Option #1
Staying at home looking after your grandchildren, taking public transport to meet friends over coffee or majong. Taking an occasional vacation to a nearby destination in Asia.
Healthcare is limited to government restructured hospitals. Financially independent.
Option #2
Zipping around town in your car meeting friends for a round of golf followed with a high tea buffet in a hotel and some shopping in town. Have the option to change your car every 5-7yrs.
Ability to afford at least 2 vacations globally a year with your grandchildren.
Healthcare options are available up to private specialists and hospitals. Financially independent with a decent-sized estate that can be passed down to your children and grandchildren.
Whether it’s option #1or #2 will depend very much on your desired retirement lifestyle and the size of your retirement nest egg prevailing at that point. The more funds you have, the more retirement options will be available to you.
For most working professionals, I believe they will desire option #2 but interestingly, their retirement plans may not allow them to achieve that objective.
Why? Some of the possible reasons are as follows:-
- Prioritizes immediate gratification over deferred enjoyment
- Low savings ability due to inability to curb lifestyle spending &/or over-commitment to car and housing. With our high property prices, it is not uncommon to see couples saddled with at least S$1mil in housing loan nowadays
- Having a single income to support the family after a spouse leaves employment to look after the children
- Being overweight in investments with a performance that did not pan out as expected
- Procrastination leading to delay and underfunding in the accumulation plan
- Wrongly expected that CPF alone will be sufficient for retirement
- Underestimation of how much is required at retirement age to live that desired retirement lifestyle
In this article, I’d like to discuss point #7.
To introduce an analogy to facilitate the discussion, let’s think of retirement to like a plane taking off a runway…something that most of you will be able to identify with. After all, taking vacations overseas is one of the most favorite pastimes for overworked Singaporeans, wouldn’t you agree?
A. The Destination
Given that our longevity, retirement may span at least 25yrs. Hence, for discussion purpose, let’s assume that we’re taking a Flight to Brazil which is a 30 hour flight time
False perception: one may think that the retirement period is far shorter
B. Plane type, Engine, and thrust, fuel capacity
Given the destination, which plane do you think can best bring you there most effectively in one piece with minimal refueling stops? A turboprop, piston, midsize jet or a wide-body airliner?
A wide-body airliner of course!
In financial planning terms, the size of the plane is akin to the size of the retirement nest egg required to provide you with the desired retirement lifestyle till the end of days…
After all, Singapore is reputed to be one of the most expensive cities to live in.
False perception: one may think that they can rely on CPF alone or that retirement doesn’t require too much money.
C. The Runway
Every plane needs a runway and in retirement, the runway is the length of time from now till our expected retirement age e.g age 60
Typically the larger the plane, the longer the runway needed.
Since we have deduced from above that we’ll require a Boeing A360 equivalent, we do need a long runway, agree?
That means that we need to start early – as soon as we’re in our age 30s to start accumulating towards our retirement nest egg.
If we take advantage of the long runway by starting early, small regular contributions can allow us to achieve your retirement goal with little financial stress. We can see that through the effect of compound interest in the picture below. It certainly looks like a plane take off trajectory isn’t it?
However, if we procrastinate and start later in life e.g age 45, the runway will be shorter and we will be required to contribute significantly more on a monthly basis to reach the same end goal. That would be pretty stressful, wouldn’t it?
Another example can be seen in the following