illustration does not take into account your other financial needs, such as whether you have planned for your insurance needs (life or term insurance, mortgage insurance, health and hospitalization plans).

If You’re 25
Savings: S$0
Monthly Salary: S$2,500
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: Not Required
What You Need to Save per Month for the next 37 years: S$158.30

Planning for your retirement when you are 25 years old may seem a bit far-fetched. But the benefits of starting early cannot be underestimated. Assuming that a person starts working at 25 with a salary of S$2,500, you would need to save S$158.30 per month to ensure that your retirement income can stand at S$2,500 per month during your retirement days, which we assume will run from the age of 62 all the way to 82. Even with no savings to start with, having a regular savings plan (RSP) may be a good way to start planning. An RSP would ensure that you have the discipline to force yourself to invest – there is little room for excuses! Very often, we may be tempted to use up our savings for a travel trip or to purchase that dream car. And even for those who believe in the merits of investing, they may not have the discipline of investing regularly because they feel it is not the “right” time to invest. This could be especially true when markets are going through a bull run and some may feel that it is too expensive to go into markets. An RSP is a disciplined way to ensure that you will invest no matter markets are up, down or sideways.

If You’re 35
Scenario 1
Savings: S$0
Monthly Salary: S$6,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 30 years
What You Need to Save per Month for the next 27 years: S$666.57

Scenario 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$6,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 30 years
What You Need to Save per Month for the next 27 years: S$620.73

At the age of 35, the monthly salary is assumed to have risen to S$6,000. But being able to afford an expensive lifestyle has meant that there are no savings in the bank account, and now you have a housing loan to deal with. While things do not look very bright, it is not too late. Save S$666.57 per month and you could ensure that you have S$2,500 every month during your retirement days.

If You’re 45
Scenario 1
Savings: S$0
Monthly Salary: S$8,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 20 years
What You Need to Save per Month for the next 17 years: S$1692.34

Scenerio 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$8,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 20 years
What You Need to Save per Month for the next 17 years: S$1582.63

At the age of 45, things will get tougher if no plans have been made yet for retirement. After all, the time horizon till the retirement age of 62 is less than 20 years. Assuming that there are no savings in the savings account, you would need to save S$1692.34 per month. And even with savings of S$40,000, you would still need to save S$1,582.63 per month.

If You’re 55
Scenario 1
Savings: S$0
Monthly Salary: S$10,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
What You Need to Save per Month for the next 7 years: S$5319.54

Scenario 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$10,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
What You Need to Save per Month for the next 7 years: S$4937.02

The lesson is to start early. The later you drag your retirement planning, the higher the cost. You would need to save over S$5,000 per month (over half your salary) from the age of 55 to 62 to ensure that you have S$2,500 per month during your retirement days.

By gNoel | Posted in Uncategorized | Comments (0)

QUESTION: I am in my early 20s & am single. Should I start financial planning now or wait till I am married before planning?

January 1, 2010 – 11:58 AM

It is never too early to start learning about personal financial planning! At your age, one particular aspect of financial planning that you will find very useful will be that of money management.

Many people in their 20s have the tendency to be overwhelmed by their newfound financial independence. They may start craving for a car, a condominium, designer clothes, overseas trips and to party as much as they like. They may end up spending too easily. There is also a real danger of them getting into debts by over-using credit cards, rolling over credit card debts and taking out personal loans to fund their indulgences.

Money-management skills such as learning to prioritize one’s needs and wants, budgeting and learning to calculate and monitor one’s monthly cash flow can help them to better appreciate the importance of not spending beyond one’s means and to save for the rainy days.

You will still require some form of insurance planning even in your 20s. If you are not married or if your parents or siblings are not financially dependent on you, there is very little need for you to buy life insurance at this point. However, you should have some form of critical illness, disability and hospitalization coverage as illnesses and accidents can strike at any point in life. The good thing about buying insurance when you are young and healthy is that the premium will be relatively lower. Do note however that for certain policies such as some medical expense insurance plans, the premium may be increased as you grow older.

At this age, you should also start looking into saving and investing wisely. If you do not already have sufficient savings in your bank account, it is critical that you start building up your emergency fund immediately. As a guide, it is advisable to have savings equivalent to 3 to 6 times your monthly income in case of emergencies.

Although it is likely that a bigger part of your savings will be set aside for more short term needs such as marriage or buying a flat, you should not overlook the importance of saving and investing for the long term as the effect of compounding works best the earlier you get started.

Start by investing for the longer term whatever amount that is left behind after setting aside enough for the daily expenses and short term needs. It does not matter if you only have a very small amount to begin with but what’s more important is taking that very first step in planning for one’s future.

As your financial needs will change over time, it is important that the financial plan that you are starting with can be flexible enough to cater to changing needs as you advance through the various life stages. You should also review your financial portfolio on a regular basis to ensure that the financial strategies are still in line with your needs at any particular stage of your life. If you are not sure how to do this on your own, do seek professional advice.

Article from IM$avvy.

By gNoel | Posted in General Info | Comments (0)

Revised Central Provident Fund (CPF) Interest Rates from December 31, 2010

December 12, 2009 – 8:00 PM

Percentage sign on cubes of various sizesTo help CPF members cope with the current economic climate, 

  • A 4% floor rate for interest earned on Special & Medisave Accounts (SMA) monies & Retirement Account (RA) monies will extend to December 31, 2010. 
  • The 2.5% floor rate will apply for all CPF accounts after December 31, 2010. 
  • An additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA). The additional interest received on the OA will go into the member’s SA or RA to enhance his retirement savings. If the member is above 55 years old and participates in the CPF LIFE scheme, the additional 1% interest will also apply to his annuity premium, less annuity payouts already made. The additional interest earned on the member’s CPF LIFE annuity monies will be paid into his RA. 

Read the Press Release from CPF here. 

Oh boy, what am I to do with this governmental implementation. At least the rates are better than prevailing bank deposit account rates. Time to start looking elsewhere for opportunities to make your retirement fund grow!

By gNoel | Posted in CPF, General Info | Tagged , | Comments (0)

Hello world!

November 12, 2009 – 12:55 AM

Welcome to WordPress. This is your first post. Edit or delete it, then start blogging!

By gNoel | Posted in Uncategorized | Comments (0)
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