Juggling your housing loan payments, raising your children, and contributing towards your parents' retirement all at once?
If you're in your 40s, this might sound familiar as your financial priorities revolve around your home and family, and you may be focused on building a secure future for your loved ones. But ask yourself this question: When was the last time you prioritised your own needs?
Your desired retirement lifestyle & income
Your 40s is a unique time - you're old enough to have crossed major financial milestones, yet still young enough to chart the course of the next 30-50 years ahead.
Now is the time when you should (finally!) be putting your own financial needs first. That's not to say you should splurge on that dream vacation you've been thinking of – but rather, your own needs in this context refers to your golden years ahead, otherwise known as your retirement.
Now is the time to start thinking about the lifestyle you wish to have upon retirement, as well as the planning it takes to get there.
If you aren't sure where to begin, start with your current lifestyle as a benchmark. Do you want a relaxing and simple retirement, or do you envision a busy time filled with hobbies and activities? Do you see yourself traveling frequently, or treating yourself to fine dining meals more often? Last but not least, take into consideration your health. Are you comfortable with the amount of health insurance you have, keeping in mind the realities of health-related issues that come with age?
All of these decisions have financial impacts on your desired retirement lifestyle and the nest egg you need to accumulate, so take some time to think it through.
How much do you really need?
Now that you have an idea of the retirement lifestyle you prefer, you can afford to go a step further into working out the details of how you can make it a reality.
There are several tools to help you get started, such as the CPF Retirement Estimator. Based on your current monthly income and age, this will provide a realistic estimate of the lump sum savings you will need for your desired retirement income.
For a quicker estimate, you can consider using a general rule of thumb. If you're aiming to retire between 60 and 65, the rule of 300 may apply (based on the average Singaporean lifespan). A realistic estimate of your average monthly expenditure during retirement will give you the most accurate results.
At first glance, the number you end up with may seem daunting and unattainable – you may be wondering how you'll be able to gather that amount within the next 20 years or so.
In reality, however, you only have to ensure that you save a fraction of that amount every year. Compound interest over time will help ensure that you will hit your retirement goals, given adequate planning ahead.
Here's another way of looking at it. Say you're expecting your basic monthly retirement expenditure to come up to between $1,860 and $2,000 a month (anything else is extra, such as for luxury items or special occasions).
Assuming your payouts begin at age 65 and your life expectancy goes up to 85, you will need at least $1,860 x 12 months x 20 years = $446,400 in savings at age 65.
However, as illustrated above, you will only need to set aside *$249,000 by the age of 55 in order to guarantee your desired payouts from age 65 onwards.
Why is that so?
As you're already aware, a portion of your income, together with your employer's contribution, goes towards your various CPF accounts every month.
Your CPF accounts offer interest rates which compound over time, meaning your savings will continue to multiply every year.
This is the power of time and compound interest. In order to benefit, you have to plan ahead to ensure that you set aside and invest your savings early enough.
(Tip: Check your CPF balances regularly to ensure that you're on track towards meeting your retirement goals.)
Read more: Retirement: The earlier the better?
How can you grow your income for retirement?
Remember, storing away a huge portion of your savings in the bank will only lead to devaluation over time as inflation rates surpass the bank's interest rates. Instead, consider growing your retirement income through prudent investment and planning.
One way to go about this is engaging a financial planner to help you refine your budget, goals, and savings and investment plans to help ensure that you're on track.
Alternatively, you can take the time to research the various financial instruments, plans, and options out there yourself. You could also consider making voluntary top-ups to your CPF Account to take advantage of the interest rates, especially in the Special Account, which surpass both the inflation rate as well as the prevailing bank interest rates.
Read also: Should you keep your savings in your CPF Special Account?
Planning beyond retirement
By now, you will have a clearer idea of your desired retirement, as well as how you can go about achieving it within the next 20-30 years. However, there's one last thing you should think of alongside your retirement – that is, your legacy.
A CPF Nomination is necessary to ensure that your CPF savings are passed on according to your wishes. You should also be aware that a will cannot cover the savings in your CPF accounts.
Making a nomination only takes a couple of minutes at the CPF Service Centre, where CPF staff can act as witnesses and oversee the entire process. All you have to do beforehand is determine how you wish to distribute your CPF savings among your loved ones. For greater convenience, you can make an appointment ahead of time to skip the queue at the Service Centre.
Read more: Do this with your CPF before it's too late
At this stage of your life, when you're just about to enter your 50s, you're in a position to see your hard work and earlier efforts starting to pay off – a comfortable house to call home, with happy children and elderly parents well taken care of.
However, it's also time for you to start planning for your own future, and to put your own needs first. Retirement planning doesn't just help you achieve your desired retirement lifestyle, but also keeps your loved ones' minds at ease as they can be assured that you have a financially secured future to look forward to.
So look ahead and get ready to smoothly transition to the next stage of life!
Writer's Profile: Jonathan Lim is a writer who loves taking showers - because that's when the best ideas strike! Showers and deadlines aside, most days are filled with copious amounts of black coffee and gym sessions.