Hitting 50 With No Retirement Funds!
Meet Mark. He recently turned 50 and decided it was time to take stock of his life. He's passed the peak of his career, but is still earning a good income. He's still healthy and keeps fit. He has a happy marriage, and his teenage kids are doing great and will soon be headed for higher studies.
However, there is one huge worry that keeps Mark awake at night: he hasn't been saving enough for retirement. In fact, he doesn't know when he's going to stop working, and how much he would need to live on when he finally does stop.
Having moved in and out of jobs for most of his working career, Mark hasn't made saving money much of a priority. Essentially living paycheck to paycheck, he has let each day's expenses take precedence over his future expenses. Like many Singaporeans, he and his employer make regular contributions to his CPF account, but he used the bulk of it to pay for his home – which still has a loan. He has no pension. He has also invested next to nothing after working for over 25 years.
How will he ever retire? As it is, his next big expense would be his children's tertiary education. How can he make up for lost time and catch up on saving?
Numerous studies, reports and surveys show that Mark is not alone. Most Singaporeans have not set aside money to fund their retirement expenses, and on average only start to save and plan for retirement when they are 36.
The good news for Mark is that, even at 50, it may not be too late to do something. The bad news is that he and his family will quickly need to make some hard choices.
1. Create a plan
The first step to finding a solution is to set a goal. If you are unsure about what to save, start by figuring out the kind of lifestyle you would want in retirement, calculate how much that would cost, and then work backwards from there. You can use online tools to help you figure out what you need. For a more holistic and accurate picture, a fiduciary adviser can help.
2. Engage the power of teamwork
Discussing the situation with your family can reduce some of the stress and give you new perspectives on how you can tackle the problem. After all, it's not just your retirement – it's theirs. If you have a spouse or children, your future lifestyle and finances will directly impact theirs.
All of you can play a part in reducing expenses and increasing savings. Your family may need to change their lifestyle to reduce costs – for example, not eating out so often, or choosing cheaper mobile and home entertainment plans. Cars are a huge expense in Singapore, so your family could decide to downsize or sell the car, and make do with public transportation or ride-sharing services like Grab and Gojek.
You could also consider downsizing your home. Moving to a smaller place could help provide additional cash on hand as well as reduce the expense of utilities and other home-related expenses.
If you are single, discussing retirement plans with friends in similar situations can help you establish a useful network of community support for when you do retire. You can consider living arrangements that will enable you to take care of each other in retirement, as well as reduce costs by sharing transportation, household appliances, service plans and other items.
3. Work longer
The unfortunate fact is that if you do not have enough savings to survive, you will need to keep working. There will be greater limitations to the type of work you can do as you get on in years, but having a job will nonetheless ensure that you can continue funding your daily expenses and increase your savings, thus deferring the need to dip into your small pool of retirement funds.
4. Increase allocation to stocks
If you do not have sufficient savings to begin with, you need to turbocharge whatever you have with a higher allocation to stocks. The 10 to 15 years that you still have before retirement provide a sufficiently long horizon to ensure that your portfolio will have sufficient time to recover from any setback.
As long as you are able to stay the course and stomach the increased ups and downs that come with higher allocation to equities, you will be able to capture a higher return in the long run.
5. Take advantage of available benefits
If you are risk-averse and not keen on the idea of investing in stocks, you can instead consider the various schemes available that can help you increase your retirement savings. The CPF Special and Retirement Accounts earn a higher interest rate (currently up to 6%) compared to the Ordinary Accounts.
Topping up your account annually will help you earn a higher interest rate and tax relief on your earned income. Your Retirement Account will also grow, enabling you to access a higher monthly payout once you decide to begin the payout from CPF Life.
If you wish to start an investment portfolio with the intention of accessing it only after retirement, you could also consider a Supplementary Retirement Scheme (SRS) investment, which provides tax benefits while you are still working. The current contribution limit is $15,300 for Singaporeans, so, over a 15-year period, you would be able to have a portfolio of at least over $200k. However, this would not likely be sufficient for retirement, so you would need to rely on other solutions as well.
At the end of the day, how much you need to save for retirement is a very personal decision. Everyone's requirements differ, and it boils down to the type of lifestyle you want to lead.
If you are still worried and unsure about what to do, the best approach would be to hire a fiduciary advisor. Getting an outside perspective and professional opinion on the best way forward will definitely take some load off your shoulders.
