Plan Retirement Early and Wisely


Plan Retirement Early and Wisely. According to Business Times (THU, JUN 10, 2021), Getting people to start thinking about retirement early has always been tough – behavioural science tells us that we have a natural inclination to put off making difficult financial decisions, and for the most part, this is true. More immediate financial goals, like as purchasing a home and starting a family, would be prioritized.

It’s thus encouraging to see that the Covid-19 pandemic has driven many Singaporeans to start budgeting for retirement early, particularly those in their 30s, according to a recent poll on retirement planning among Singaporeans done by Fullerton Fund Management.

The problem is that only 45% of those in the 21-30 age bracket said their Central Provident Fund (CPF) funds will be one of their sources of retirement income, according to the survey. Furthermore, for individuals aged 31 to 40, CPF dependency is considerably lower, at 35%. In addition, 59% of those between the ages of 21 and 30 and 64% of those between the ages of 31 and 40 stated they are willing to forego guaranteed funds in exchange for high potential returns.

In a society dealing with the issues posed by an aging population, it must be a source of concern if a considerable proportion of persons aged 21-40 are willing to risk everything in order to increase investment earnings while lowering their reliance on CPF. This is all the more concerning when one considers that CPF not only guarantees a minimum return of 4% compound interest per year on retirement account balances, but it also includes CPF LIFE, a national longevity insurance annuity scheme that guarantees participants a monthly income starting at age 65 for as long as they live – provided, of course, that they have sufficient retirement savings.

The introduction of additional digital tools is one cause for the rise in risk preferences among the young. Anyone can now download financial apps to their smartphones and partake in fee-free day trading.
Retail investors can also use robo-advisory services to help them grow their money.

Another aspect is the belief among younger investors that, despite large periodic volatility, riskier assets will likely prove rewarding over time and hence make superior investments. The fact that interest rates have been low for the past 20 years while major central banks battled to bolster their economies following crisis after crisis, beginning with the dot-com catastrophe of 2000 and continuing with the ongoing Covid-19 pandemic, is a major factor for this.

An additional motivator has been the US Federal Reserve’s explicit guarantee that it will go to great lengths to provide liquidity to support Wall Street – a guarantee that has bred widespread investor complacency, allowed the US stock market to continue rising over the past decade, and enticed an ever-increasing number of retail investors to try their hand at investing.

Those who are just beginning their retirement planning should be aware that while some investing as a means of supplementing retirement income is commendable, relying primarily on investments to the exclusion of safer options like CPF or low-risk options like endowment insurance policies is not. If markets do not perform as expected over the next 20 to 30 years, those who neglect the benefits of CPF while taking on excessive risk could face the unpleasant prospect of having no retirement safety net when they reach their 60s and near the end of their working lives.



One Last Thing

CPF investing is not for everyone.

For example, if one’s Investment Risk Profile (IRP) is less than 3/4 – Medium to High Risk, a CPF member is better off keeping his funds, in my opinion. When the IRP is less than 3/4, I prefer to educate my clients on the benefits and various CPF schemes to maximize interest and serve as a foundation for future income, and they usually leave feeling much better and more optimistic. For those who take the time to dig in and understand, our CPF is a very well-designed and well-thought-out scheme.

Nonetheless, I see TOO MANY people take an “invest and forget” approach, which is ineffective. What was a good fund back then might not be a good fund now. As a result, I will always make it a point to encourage periodic reviews, and it does make a difference. 

And if your CPF Life is not able to provide you with sufficient retirement fund (due to using it for home purchase) and your IRP is less than 3/4, you may consider looking into a guaranteed monthly income endowment plan. That will provide you a guaranteed monthly income during your retirement years without the market volatility risk like an investment. 

Retirement planning is about having a product or a plan that will gives you a stream of guaranteed income when you retiredno matter where you are, what you do or what condition you are in. While planning it should include your time horizonsexpenses of your future lifestyle needs, adequate medical insurance coverage. Rule of thumb is saving at least 20% of your annual income. Therefore, if you save lesser or start your retirement planning too late, you will not be able to reach your financial freedom goal at your retirement age. Retirement planning takes time, please seek help from your friendly financial consultant to help you with your retirement planning when required, or contact me for a holistic Insurance and Financial Planning.


Note: Opinions expressed are solely in Mr. Chan Kong Meng’s personal capacity and neither express the views or opinions of Prudential nor represent any professional advice in Mr. Chan Kong Meng’s capacity as a PACS representative.


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