Most of us hope to reach a point in life when we can stop working if we want to and still maintain the standard of living we’ve come to expect and provide for our loved ones.
When we reach retirement age, we transfer our attention from saving for and investing for the future to decumulation, the process of using our assets to pay for our living expenditures. We want to do this as efficiently as possible so that we don’t deplete our savings too quickly.
On the other hand, we want to be able to reward ourselves for our hard work and careful financial preparation with a decent standard of living. Additionally, some of us may wish to provide a financial legacy to our loved ones.
To help you retire comfortably, here are five suggestions.
1. Plan for retirement income and expenditures
As part of our retirement preparations, it is wise to make a thorough prediction of our income flows and expenses. Separate our anticipated costs into necessities and luxuries, and assess the two categories on a regular basis alongside our assets and debts. As a result, we will know with greater certainty when we have reached financial independence.
We expect to spend more on travel during our first decade or so of retirement since we want to explore the world while we’re still healthy and able to enjoy it. Some of us could want to launch a company, and that calls for investment funds.
In addition, plan for the possibility of needing long-term care, incapacity, or hospitalization in retirement by purchasing sufficient medical insurance.
Here are some inquiries to ponder:
How much money do you expect to come in to cover all of your demands and needs?
How long will they last, and when do they start?
For those who have been paying into the Supplemental Retirement Scheme (SRS), for instance, they will be able to begin making penalty-free withdrawals from their SRS account once they reach the age of 62. Payments can be made over a period of ten years.
Find out how soon you can expect benefits from your endowment insurance plans and annuity, and for how long.
2. Establish Guaranteed and Non-Guaranteed Income
The accumulation of passive income streams prior to retirement is a decumulation strategy. Find out how much of it is guaranteed and how much is not. You may prefer a larger share of your passive income flows to be guaranteed and/or trustworthy if you are really risk averse so that you can meet all of your obligations and satisfy at least part of your desires.
Income that is guaranteed to be received on a regular basis includes payments from our Central Provident Fund (CPF), withdrawals from our CPF accounts, savings in our Singapore Retirement System (SRS), payments from an annuity or retirement income insurance, and the interest earned on cash and near-cash assets such as Singapore Savings Bonds, certain bonds, money market funds, index funds, and so on.
While rent collected from tenants may seem like a sure thing, keep in mind that it depends on the market and the availability of properties.
Equity, some bonds, investment-linked insurance plans, and alternative assets like commodities, private equity funds, and so on are all examples of non-guaranteed income sources that tend to be more volatile but potentially give greater rates.
3. Maximize CPF funds
Our CPF account is the backbone of our retirement savings and the fixed-income portion of our overall investment portfolio. CPF savings are a low-hanging fruit because of the great and risk-free return rates they offer.
For those 55 and up, the first S$30,000 in your CPF accounts earns 6% pa (up to S$20,000 from the Ordinary Account) and the next S$30,000 earns 5% pa (up to S$20,000 from the Ordinary Account). There is a 4% annual interest rate on SA and MA balances, and a 2.5% annual interest rate on OA balances.
If you’re under 55 years old, you can earn an extra 1% interest, for a total of 5%, on the first S$60,000 of your combined CPF holdings (up to S$20,000 from Ordinary Account). Each year, on January 1st, we are awarded with the previous 12 months’ worth of CPF interest on our OA, SA, MA, and RA.
Members of the Central Provident Fund (CPF) are encouraged to make annual contributions to their CPF SA or RA in January rather than December so that they can begin earning interest and taking advantage of compounding sooner. In a decade, you may add an extra 20 percent to the interest you earn on your investments if you do this.
Note that the government will match your contributions to your RA, up to a maximum of S$600 per year, if you qualify for the Matched Retirement Savings Scheme. That’s up to S$3,000 spread out throughout the period of five years, 2023–2028.
In order to make the most of the risk-free interest in my CPF accounts and boost your monthly CPF LIFE payouts, you can make some top-ups in January.
Members of the Central Provident Fund (CPF) may seek to invest their CPF funds via the CPF Investment Scheme in the hopes of earning higher returns. Make sure you’ve done your research and fully grasp the nature of the investment, as well as the costs and any downsides. Your CPF funds will continue to earn competitive interest rates even if you do nothing with them.
4. Invest in the Supplemental Retirement Scheme (SRS)
You can get a break on your taxes by putting your savings in an SRS, and your money will go further if you invest it. After all, it earns a meager 0.05% each year if you just let it sit there doing nothing.
You can postpone the payment of taxes that would otherwise be due at a higher rate during your highest earning years by enrolling in SRS. When you retire, your income is likely to be significantly lower, putting you in a lower tax rate.
For Singapore citizens and PRs, the annual SRS contribution ceiling is S$15,300, whereas the corresponding figure for non-citizens is S$35,700. Among the many investment options available with SRS funds are single-premium endowment policies, unit trusts, and shares of stock.
5. Know where you stand financially
In order to assess your financial standing and make sound decisions, a bird’s-eye view of your finances is essential.
Consumers in Singapore now have better financial clarity thanks to the Singapore Financial Data Exchange (SGFinDex), which allows them to effortlessly aggregate their various bank accounts and financial information from CPF, HDB, and the Inland Revenue Authority of Singapore into one spot.
If you’re feeling overwhelmed by your finances and need help, it’s never a bad idea to consult a financial advisor. A financial advisor can help you create a plan for managing your money and reaching your financial goals. They can provide knowledgeable advice on investments, debt management, budgeting, and more – giving you the confidence and peace of mind to make the best possible decisions when it comes to your finances. Take the first step towards financial stability and seek out a financial advisory today.
Assume you put $5,000 into your SA every year for a decade, for a total of $50,000. If you had added to it in January, you would have earned an additional $40,800 after 20 years at 4% interest. When compared to the December top-off interest of $40,000, this is a significant increase.