Why It Is A Mistake To Delay Planning For Retirement

Many of us do not start thinking about planning for our retirement until we're much older. However, this is a mistake because you need time for your plans to bear fruit, and starting early is one of the best ways to ensure that it does. 

A recent study by AIA showed that Singaporeans generally spend 2.5 times more on their children’s needs than their retirement planning, with some even neglecting it altogether. But don’t forget that your child also needs you to be financially prepared for your retirement, so that they won’t have to be stressed out about having enough to support your retirement expenses.

As part of the sandwich generation, it is even more crucial that we start planning early. My husband and started discussions about this in our first year of parenthood, as we both agreed that we did not want to become a financial burden to our children when we’re in our 60s and beyond.

Instead, we wanted to make sure that our own retirement needs will be well taken care of, so that our children can be free to make their own financial decisions without having to be weighed down by us. This determination was cemented after personally going through the stress of having to support our growing family as well as our own ageing parents (who did not plan nor save towards their own retirement).

It is only natural to procrastinate on planning for your retirement because you’re too focused on being able to finance your present, shorter-term needs. But to defer your retirement plans would be a huge mistake, and you’ll be doing yourself (and your children) a huge disservice.

Considering that most Singaporeans plan to retire at 60 years old, this will require at least 25 years of retirement income that we will need to plan for. If you start early, you’ll be able to leverage the power of compounded growth over time to accumulate your retirement pot of savings.

But if you continue to put it off, you'll likely need to put aside an even higher sum of money later on, and by then, you will also have fewer tools or options available for you to choose from – depending on your age and health. The study also revealed an irony: while 70% of young Singaporean parents do not wish to be a financial burden during retirement, they may very well end up having to rely on their children, other family members and friends eventually if they face a retirement planning shortfall.

First, you’ll need to estimate how much you will need in your retirement years. By using online tools - such as AIA’s retirement calculator here – calculating that has become so much easier than before. 

With an end goal in mind, you can now work backwards and plan concrete steps to get there.

Next, you’d also want to make sure that you’re well protected against unexpected emergencies, such as medical bills or critical illnesses. If you have dependents (be it young children or your elderly parents), then having a life insurance with critical illness cover is also important. Plans like AIA’s Guaranteed Protect Plus (III) also often appeal to those looking to finish paying the premiums during their working years while accumulating cash value in their policy, with the flexibility of encashing it later on to supplement one’s retirement income if you wish to.

Once you have your bases covered, it is time to look at how you can grow your savings by leveraging on the power of compounding over time.

Please don’t be like the 92% of Singaporeans who rely on bank deposits as the most popular savings tool of their choice. Instead, learn from the savvier 21% who are growing their wealth by also supplementing with investment tools.

As a Singaporean, don’t forget to factor in your CPF into the equation. Find out how much you can expect to have from CPF Life as your base foundation, since the national insurance annuity scheme provides you with a monthly payout no matter how long you live. Of course, relying on your CPF Life alone may not be enough, especially if you have a desired retirement lifestyle in mind, so this is where you’ll need to start building the rest of your retirement pot.

Next, look at your current resources. How much cash savings do you have? And are you simply leaving it in your bank account to earn paltry interest, or actively growing that through investments?

Some of you may even have funds sitting idle in your Supplementary Retirement Scheme (SRS) account – to be more accurate, 26% of the total contributions in 2020 ($12 billion) are held in cash. For those who invest their SRS monies, insurance and direct investments continue to be the most popular tools used.

Insurance retirement plans that allow you to invest using funds from your SRS account can help. They don’t have to be expensive either – for instance, AIA Platinum Retirement Elite starts with premiums from $500 a month, and you can then set the monthly retirement income you wish to receive upon your target retirement age. It is no wonder that such plans focusing on sustainable long-term wealth strategy to help grow your wealth and build your target retirement income for retirement continue to remain popular. To further ensure that your desired retirement lifestyle is not impeded by rising inflation rates, you can check if your insurer allows you the flexibility to receive a yearly stepped-up income as well (similar to you opting for the Escalating Plan on CPF Life).