According to a survey, more than 85 percent of the 800 respondents strongly underestimated their pension needs – with funds that would last them up to the age of 78.
For reference, the average life expectancy of Singaporeans is 83.6 years, which means that residents would not have been able to support themselves financially for 4.6 years.
And given the global trend towards increasing life expectancy, this problem seems to be getting worse.
What would happen if we were all 100 years old? What adjustments do you need to make to fund your future?
Estimate how much you need to save for retirement
A longer life expectancy means that you have to recalculate your retirement savings without making the usual planning errors (e.g.
This is also an excellent opportunity to reassess your current retirement savings. Do you still have the same retirement goals as before?
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When recalculating your retirement savings, be honest with yourself: When do you want to retire? Calculate your monthly cost of living in retirement.
Make sure to consider the daily cost of living such as groceries, transportation, utilities, and recreation. Take into account retirement costs such as healthcare costs.
Also remember to plan an emergency buffer of at least 6 months. Then multiply that total by the number of months you would spend in retirement.
It should be remembered that this figure is also subject to inflation. This means that you will have to save more than the calculated amount. To get an estimate of how many years it will take the cost of living to double, use the rule of 72.
This is how you estimate how much you need to save for retirement
| Current Annual Cost of Living ($) | Annual cost of living 24 years later (with inflation) ($) | Number of years of retirement | Amount Required for Retirement ($) |
|---|---|---|---|
| 12,000 | 24,000 | 20th | 480,000 |
| 18,000 | 36,000 | 20th | 720,000 |
| 25,000 | 50,000 | 20th | 1,000,000 |
| 36,000 | 72,000 | 20th | 1,440,000 |
Assess your current financial situation
Now assess your current financial situation – if you continue to save / invest at the current rate, could you achieve your desired retirement provision?
Don’t forget to consider your various assets. These include high-yield savings accounts, long-term bonds and stocks, and short-term funds in CPF accounts.
To ease the computational burden, CPF has introduced an interactive tool (known as the CPF Retirement Calculator) that can help you determine if your retirement goal is achievable based on the amounts currently available in your CPF.
Plan Ahead: Strategies for Closing Your Savings Gap
There is a possibility that your current savings and investments will not allow you to fund your desired retirement funds due to the longer life expectancy. This is where you need to develop strategies to make more money or increase your savings faster.
Consider building other sources of income; It’s easier to save more when you make more (assuming you keep your expenses constant, of course). Have you ever thought about investing in gold? Or maybe rental income?
Also, there are several ways you can grow your money faster. Here is a list of them, sorted from least risky to riskiest:
- Save with an SRS account
- Transfer your CPF-OA funds to SA funds (higher interest rates)
- Consider buying Singapore bonds
- Get better returns on your CPF by investing
- Invest in dividend stocks or REITs
Note that you should consider your time horizon. The closer you are to retirement age, the more risk averse you need to be. If you are not sure where to put your money, you should try a robo advisor, which is an attractive and inexpensive alternative to traditional investment advisors.
Difference in saving: CPF OA account vs. CPF SA account
| Current savings with a monthly contribution of $ 1,000 | CPF-OA account at 2.5 percent ($) | CPF SA account at four percent ($) | Difference ($) |
|---|---|---|---|
| 30,000 | 355,694.38 | 423,070.64 | 67,376.26 |
| 50,000 | 388,466.71 | 466,893.10 | 78,426.39 |
| 100,000 | 470,397.54 | 576,449.26 | 106,051.72 |
The importance of better budgeting and smarter spending
When it comes to your financial wellbeing, it is not about a financial diet. It’s about maintaining healthy spending habits through smart budgeting, growing your money through investments, and saving for years to come.
While all of this is easier said than done, it’s a good idea to budget to keep track of your expenses in one place.
From there, set yourself financial goals and grow your wealth through online trading platforms or with an asset management advisor.
Above all, pay attention to smart budgeting and sustainable saving as part of your lifestyle so that you are financially secure in your golden years (since you will be 100 years old)!
