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Start saving, investing early for the autumn years

Financial planner Kelvin Ang says a couple now need a ballpark figure of $2 million to $3 million for retirement.
Financial planner Kelvin Ang says a couple now need a ballpark figure of $2 million to $3 million for retirement.

Around 13 per cent of Singapore's population are older than 65 and this ratio will grow to 25 per cent by 2030 if the current fertility rate prevails.

Meanwhile, the life expectancy here, at 84.8 years, is one of the highest in the world, which means a healthy 65-year-old Singaporean today can expect to live up to 90, say many medical experts.

Not surprisingly, the issue of financial sufficiency in the post-retirement years has become a huge subject.

According to investment house BlackRock, 53 per cent of Singaporeans worry about not having enough income in retirement.

Mr Kelvin Ang, financial planner and council member of Families for Life, says young married couples should discuss the issue of retirement savings together, even though it may be some 30 years away. But he acknowledges that it can be a difficult issue for some working couples.

"Different people have different views about money," he said during Money FM 89.3 radio's Money & Me segment, hosted by Michelle Martin.

"Couples sometimes have difficulty talking about financial responsibility as they may both be financially independent and have different priorities. That is why communication is very important."

Often, conflicts in marriage arise from different attitudes towards money and spending.

For example, one spouse might view the other as a spendthrift. Or one may have an expensive hobby. Sometimes, a spouse feels he or she is shouldering too much of the financial burden in the family. These issues must be addressed and resolved early.

"Start by mapping out what your life and family will be," Mr Ang says.

Such discussions can include the number of children to have, the type of home to buy and how to spend discretionary funds.

"When kids come into the picture, expenses will balloon. You have to factor in diapers, milk, food, childcare, tuition."

So how does one start financial planning for retirement at a younger age?

  • BASICS OF RETIREMENT PLANNING FOR YOUNG COUPLES

  • STEP 1:  Obtain sufficient medical coverage to cover hospitalisation and critical illness.

    STEP 2:  Map out your family's needs and the kind of lifestyle you will have. Work out your living expenses.

    STEP 3: Decide how much funds you will need to educate your children.

    STEP 4: Save up to six months of income in the event of a job loss resulting from technological disruption. Also, set aside an amount for investment.

    STEP 5: Decide how much you will need in retirement. Ensure you have savings or investment returns to meet it.

Get your foundation right, Mr Ang says. "Start by having sufficient insurance to cover your medical bills, critical illness and similar exigencies," he advises. "Then examine your living expenses, and have a clear idea of how you wish to live your golden years.

"You need to talk about current living expenses, discretionary spending, contingency reserves, and even the issue of leaving a legacy for your kids."

Once there is some clarity and purpose, the next step is to start setting aside funds.

How much does a couple need in retirement?

"When I started in the insurance industry some 10 years ago, the ballpark figure was $1 million," he says. "Now, given the cost of living, $1 million won't sustain a couple for 10 or 15 years. We would be looking at $2 million to $3 million at the very least for a couple."

That is why there is a need to set aside savings early.

"Pay yourself first every month. Save a portion of your income. Use that portion of income to grow and compound your money."

Also set up a "contingency fund", amounting to six months of total monthly income, for an emergency, he added.

"If I can't work for six months or beyond, I may have to take no-pay leave. Am I adequately protected against any medical emergencies or circumstances which can impact my livelihood? Do I have enough?"

Then use the balance of the money for investing.

While the financially savvy may invest in the financial markets, those not inclined to invest actively should look at insurance options such as endowment and investment-linked policies.

"Investment-linked products provide higher returns but do not guarantee returns. If you can't stomach market volatility, an endowment policy is the best for you as dividend is declared every year," Mr Ang says.

When the time comes, couples can also boost their post-retirement nest egg by "right-sizing" their homes.

"Children will grow up and move out," he adds.

"Decide how much space you need after that. Then buy the right type of home, and free up spare cash for retirement needs."

He points out that one topic often not included in retirement conversations is the Lasting Power of Attorney (LPA).

This is a legal document that lets a person who is at least 21 years old appoint someone to make decisions and act on his behalf if he loses his mental capacity. Application fees to set up an LPA are waived for Singaporeans until Aug 31.

Do this for your parents first, then for yourself, Mr Ang advises.

The bottom line in financial and retirement planning is to ask yourself: How much do you need to sustain your lifestyle now? How much do you need for your children's future education? How much do you need to reach your financial goals when you turn 50 or 60? How do you want to live after retirement and how much funds do you need to sustain that lifestyle?

"The best time to start financial planning is yesterday. Not today or tomorrow. If you haven't started now, you are a day too late," he says.

But it is never too late to start.

A version of this article appeared in the print edition of The Straits Times on February 17, 2020, with the headline 'Start saving, investing early for the autumn years'. Print Edition | Subscribe