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Singaporeans enjoy one of the longest life expectancies in the world. While living longer and having more time with our loved ones is a blessing, we must also build a retirement nest egg that can provide income security in our old age.
Whether we are ready for it or not, there will come a day when we can no longer rely on our income from work to pay for our daily living expenses. That’s why we can’t afford to procrastinate retirement planning – to ensure we have sufficient monthly income in our silver years.
It takes decades of discipline and careful planning to save and invest before a person can retire confidently.
Here are 3 things everyone needs to do:
Read Also: Building A Healthy Investment Portfolio: How You Also Need Discipline, Stamina and Resilience
#1 Crunch The Numbers – How Much Will You Need In Retirement?
This can be a tricky process since our retirement can be decades away. There will also be things that are out of your control, such as inflation, how the cost of living evolves and even your health.
You can start by working backward based on the lifestyle you live today. There will be non-negotiable expenses like accommodation, meals, utilities, groceries, transport, healthcare, basic telecommunication connection, and even some recreation.
After working so hard over several decades, you may aspire for some travel and entertainment during your retirement. This needs to be budgeted for as well.
Crunching the numbers can give you an estimate of how much you need to sustain your desired retirement lifestyle. You can take reference from actual numbers such as the Full Retirement Sum – $205,800 in 2024 – which should provide for a simple lifestyle in your retirement.
You can also look at the study on the Minimum Income Standard (MIS) in 2022, which found that a couple who is 65 years and older will need $2,551 per month in retirement.
#2 Adjust Your Investment Risk Exposure
Apart from CPF LIFE, a diverse investment portfolio of stocks and/or bonds, can form another income source in your retirement.
When you are younger and with a longer investment horizon before your retirement, you can afford to take more risks. However, you need to have a strategy on how your investments will ultimately help fund your retirement.
As you get older, and closer to retirement each year, you may choose to allocate more of your investments to bonds as your risk appetite diminishes. You simply don’t have the same runway for your investments to recover from a market crash.
This can provide stable and visible distributions, while still giving you some upside potential. When you invest in bonds today, you also have the option to diversify into various global markets.
For example, abrdn’s Indian Bond Fund gives you unique access to the Indian bond market, while paying out regular monthly income, with a running yield of 7.2%2 (running yield is not representative of payout yield).
This enables you to diversify your investment portfolio to include government, state, quasi and corporate debt in India – which you may not have realised was available to you. Another major benefit is that investors can access the Indian financial market in a simple way – bypassing complex rules for international investors.
Exposure to the Indian bond market can be beneficial as it has a generally low correlation to other financial markets. This adds another layer of potential protection for your retirement nest egg.
Potentially giving us exposure to upside, Indian bonds have also yielded strong returns of 65% in the past 10 years, outperforming Asian equities (51%) and Emerging Market bonds (-3%)4.
Another catalyst for the Indian Bond Fund is its inclusion in the J.P. Morgan GBI-EM Index in June 2024 – which has started to drive strong inflows worth US$7 billion in Q1 20245 alone.
#3 Review Your Existing Financial Goals
While retirement planning is one of the most important financial plans you need to take care of, you cannot afford to neglect other financial goals.
You also need to account for the unexpected. An emergency fund worth at least 6 to 12 months of your expenses provides a safety net from sudden shocks. This will come in handy even during your retirement years.
You may also have nearer-term financial goals, such as saving for your children’s university education. This needs to be planned outside of your retirement nest egg. It’s important to separate your financial goals so you can determine whether you are on track to achieve them.
Having adequate insurance is also a critical part of any financial plan. A medical condition can easily rob you of your ability to work and build your retirement nest egg. Even if you are no longer around, insurance can help you provide for your dependents – whether it’s to pay for your children’s education and upbringing or supplement your spouse’s retirement nest egg.
As part of your financial plans, it’s also advisable to plan for how you want to distribute your estate when you are no longer around. This can give you peace of mind knowing that your assets will be managed according to your wishes. Furthermore, this can reduce disagreements between your loved ones.
Retirement Is The Start Of A New Chapter In Your Life
While retirement may spell the end of your career, it can be the start of a whole new chapter in your life. Your retirement plan should also include the lifestyle you wish to live – and how you can continue working to keep your mind and body active.
With a detailed retirement plan and being disciplined to build your retirement pot over decades, you can retire on your own terms.
Part of your retirement plan should include building monthly income streams beyond CPF LIFE. Remember, you should not be overly dependent on any single source of income.
You can find out more about how to Be an Income Champion with abrdn, and stand a chance to win a prize.
Disclaimers:
1Aims at monthly distribution. Dividends are not guaranteed and may be paid out of investment income, capital gains or capital at the discretion of the Board of Directors. Any dividends paid and distributed out of the Fund’s capital will result in an immediate reduction of the Fund’s Net Asset Value per share. Past dividends are not a guide to future dividends. Please refer to our literature webpage for additional disclosures on the income statistics of the Fund.
2Source: abrdn, 31 March 2024. Running yield is the annual income on an investment divided by its current market value. Running yield is a calculation that divides the income from coupons by the market price of the security. The running yield of the fund is not representative of the payout yield. Past performance does not predict future results.
3 Source: Morningstar, 3-year standard deviation, A MInc USD share class, 31 March 2024.
4Source: Bloomberg, USD, Indian bonds represented by Markit iBoxx ALBI India, Asian Equities represented by MSCI AC Asia Ex Japan, Emerging Market Bonds represented by JPM GBI-EM Global Diversified, 10 years to 29 March 2024.
5Source: National Securities Depository Limited, 15 April 2024.
6Source: abrdn, Bloomberg Barclays Indices, 31 March 2024. For illustrative purposes only. No assumptions regarding future performance should be made.
7The standard deviation of returns is commonly used as a measure of risk for investments. Past performance does not predict future results
8Source: Bloomberg, 31 March 2024
The information is provided on a general basis for information purposes only, and is not to be relied on as investment, legal, tax or other advice as it does not take into account the investment objectives, financial situation or particular needs of any specific investor.
Investment involves risk. Investors should read the Singapore prospectus of the fund(s) and the product highlights sheet before deciding whether to invest in shares of the fund(s). The Singapore prospectus and product highlights sheet are available and can be obtained from abrdn Asia Limited or its website at www.abrdn.com/singapore/investor or any of its appointed distributors in Singapore. Advice should be sought from a financial adviser regarding the suitability of the fund(s) before purchasing shares in the fund(s). In the event that you choose not to seek advice from a financial adviser, you should consider whether the fund(s) is/ are suitable for you.
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