Is Early Retirement a Realistic Expectation?

Many of us harbour thoughts of retiring early – being able to sleep in and enjoy an unhurried cup of coffee in the mornings, or to take a nice long vacation without bosses or clients texting you and demanding answers. Is this a pipe dream, or might early retirement actually be possible for you?

The current retirement age in Singapore is 62, although there have been discussions on raising this to 65. Early retirement would thus mean retiring any time before this age. Achieving this would require you to have set aside enough savings to last you for at least the next 20 to 30 years, covering your living and discretionary expenses. While the exact amount you would need depends on your desired lifestyle, it is unlikely to be a small figure.

Unfortunately, many adults only start thinking about saving for retirement late in life, at which point they often find themselves with too little time to accumulate enough savings by their planned retirement date.

Nonetheless, even if you happen to be in that position, there are always strategies you can use to help you reach your goal if you are willing to make some compromises and trade-offs. Here are some questions you might want to consider:

Can I Double My Rate of Savings to Save for Early Retirement?

The general rule of thumb is to save and invest 10-15% of your income. As such, for early retirement, you should try to save double that proportion as your money has less time to compound. To get a rough estimate on how much savings you should be aiming for, you can take our easy retirement quiz.

How Do I Structure My Retirement Payout?

If you are retiring early, there is a higher chance that you might still be paying off a housing mortgage at that stage. Mortgages, loans and essential expenses need to be paid up every month and hence would require some form of guaranteed income from your retirement savings or investments.

As the earliest you can access your CPF savings is age 55 (provided you have sufficient funds to meet your minimum sum), you would need to cater for at least a few years of fairly liquid funds to fund these liabilities.

Alternatively, buying some form of annuity is also an option, but you will need to discuss the pros and cons with your adviser. For the bulk of your retirement savings, you will need to invest in a manner that ensures long term returns above inflation so as not to erode your purchasing power over time.

What Type of Lifestyle Am I Willing to Forgo for Early Retirement?

The Credit Bureau of Singapore, in conjunction with the MoneySense programme, recommends that long-term debt commitments not exceed 35% of your gross monthly income. If you add in your doubled-up savings plan of 20% per month, that leaves you with only 45% of your income to spend on daily living expenses (utilities, food, clothing, entertainment, child care, health care, transportation, etc.) plus save for other priorities (child’s university education, home improvements, holidays, etc).

That is a lot of expenses for less than half your salary, so making lifestyle adjustments are inevitable in order to balance your available budget.

Field Test Your Retirement Budget

Don't forget that early retirement means a greater number of years that you would be living off your planned budget. If you stop working at 50, you can expect to live another 30 years for men and 35 years for women (based on the current life expectancy for males & females – but this only means that 50% of your cohort are expected to die off at this age. What if you live longer?).

With inflation also affecting your retirement spending over that long time period, it could mean an ever-shrinking budget if you fail to adequately plan for this.

Test run your retirement budget for a few years before you stop working. This helps you check whether you are able to survive on that planned amount, and if you had missed out on anything. Modify and tweak it based on your actual spending pattern.

As this is a test run, it would mean that should your spending be significantly higher, you could save more, spend less or consider extending your retirement date.

What Will I Do When I'm Not Working?

Many people plan for the day when they can stop working, but many fail to plan just what they will do when there is no longer work to occupy their hours. Most people's working life takes up from a third to more than half of the day, and once you stop working, you may find that you may have too much time on your hands. By the way, sipping Piña Coladas all day at the beach sounds nice, but it is not a viable option!

It is normal to want to pursue all the activities you couldn't do when you were working (travelling, golf, TV bingeing, etc.), but this won't last forever. After a while, most people want to settle back into a routine, and it is definitely good to start thinking about and making plans for what that routine would look like in the mid to long term.

You might wish to get involved in social work to give back to society, do church work, mentor others or do some consultancy or part-time work to earn some extra income as well as keep your mind engaged. It is good to start thinking about this before you actually retire, as your choice could have some impact on your expenses (and income stream).

Who is Going To Walk This Journey With Me?

Planning for retirement, whether early or regular, requires a lot of effort as it is a major life decision. Having the expertise of a fiduciary financial advisor to help chart out your financial goals and keep track of your progress can help out with the financial aspect of retirement.

However, be sure not to neglect the other non-financial aspects of making such a big decision, such as getting the support of your spouse and close family members to help you adapt to a new lifestyle. Having you around more often might also create some unexpected friction in relationships, and this should not be underestimated. Nonetheless, with proper planning, retirement can be a whole new chapter filled with exciting possibilities.