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Here’s the Trap That Many Singaporeans Fall Into When Planning For Retirement Now

retirement finncial trap

Joanne Poh

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If you’ve actually started planning for retirement, that puts you ahead of most of your fellow Singaporeans, 41% of whom haven’t put a single cent towards it. So congratulations, you’re less likely to end up working way longer than you would like to compared to some of your peers.

However, retirement planning is tricky business, and making a mistake in your calculations can have you being forced back into the workforce when you’re old, decrepit and out of money. Here are some mistakes not to make.

 

Failing to take into account inflation

You might be living comfortably spending only $1,000 a month now. But just because you’ve managed to save $240,000 doesn’t mean you’re covered for 20 years of retirement.

Singapore is a country that has been experiencing escalating costs in the last decade, and if this inflation doesn’t stop you can be sure that your $240,000 is going to be worth a lot less by the time you get to retirement age.

The scary thing is that nobody knows exactly what inflation will be like over the next few decades, so all you can do is perform some intelligent guesswork.

While Singapore’s historical inflation rate over the past thirty years was 1.83%, this can be quite unpredictable and vary wildly from year to year. When adjusting for inflation in your retirement plans, it would be safer to provide for a higher inflation rate of say 3% to 4%.

Use this inflation rate calculator to determine how much your money will be worth over time.

 

Failing to consider variable inflation

While you can use overall inflation rates as a general guide, things get even more complicated thanks to variable inflation. Basically, not all costs will increase at the same rate, and you’ll need to know which spending categories are going to be more important to you as a retiree.

Healthcare costs are one of the biggest things you’ll need to worry about as you get older, and Singapore’s reputation amongst locals for being a great place to die but not to get sick should serve as a timely warning. In 2011, healthcare costs went up by almost 10%, as compared to the general inflation rate that year of 4.98%

Unless you plan to stop eating, you’ll want to consider food inflation prices, too. From 1975 to 1976, the cost of food inflation was an average of 1.97%.

 

Assuming your situation will always stay the same

It’s a mistake to assume that your life at 70 will be the same as your life at 25, just with more wrinkles.

While it’s impossible to predict the future, you’ll need to give yourself a bit of a buffer in your retirement fund to allow for future situations like the following:

  • Transport – If you dislike taking the bus and MRT now, wait till you’re older. Sure, you might qualify for the priority seats by then, but thanks to the ageing population there’s going to be a lot more competition over them, too. You need to factor in the higher cost of transportation if due to health reasons you need to take taxis or private transport. Note that the prices of public transport and taxis have gone up disproportionately over the last few years.
  • Relocation – Realistically speaking, many of us might choose not to retire in Singapore. Your family and friends may be here now, but there’s no telling what will happen years later. If you decide to relocate overseas when you retire, your costs will change dramatically, and you’ll need to consider additional costs if you’re moving.

 

An easy way to determine how much to save

If you’ve saved up enough to spend $2,000 for each month of your retirement, when you actually do  reach that stage, don’t go and blow every cent of your monthly allowance on Tiger beer at the kopitiam.

There’s a popular rule that retirees should plan to spend 60% to 90% of their pre-retirement income (after taxes) when they are retired.

So, if your salary is $5,000 a month, you should try to ensure you save at least $3,000 to $4,500 for each month of retirement.

But I only spend $2,000 a month now, you argue. Why do I need to save so much?

Well, the additional money is designed to take into account inflation (at a rate of about 2% to 3%) and additional expenses like healthcare costs.

Hopefully, with some smart investing, you’ll be able to build a retirement fund that lets you afford more than just the bare necessities.

What factors have you taken into consideration in your retirement planning? Tell us in the comments!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.

  • Selina Lim

    Hey Joanne,

    Another great article, as always! A lot of good advice.
    Just like to touch on a few items:

    >In 2011, healthcare costs went up by almost 10%, as compared to the general inflation rate that year of 4.98%

    Do you have any figures for the average healthcare inflation, over the long term? Would help a lot in my planning!

    >From 1975 to 1976, the cost of food inflation was an average of 1.97%.

    Any reason for focusing on those two years far back in time? A long term average would be more helpful, say from 1976 to 2014.

    >There’s a popular rule that retirees should plan to spend 60% to 90% of their pre-retirement income (after taxes) when they are retired.

    This is one rule that I find hard to understand. Personally, I think expenditure should always be based on your spending patterns. It is good advice to have a buffer (say plan for $3000 if you spend $2500 per month), but spending should never be tied to how much you *earn*.
    If we tie spending to earnings, we can say that:
    – Cleaners etc can live on $700 a month
    – Ministers need almost $100k per month
    Neither makes much sense.