Start early and take stock to enjoy a good retirement: ST Panellists

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ST Invest Editor Tan Ooi Boon moderates a panel offering advice on how you can navigate issues many face when planning for their retirement.

SINGAPORE - When it comes to making plans for their own retirement, younger parents face the most obstacles. Apart from taking care of their children, they also have to set aside part of their income to pay for the needs of their own parents.

It's no wonder why this group is often known as the "sandwich class" because they do get squeezed for money by two groups of dependants. So it's no surprise that a new AIA Singapore survey shows that 60 per cent of parents invariably end up short of money in old age.

Three panellists on the ST RoundTable on Retirement moderated by Invest editor Tan Ooi Boon believe that parents don't have to suffer this fate if they take action now.

As Ms Melita Teo, chief customer and digital officer at AIA Singapore, put it, being aware of your own needs and devising a savings plan for them early is the only certain path to a comfortable retirement.

One way to achieve this is to do a "stock-take" of your income and expenses and learn to spend within your means, says Ms Tan Huey Min, general manager of Credit Counselling Singapore, a charity focusing on helping people burdened with debt get back on their feet.

To avoid being in debt, you can try to anticipate the bigger "emergency expenses" that your children or parents may need so that you don't end up busting your budget, says Mr Tommy Lim, a sales professional and father of two teenagers who is determined to have enough in old age so that his children need not worry about him and his wife.

Q: Why do parents need to do more for themselves?

Ms Teo: We did a survey with young families and found that 60 per cent of them do not have a clear retirement plan and are at risk if they don't start to put this as a priority soon. These days, young families spend 2.5 times more on their children's needs and much less on their own retirement planning. About 20 per cent of their monthly salary goes to their children's expenses, and only 7 per cent goes to their retirement planning. Even so, 70 per cent of these families intend to spend more on their children.

We feel that there is actually quite a big disconnect, and that is why we want to come out to raise the awareness on the need to be retirement-ready.

Q: What are the risks if you are not retirement-ready?

Ms Teo: Let me give you a very typical example. A man in his mid-30s and a father of two. His wife is a homemaker, and he has to support his two ageing parents. So this is what we deem the sandwich generation. There are many financial responsibilities that they have to take care of. In one of the extended studies that we have done, an average Singaporean is about 14 years short of his retirement planning.

That means that if a person can live up to about age 84 or 85, and he retires at age 60, he will probably have enough income to last only to age 70. That leaves him with the balance of 14 years of no income at all and that's very scary. And this is why we feel that there is a real need to raise this awareness so that young families, in planning for their children, must also be able to plan for themselves.

Q: Why do some people find it hard to save?

Ms Tan: A common reason is overspending. If I earn $1,000 and I spend $999, I will actually be all right. But if I spend $1,001, that means I'm starting to accumulate debt. So there are people who overspend. For many of us, it is also about putting enough time and effort to do the planning. Perhaps we think that "Oh, we have time", or perhaps we think that "I don't have time", or "I don't have money to save and set aside", or "It's just too much work".

Whatever reasons we give ourselves, if we want to retire decently, we do need to spend time and effort to plan for it.

Q: Are there families who use loans to support their lifestyle?

Ms Tan: Yes, definitely, that's why they come to us. They have over-committed themselves. Sometimes it's very unfortunate because parents always want to give the best to their kids. Even for someone who earns $10,000 a month, that's a lot because that is more than two times the median income for Singaporeans.

But if you want to buy the best of everything, premium pre-school that costs $3,000 or $4,000 a month, you want a Continental car instead of a car that serves you well, and then you want to eat in restaurants every week - all these cost money. Even with a good income, you still need to plan.

Q: So what can families do?

Ms Tan: I think it's very important to take stock and see where you stand. I mean, what are my earnings, what is my debt obligation, and then what are my financial goals, and then of course, very importantly, how am I spending now, and to see if my income can meet my expenses. But if it's enough to meet without any savings, then I may want to think how I can lower my expenses so that I have money to save.

And if I already have a debt there, then I may want to find a way to pay it off sooner so that I can start saving more and plan for my future. Frankly, saving is very important, but to really do long-term financial planning, you do need to invest, and you do need to buy insurance to protect yourself, to prevent financial losses due to medical expenses.

So sitting down, taking stock and realising that if I don't quite have the knowledge or information, then perhaps I need to attend courses or talk to someone who knows about financial planning to help myself to be better prepared.

Q: What are some challenges that younger parents face?

Mr Lim: I live with my parents and my two boys, so with the past 11/2 years of Covid-19-imposed restrictions, my wife and I are definitely sandwiched in more ways than one. There are many competing expenses for the funds that we have at our disposal.

Both my parents and my wife's parents are from the baby boomer generation, and people of that generation are typically not that well covered under insurance. So any unplanned medical expenses would be a very big burden.

For my children, when they were younger, there were actually a lot more expenses for the classes that they attended on weekends and so on. Now that they are teenagers, the expenses would be things like tuition, and then also, as with many of their peers, they are both bespectacled, so there's the recurring cost of spectacles.

