Retirement in Singapore isn’t something that’s on the minds of most people in their 20s, but it’s actually something that you need to start paying attention to — now.
You Need to Start Thinking About Retirement
For many young people, this statement may immediately seem counterintuitive — you’re at the beginning of your adult life with several decades ahead of you, and retirement in Singapore is probably the last thing on your mind.
Why bother when you’ve got drinks and partying to spend on? It’s certainly a defensible position to have: in your youth, you can do and see things which you’ll never be able to when you’re older. Why not make the most of it and spend as much as you can?
You can always earn that money back later… right?
Unfortunately, that’s not necessarily true. There are many things that you’ve studied in your economics class that are about to hit you all too hard. For one, inflation is silent and deadly, and it can quickly eat into your existing savings. The money in your bank account is losing purchasing power every day, and by the time you’re older, that $5,000 you have saved won’t even be enough for a month’s rent.
Wage stagnation in Singapore and abroad is becoming increasingly worrisome, and the rate at which living expenses are outpacing salaries worldwide is something that can’t be negated much longer. For some people, a job with a stagnant wage would be a blessing — the job market is uncertain, and you don’t have any way of knowing whether or not you will be able to find stable employment in the long-run.
It’s easy to say that you will earn back your savings when you’re older, but will that be possible for everyone? Not at all. The job market’s uncertainty, coupled with rising living costs across the board and stagnant wages, resulting in a very unpleasant concoction, and the future won’t have much in store for you if you don’t deliberately plan to be on top of things regularly.
Caring About Retirement in Singapore When you’re Young — and Why it’s Awesome
Planning to fund your retirement in Singapore is not flashy or glamorous. It’s also not fast-paced and exciting like a night out — it’s slow, grueling, challenging. But the fact is that caring about retirement in Singapore when you’re young will save you years of hardship and suffering when you’re older. You will thank yourself for being such a wise little person when you were younger, and you’ll notice your quality of life is miles ahead of your peers who didn’t plan earlier.
It’s so important to understand the power of compound interest when you’re young because it makes a world of difference over time. At your current age, time is on your side — and time is pretty darn powerful. When interest is applied to your money, it’s not only applied to your initial invested amount, but it’s also applied to any and all interest that has been previously accrued.
Assuming a 7% annual market return, if you invest $50,000 at age 40, by age 50 you would have around $98,000. However, if you had instead invested the same $50,000 at age 20, then when you’re 50 you will have a whopping $380,000. That’s the insane and unbridled power of compounding. It’s a very simple concept, but it’s misunderstood by young people (judging by prevalent spending habits).
Time is on your side in more ways than one. Become interested in investing at a young age, and by the time you are gainfully employed at a high-paying job, you will have amassed knowledge that other people would otherwise take more years to acquire. Knowing stock market trends, being able to analyze financial statements, knowing the best retirement accounts, knowing about bond yields…
All of this stuff is so much easier to understand when you’re young, fresher from school and still in tune with research techniques. When you’re older, you simply won’t have enough time to research the world of investing, and you’ll end up paying an accountant to figure out where your money goes. It’s far more optimal if you take control of your own investment journey and figure out the best retirement fund to park your money in for the long haul.
Boosting Your Retirement With FIRE
How exactly can you boost your fund for retirement in Singapore? What exactly are you supposed to do? The concept of retirement shouldn’t be as elusive as it is. In essence, retirement allows you to never have to work again. For the rest of your life, you will be able to live off funds accumulated from your savings or your investments.
Retirement in Singapore is supposed to cover all of your essential daily expenses as well as padding to improve your quality of life, such as the vacations that have been on your mind. Let’s study how exactly one should retire using the FIRE (Financial Independence, Retire Early) movement.
The whole concept of FIRE places a large emphasis on retiring early, which is only really possible if you’re young. Being FIRE-minded can actually allow you to shave years, if not decades, off of your working life. Retirement is not just about never having to work again, it’s also about the freedom of doing “work” that you are passionate about whenever and wherever you want.
Do you love art but you can’t find a fulfilling art job? Simply reach FIRE, and then do whatever job you want. It’s pretty great, and it’s a movement that’s gaining traction, especially amongst young people.
Now, in order to achieve FIRE, you need to forgo your current desires and plan ahead for the future. In short: save, save, save. Any extra money you have at any time should go directly into your savings, investments or retirement account. Minimize spending and be frugal. Of course, don’t live like a homeless person, but don’t indulge in unnecessarily exorbitant purchases even when your heart tells you that you want them.
The more you save today, the better you can live tomorrow. If you save a little bit, you may be able to reach “leanFIRE” by age 40 (which is where you can technically retire, but only your essential expenses are covered). Save a lot and you can reach “regular FIRE”, and save aggressively and you just might hit “fatFIRE” (where you can live a lifestyle of wealth and luxury for the rest of your life without working at all). The more you are able to minimize spending and increase savings, the higher your retirement fund will be boosted, and the sooner you’ll be able to be financially free.
The Right Retirement Funding Solution For You
Something beautiful about Singapore is that you won’t be charged a capital gains tax on your returns (unlike most other countries). Saving locally also allows you to cut down on transaction fees and other transfer-related expenses. If you’re a young Singaporean, the best option for you would be to open up an account set aside for retirement in Singapore — today. Remember the time value of compound interest? Seriously, do it today.
You are probably aware that there are a lot of plan options for retirement in Singapore. Each option, such as unit trusts, annuities, bonds, fixed deposits, etc., has its own pros and cons. Which ones are good for you? The answer is not that straightforward. Generally, you need a combination. At Financial Alliance, there really isn’t a “one size fits all” portfolio. Every investor is inherently unique, and thus, every investor needs to have a uniquely diversified portfolio that fits him or her.
If you are risk-averse, you may want to stick to safe opportunities like fixed deposits or government bonds. These are excellent if you are older since your capacity to absorb downside risks is greatly reduced as you get closer to your retirement age – you can’t really afford to lose your savings by that time. However, if you are open to more risk (or are younger), you’d want to go with an allocation of stocks or index funds.
Stocks and index funds, on average, perform a lot better and are able to generate far higher returns in the long-run. It’s also important to remember that if the stock market faces a downturn or recession, it doesn’t matter a lot if you’re young (since your time horizon is longer and you can simply wait it out).
The stock market crash in 2008 was devastating, but people who simply waited ended up making a crazy amount of profit, and have actually more than doubled their money since — even those who invested at the very peak.
Young people generally lie in the growth-tilted portfolio group, but, as mentioned, everyone is different. Financial Alliance provides several youth-tailored plans and portfolios. We have financial consultants available to discuss your specific needs so that your individualized portfolio can be created. It’s far better than a “ready-made” portfolio, which may be far too risky (or far too risk-averse). In order to maximize your returns potential while simultaneously reducing risk, check out Financial Alliance’s retirement plans.
Financial Alliance has been providing customized retirement-related and investment advisory services in Singapore for almost two decades, and their tried-and-tested methods are sure to bring new life to your current portfolio.
Don’t allow yourself to be limited by ready-made and stagnant portfolios — Financial Alliance lets you create dynamic and forward-thinking allocations that are specifically tailored to your profile. Contact us to learn more about the services we provide for retirement in Singapore. Feel free to read our blog which contains a lot of extremely useful information about various investing topics.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs.