Retirement Myth #2: Forties Is Too Late to Start Planning for Retirement

byadmin@abundant
Asian Man Planning for Retirement

We all know the advice on retirement planning. The younger you start, the easier it will be, and the less you’ll have to save. Not everyone, however, is able to get that early start. If you are in your forties and asking if it’s too late to start planning for retirement. Let Abundant Life Planners comfort you by saying: No, it’s never too late. You still have compounding interest on your side.


So where do we start? Build multiple income streams and tap on the various government schemes available to help you in your retirement. Identify how much you need on a monthly basis for necessities and the bonus, can then be used for luxuries like travel.


Here are 10 tips to help you:

 

1. CPF Lifelong Income For The Elderly (CPF LIFE) Scheme

The CPF LIFE Scheme is a national longevity insurance annuity scheme that insures you against running out of your retirement savings, by providing you with a monthly pay-out for as long as you live. Based on the Full Retirement Sum (FRS), the monthly pay-outs you will be receiving ranges from $1,430 - $1,530.

 

2. Supplementary Retirement Scheme

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Withdrawals are penalty-free if they take place on or after the statutory retirement age (currently at 62).

The maximum amount that you may contribute as a Singaporean or Singapore Permanent Resident is $15,300 annually and foreigners at $35,700 annually*. Just assuming that you started depositing the maximum amount of $15,300 annually from 40 – 62, it would grow to $589,129.78 with a 5% interest annually.

 

3. CPF Investment Scheme

The CPF Investment Scheme (CPFIS) provides members with the option to invest their CPF savings in various instruments such as insurance products, unit trusts, fixed deposits, bonds and shares**. Just assuming that you started with an investment amount of $100,000 from 40, it would grow to $ 207,892.82 with a 5% interest annually at age 55.

 

4. Cash Savings

Just assuming that you started with an investment amount of $50,000 from 40, it would grow to $ 169,317.75 with a 5% interest annually at age 65.

 

5. Lifelong Annuity Plan

This would be a good passive income stream for you on top of CPF LIFE. Having it lifelong would ensure that you have adequate funds for your necessities for as long as you live.

 

6. Get Sufficient Insurance That Would Cover You as You Age

Most personal bankruptcies are caused by an unexpected calamity. Reduce your risk by buying adequate health insurance, disability insurance, and car insurance if you drive. If you have dependents, consider term life insurance for the duration of the time that your dependents will rely on you financially.

 

7. Pay Down Debts

Pay off credit card debt, car loans, and other high-interest or non-mortgage debt. This could also include your HDB housing loan mortgage, your car loan and even other types of loans such as business or personal loans. Start by clearing your high-interest loans first as they would cost you the most if left unpaid.

 

8. Remember To Plan For Your Retirement Even As You Plan For Your Children’s Education

Aim to be the last Sandwich Generation. When you spend $500,000 on your child for his or her education, remember to do the same for your retirement as well. This would ensure that you would be taken care of when you age.

 

9. Top Up Your Spouses’ CPF Account

Should your spouse be a homemaker; it would be wise for you to top up your spouse’s CPF account. Not only would you be able to benefit from tax savings, your spouse will also be able to benefit from CPF LIFE during his or her retirement years. You can enjoy tax relief of up to $7,000 per calendar year if you are topping up for yourself and additional tax relief of up to $7,000 per calendar year if you are topping up for your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings***.

10. Don’t Take On More Risk

Some people make the mistake of taking on additional investment risk to make up for the lost time. The potential returns are higher: Rather than 7%, there's a chance that your investments can grow 10% or 12%. But the risk, the potential for loss to your principal, is also much higher. Your risk should always be aligned with your age.


Reference

*IRAS | Supplementary Retirement Scheme (SRS), https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Special-tax-schemes/Supplementary-Retirement-Scheme--SRS-/, 22 Feb 2021

**CPFB | CPF Investment Scheme (CPFIS), https://www.cpf.gov.sg/members/bptopics/bp-topics/cpfis, 31 Mar 2021

*** CPFB | Retirement Sum Topping-Up Scheme, https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/retirement-sum-topping-up-scheme, 28 Apr 2021