How to start planning for retirement in your 30s, 40s & 50s
One of the most daunting things about saving for retirement is well… the goal. Even for a super basic retirement lifestyle, the amount required isn’t small change. It’s probably best to speak with a professional to work out a proper game plan involving all the levers of retirement. Besides optimizing your retirement savings using the attractive Central Provident Fund (CPF) rates, here are some cost-saving ideas that you can use right now, today, to save your first $100,000 by the time you’re 55. It’s definitely not enough to retire on, but this is something you can do today, while working out your longer-term plans with the professionals.
To save $100,000 by age 55, we assume that your cost-savings are put to work and grow at an annual interest rate of 3%.
|Your age now||How much to set aside a month|
Starting when you’re 30:
In your 30s, you’re probably more settled in your career, and have a little more disposable income to spend on comforts of life.
To save $225 a month, figure out where the ‘free options’ give you the same benefits as the ‘paid’ options. For example,
- Swap a high-tier gym membership for running tracks at the parks and stadiums. You get a nature boost, fresh air, and save on transportation costs.
- Indulge in Michelin-starred meals at the hawker centres, which are also world-famous, instead of at expensive restaurants.
- Switch from lattes to a lower-cost cup of ‘Nanyang kopi’. But if you really cannot live without your cold brews, flat whites or long blacks, be sure to get those free loyalty stamps.
With the savings you have at the end of the day, add it up to your emergency savings. A range of between 3 to 6 months (of your income) is a good gauge if you’re drawing a stable salary. But if you’re the sole breadwinner or in the gig economy, you’ll probably need to set aside at least 12 months.
With whatever’s left, it is worth looking into insurance and investing, if you haven’t already started.
For insurance ideas, consider an appropriate cover for your healthcare needs. For long-term savings, a 15-year savings or endowment policy might come in handy. Such a plan could even generate extra cash bonuses that, when re-invested, means more money in the bank at the end of the policy.
For investing ideas, consider common vehicles which include stocks, bonds, unit trusts, exchange-traded funds and regular savings/investing plans.
Starting when you’re 40:
In your 40s, you would probably have set up home, and may have been blessed with a few little ones. Your parents are likely to have retired by this time as well.
To save $100,000 by the time you’re 55, look for more cost-effective alternatives that confer the same benefits on your family. For example,
- Explore neighbouring countries for your family holiday instead of taking a gruelling long-haul flight to somewhere further away. There are kid-friendly options in Southeast Asia that also offer heritage and unspoiled nature.
- Look into schemes and subsidies that you can tap on for your parents. For instance, the Passion Silver Concession Card for concessionary travel rates and special privileges, Pioneer and Merdeka Generation packages, and various government schemes for home improvements, mobility and home ownership for the elderly. (Details of schemes here: Caring for your elderly parents)
With these savings, there are two things you can do in addition to the emergency savings, insurance and investments ideas highlighted earlier.
The first big thing is to ensure that your parents have done their LPA (Lasting power of attorney), Will, and CPF nomination. The LPA appoints trusted people to act on their behalf should they lose mental capacity. While you’ll need to spend some money to formalise these documents, it’s worth spending because it gives access your parents’ savings to pay for their medical treatments. (Read more: How to care for someone with dementia in Singapore)
The second big thing is to check that your parents have adequate medical insurance. This will ensure that major illnesses or ailments do not result in a sizeable gap in your finances. (Read more: Caring for your elderly parents)
Starting when you’re 50:
In your 50s, contrary to popular belief, it really isn’t too late to start saving for retirement. Even if you’ve gone past 55, you still have some years before the official retirement age. Don’t let anyone sentence you to doom and gloom. It is more challenging, but not too late.
Starting to save in your 50s will however require much more fiscal discipline and much simplifying of your life. For example,
- Give up the car and switch to public transport, especially if you have no little kids to ferry around by this time. You save on the COE, maintenance costs, and petrol.
- Pay off your debt to reduce your interest burden. Got an unexpected bonus or dividend cheque? That could go towards paying off a hefty chunk of your home loan.
- Look into caregiving options for your parents, and various other schemes that provide concessionary rates for our elderly. (Read more: How to choose a caregiver for your parents)
With these cost-savings, you can keep your money in CPF to earn more. At 55, your Retirement Account (RA) starts, and the monies transferred in from the Ordinary Account (OA) and Special Account (SA) will earn 6% per annum for the first $30,000 and at least 4% for the balance.
At 65, your RA savings will be deducted as premiums for the national annuity scheme CPF LIFE which gives monthly payouts for life. For each year that you defer your first payout, your monthly payouts can increase by up to 7% per annum. Note that the start date can only be deferred until you’re 70.
Ready to take the next step?
If you’d like someone to work through a personalised game plan with you today, let us know. After all, what are neighbours for?
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
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