Have you asked yourself, 'When do I want to retire?' – and if so, what was your answer?
We each have our own interpretation of the 'ideal' retirement age. According to the Ministry of Manpower, the current minimum retirement age is 62, with a 're-employment' age set at 65 (with plans to increase this to 67 from 1 July 2017).
For many, the dream is to retire 'as early as possible' so that they can start to enjoy life sooner, without the stress that comes with work. However, as life expectancy continues to increase in future, we need to think about our retirement goals carefully.
So the question remains: When planning for your retirement, is earlier truly better?
The 'Early Retirement' dream: 55 or younger
Retiring at 55 or earlier sounds pretty good, doesn't it? You get to enjoy a more relaxed lifestyle and explore your hobbies and interests while you're still relatively young, and you'll have more time to spend with your loved ones without the daily nine-to-five work-related commitments to worry about.
However, an early retirement comes with a caveat: by 55, you'll need to ensure that you have enough retirement savings to last you through your old age. Not only that, you'll also have to think realistically about the cost of supporting your ideal lifestyle during your retirement, especially if it includes things such as overseas holidays, hobbies, spas and wellness retreats, regularly dining out, and so on.
If you have outstanding debts or loans during this period, such as for a house, car, or credit cards, then you have to consider how you're going to pay these off as well, without a steady source of income as a retiree.
Financial concerns aside, an early retirement also requires deeper thought into your personal goals and plans for the future. Work takes up a significant amount of time and purpose, so you will need to think of how you can spend your time meaningfully when you are retired.
Ultimately, it boils down to the opportunity cost of retiring early. Yes, retiring early means you'll have more time on your hands, but this comes at the expense of the opportunity to accumulate more wealth. You'll also have to think carefully about how you will spend your newly-freed up time with purpose.
Retiring the 'usual' age: In your early-mid 60s
Instead of retiring at 55 or earlier, you can choose to wait another five to 10 years till your early to mid-60s.
Extending your working life by a decade means two things:
- You'll have to push back your retirement, and have less time to enjoy life as a retiree;
- You'll have to ensure that you stay agile and adaptable to cope with the evolving demands in the workplace, such as through upskilling and retraining
At first glance, it may seem less ideal than retiring earlier – it's an additional 10 years of working life, after all. However, there are a few reasons this age bracket is considered a 'suitable' age for retirement.
By your mid-60s, you will likely have little to no housing loan debt to your name. At the same time, you'd likely have accumulated a fair amount of retirement savings from your working life thus far – at least a decade's worth more than you would have in your mid-50s.
Not only that, being employed past 55 means that you will benefit from an additional 1% CPF contribution rate from your employer. Over the years, this amount will have grown through compound interest as well.
Retiring beyond 65
Another option is to continue working beyond your mid-60s, for what most might consider a later retirement. The most obvious benefit of this is that you'll be in a position to accumulate greater retirement savings from your continued employment – which can result in a more comfortable retirement later on.
At this age, however, you'll have to ensure that you are not taking on additional stress at work that can adversely affect your health. Realistically, you could try to re-negotiate your employment terms – such as through reducing your working hours gradually or otherwise negotiating your workload so that you can ease into retirement as a semi-retiree.
Semi-retiring can help you 'have your cake and eat it', as you'll have regular income to support your existing lifestyle without eating into your retirement savings, while at the same time having more time to enjoy a more relaxed, stress-free lifestyle outside of work.
So…When should I actually retire?
The pros and cons laid out above should give you an idea of which age bracket works for you, based on your own personal lifestyle and retirement expectations.
However, if you're asking, 'how do I ensure that I can hit my retirement goals by my ideal retirement age?' – well, here are a few things you can consider.
Firstly, estimate how much retirement savings you expect to have by your 'ideal' retirement age. This should include both your personal savings set aside for your retirement, as well as your CPF savings. As a whole, consider if this will be sufficient to meet your retirement needs. The CPF Life Payout Estimator will give you a realistic idea of your monthly retirement income from your CPF, while the CPF Retirement Calculator can help you determine if your retirement goal is achievable, based on your desired retirement age, lifestyle, and current financial situation.
If you find that your retirement savings are not sufficient to meet your ideal retirement age, then there are options you can consider to supplement your retirement income. For instance, consider investing more money into your CPF now with the CPF Retirement Top-Up Scheme (RSTU) so that your money has more time to grow with compound interest over the years.
Another thing to take note of are your financial liabilities, such as any existing loans or debts. A 25-year housing loan, for instance, may eat into your retirement savings if you plan on retiring early before the loan term is up. Alternatively, you may wish to postpone your retirement to a later date, or perhaps restructure your loan such that your loan period is shorter.
Last but not least – Retirement isn't just about the numbers
One thing to keep in mind is that retirement isn't just about the numbers, be it your age or your savings balance – it's also about how you're going to spend your time in a meaningful way. Take some time to think about what you envision yourself doing in your retirement, and how you can make your retirement lifestyle a sustainable, enjoyable one in the long-term – and you will be much better prepared to enter your golden years!
Just remember, life is full of unpredictable situations, and it pays off to plan ahead. With the right mindset, you'll be better able to handle anything that comes your way!
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.