Retirement myths busted
Retirement. Everyone has something to say about it.
Colleagues lament over lunch how expensive maintaining their homes and children are. Taxi drivers dream of moving to Kuching for a slower pace of life, or Australia to be near the grandchildren. Then there are motivational workshops promising participants their first million to retire on.
But this fixation with retirement also means a lot of myths have been passed down, usually from good intentions. And the longer we consume them, the tougher our own retirements will be.
I won't spend as much once I retire.
Conventional wisdom holds that we will spend only 80% of our last-drawn salary upon retirement. Without the need to contend with peak-hour travel costs, expensive CBD-area lunches, chipping in for birthday presents or playing Santa to colleagues can mean saving up to $200-$300 each month.
But retiring is more than staying home, tending the plants and watching the grandchildren. Retiring means having all the time to do what we want to do, whether it is playing tennis, line-dancing, or going on a safari to see lions and giraffes grazing on the African plains.
In a sense, retirement is like enjoying a weekend that never ends. And as most of us know, our weekends can be pretty packed, and this typically means having to spend money. Therefore, you could be spending more in your retirement than what you had expected!
Then there are the medical bills. For most of us, growing older means creakier bones, more medical conditions, and more visits to the doctor. While a good insurance plan helps lower these costs, there is no denying the possibility of larger medical bills.
Is saving for a 20-year long retirement enough?
20 years sounds like a long time. But two decades is not too long when it comes to retirement. A study we conducted with Nielsen shows most Singaporeans look forward to retiring at 58 years old, and enjoying at most 20 years of retirement. However, advances in medicine and technology means we are living longer. The average Singapore male lives till 80.2, while the average female lives till 84.6, which means that we need to look at retirement planning to last more than two decades.
There's plenty of time to start saving before I retire.
Pick any 10 people off the street. Chances are, five of these have gathered a tidy sum for household emergencies, health issues and in the event of retrenchment (according to research by AC Nielsen).
In addition, only 4 of 10 Singaporeans have started to squirrel away for retirement. Those in their 20s are worrying about the house, wedding and babies. Those in their 30s are looking at upgrading, enrichment classes for the children, luxury items and holidays. It is usually only in the 40s that retirement starts becoming more real. Nearly half of our working lives are spent thinking about things other than retiring.
The problem with saving only for rainy days: only 15% of Singaporeans are confident they will have enough to meet their financial goals. Over a third of Singaporeans - 35% to be exact - have no confidence they will have enough to retire, or pay for their children’s education.
I just need to save enough in the bank.
Planning for the future can be daunting. There are budgets to work out, financial products to understand, and thousands of products to choose from. The barrier can be so great that 6 out of 10 Singaporeans delay saving for retirement.
And so the money lies in savings accounts, earning low interest rates that barely keep abreast of inflation rates. Which is why financial advisors consistently state the necessity of investing your nest egg. But as with every purchase, be informed and seek a variety of qualified advise before making a big commitment!
I should invest in very safe assets for retirement.
Investments are a lot like farming - we reap what we sow. Leaving our money in our CPF accounts is very safe as they offer a guaranteed return. But this return is low, at 2.5% for the ordinary account and 4% for the special account. Once inflation comes into the picture, the gains fritter away.
A wiser way of investing is dividing the monies up among a variety of safer and riskier (but potentially with higher returns) assets. Safer assets (like our CPF and bonds) can help to offset losses from the riskier assets like stocks.
Some rules of thumb:
- If you need the money now or next year, keep it in cash
- If you need the money in the next 3-5 years, keep it in safer assets like bonds or bond funds
- Any money you don't have to touch for at least 5-7 years can go into the stock
- But because you'll never know how long your retirement will last, always keep a
portion in stocks.