A lot of young people nowadays also have teeth alignment issues, and the cost of doing that actually is a significant cost that we all need to reckon with.

But after balancing all those costs, we also have our daily expenses - the utilities, the transportation, groceries and, on top of that, mortgage payments. So after paying all the expenses, whatever that is left is the pot that you have remaining for financial and retirement planning. So it's actually very important to do the stock-take to know where you stand financially so that you can plan.

Q: So how should the parents start to plan?

Ms Teo: Our survey shows that a lack of financial understanding has created quite an over-reliance on bank savings. So 92 per cent of Singaporeans actually put money in bank deposits and only 21 per cent supplement their savings with investments.

When it comes to retirement, many Singaporeans only set aside about $250 to $500 a month. And it means that we have to find a way of making the money stretch better.

We also found that the savings tend to go towards more short-term needs. So 65 per cent will actually place more emphasis on having the emergency pool. We understand that trying to strike a balance amidst all of the various financial obligations is a tough act, but it has to start somewhere.

There are some fundamental actions that one should take, regardless of the amount being set aside. First and foremost, setting aside a regular amount into a diversified portfolio. That, in itself, is actually quite useful because you stay invested and you also have the effect of dollar-cost averaging.

And doing a regular review with your financial consultant is extremely important as well because needs change, they evolve from time to time, and it's important to ensure that your coverage is relevant and your savings are relevant so that you can continue to build up that retirement nest.

Finally, it's knowing how you want to retire, when you want to retire, what sort of lifestyle you want to have. That would help us determine what is the amount that we should set aside now and how well we need to grow it.

There are many tools and calculators that can help anyone understand how they should actually achieve their desired retirement lifestyle, and AIA has also developed very simple ones to help get anyone started.

Q: Any advice when it comes to managing a family's budget?

Ms Tan: Maintain the status quo. Don't increase any more expenses. Avoid taking up an instalment plan because a new instalment plan is a new commitment. So don't rock the boat - if you already have so many expenses, avoid taking on more.

For those who want to save a bit, one way is when you get your bonus. So when you get your 13th month bonus, save a big chunk of it. Yes, take out 5 per cent, 10 per cent to have a little bit of fun, but save a big chunk of it. Since you are not quite able to save using your monthly income, you save up your bonuses and 13th month.

Saving is not easy but we have to start somewhere. By saving $100 or $200, over time, hopefully, you can save $300 or $500. Now as we progress in our career, hopefully the income will also grow and hopefully, as the children grow up, they can also be a bit more financially independent.

Q: As a parent, what are your thoughts when it comes to planning?

Mr Lim: In Singapore, when you talk about investment, you cannot run away from property. But as with all planning, I think it is very important to have a degree of prudence in what you are considering. So, for example, you might have to consider that if there is a loved one with a medical condition, you might need to take some medical leave. And some of my friends have that situation. So with that, you actually have a loss of income.

So you have to plan for that as a possible unexpected expense. On top of that, if you're looking at property, maybe if there's a sudden spike in interest rates, are you able to sustain your mortgage payments? These are some levels of prudence, so I think anyone would need to do the stress test themselves before they go into that particular investment.

But financial or retirement planning is a holistic process. You cannot just plan it by yourself; you have to do it as a family unit with your loved ones.

Parents should do more for themselves

It's very natural for parents to want to provide the best for their children. But please consider starting proper retirement planning for yourself so that you will not unintentionally burden your children in your later years. It's about striking a balance. You really do deserve to live well and healthily in your later years after working hard for so many years.

Ms Melita Teo, AIA Singapore's chief customer and digital officer.

Not enough set aside for retirement

It's very worrying that the sums obviously don't add up. And with just under $500 being set aside every month, and still with the expectation of maintaining their lifestyle that costs $1,500 a month, something has to give. And on top of that, there's also the impact of inflation, which dilutes how much retirement dollars are really worth in the future. So whatever is being set aside, that money then becomes extremely precious as to how it might be invested and grown.

Ms Teo

Good to live within your means

I think one very important thing is that we need to recognise our own financial capacity and take stock of our financial commitments. So if my earning is this much and I've already committed that much, I shouldn't be making further commitments because I will be overstretching and, in a way, I'm actually going to start incurring debts.

Ms Tan Huey Min, general manager of Credit Counselling Singapore.

Best gift to your children

This is something that you, as parents, can give to your kids in future. Take care of yourself financially so that when your children have their own families to take care of, they don't really have to worry about you because you can take care of yourself. So I think that is the best gift parents can give to their kids.

Ms Tan

Importance of financial planning

Financial planning and retirement planning are actually closely related. I think retirement planning is something that has become more popular in recent years. It is very important to think seriously about the age that you want to take a step back, a step-down role where you have reduced income and still maintain an active lifestyle.

Sales Professional Tommy Lim, who is a father of two teenagers.

Family should make plans together

I think it is very important to do the stock-take because once you have done that, you know where you stand on a monthly basis. You must minimally be cash-flow positive, meaning your income covers your expenses. And then whatever in excess you can plan. But financial or retirement planning is a holistic process. You cannot just plan it by yourself; you have to do it as a family unit with your loved ones.

Mr Lim

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