With so many uncertainties in Singapore today, I’d like to focus on a few key points that hold true in any economic conditions in regard to retirement savings: · How much do you need when you retire? · Your company’s matching contribution · Additional ways you can save for retirement How much do you need when you retire? A recent study shows that 65% of all Singaporeans are not saving enough for retirement! So, how do you know if you fall into that category?
Well, for those of you who are within 10 to 15 years of the big day, it should be more cut and dry. At the minimum, you will need to have 10 times your final year’s salary saved on the day you retire. This number may seem rather large, but if you have been saying all along, it should be easily obtainable. Some of you may be thinking, “Oh no, I don’t think I am on track to meet the required amount.” Don’t worry; there are many ways to fix this problem… Your company’s matching contribution If you are eligible, make sure you are receiving your company’s matching contribution.
Most companies that allow its employees to participate in a retirement plan offer a matching contribution. In basic terms, this means that for each dollar that you contribute to your retirement plan in Singapore, the company will contribute a certain amount, as well. Each company is different, but it is essential that you know the matching terms. For example, some companies will match your contribution dollar for dollar up to 5% of your salary.
If you make $50,000 and contribute 5% ($2,500), the company would also add $2,500 to your account. Not a bad deal, right? In this example, it is vital that you contribute at least $2,500. Otherwise, you are basically forfeiting free money! If someone offers you cash with no stipulations, doesn’t it make sense to accept it? Additional ways to prepare yourself for retirement The above option is great assuming that you are eligible to participate in such a program.
But what if you do not have access to such a plan or you are already maxing out your retirement contributions through work… or would simply like some more diversification and/or investment choices than your plan offers? Well, the answer to all these problems lies in a traditional IRA or Roth IRA. In order to keep this article as concise as possible, I will not go into detail about what makes them different. Just know this: both of these plans are great retirement tools. Anyone who earns income (key word being earned, as in through some type of job) is eligible to start an IRA.
For 2008, the maximum one can contribute is $5,000 or 100% of one’s income (whichever is less). For those over 50, there is a “catch-up” provision allowing an additional $1,000 to be saved. What most people do not know is that an automatic contribution can be set up through your bank account for as little as $50 a month. If you can afford that extra $50, the value of an IRA can increase exponentially. For example, if you start contributing $50 a month at age 25 (assuming a modest 8% growth per year), you would have $181,946 at age 65.
And this is with a minimum contribution of $600/year. If you contributed $4,000/yr ($333/month), the end result would be an unbelievable $1,212,974! If a 65-year-old had that much money today, he/she could definitely retire worry-free. Retirement Investing – Are You Saving Enough in Singapore? Studies show that we’re currently not saving enough when it comes to investing for retirement. And people who have worked hard their entire lives find that they’re suddenly poor a few years into their retirement.
For example, a former general manager of a major human resources consulting company recently had to downgrade from a nice Mercedes-Benz to a second-hand Toyota Yaris just when he was about to enter his 4th year into retirement. The problem, says a pension analyst at one of the insurance giants, isn’t that people don’t know that they will be getting older and need to save for their future financial security, but that it’s so difficult to save. First, people don’t start early enough.
When you’re 20-something, lots of designer clothes, a sports car, night out and expensive dinners with a loved one seems to be much more important and enjoyable than saving for your retirement years. So most people only start to save for retirement when they’re already beyond 40 years of age. But according to Robert Kiyosaki, New York Times bestselling author of Rich Dad, Poor Dad and Rich Dad’s Conspiracy of the Rich, you should start making provision for your retirement from as early as 20-something.
Waiting until you’re 30 or 40 makes a big difference in lost opportunities for growing your retirement nest-egg. “The difference,” says Robert, “is staggering!” Another problem is that people live longer, much longer, than those who lived in the past fifty decades or so. Come to think of it… great-grandfather has just turned 105, and his youngster, who is already 80 thinks he’s as strong as an ox and should marry the young widow next door – at 40 years his junior! So why should you set yourself the impossible task of saving money for 20 years which you intend to spend for the next 30 to 40 years, whereas starting now in your early twenties makes common sense? That said, the current biggest problem is that you should get the best retirement savings plan that will grow side by side with the rising cost of inflation.
Let me explain what I mean by that. Back in the 1992 Thomas, a machine operator working for a small business company which offers no retirement package to its employees joined a retirement annuity plan from one of the life insurance giants. The problem is that Thomas’ original retirement plan which looked good when he signed the deduction stop order all those many years ago is no longer something he brags about to his co-workers. You see, during that time the retirement plan quoted a maturity value of between 10 and 15 percent growth rate – when the inflation rate was high.
Which means that the zeros in the quoted maturity value Thomas was expecting to receive looked like the numbers in a millionaire’s balance sheet. Now we’re in the 2010’s and things have also changed. And with the government’s intervention, life insurance giants no longer promise customers high retirement payouts like they used to do back in the 1980’s.
That said, Thomas has now been informed his expected maturity value has been drastically reduced by almost half (they now quote a lowly 6 to 9 percent growth rate), which means Thomas will have to add more to his current contributions if he still hopes to retire with the dignity he deserves. But it does not end there… There’s also the problem of the debt trap in which the majority of people are increasingly been caught on a daily basis through borrowing low income personal loan money they can’t afford at a higher rate than they’re currently getting out of their retirement investment in Singapore.
Does 27% interest rate ring a bell somewhere? Simply put, people are saving themselves not to get rich, but to the poor house. The best alternative, says some experts, is to try and repay as much debt as you possibly can and to avoid making new ones. This, of course, excludes the personal loan on your home which most people regard as a long-term investment.
Only once your debts have been settled can you start saving for your financial security at retirement. Now consider the following questions: Have you checked your current retirement savings lately in Singapore? If so, are you saving enough so you can retire comfortably? Or, Does your current retirement planning need a review? Why not call your trusted financial planning expert like licensed money lenders today and find out what your current retirement shortfall is, and how to close the gap before it’s too late?