Is retirement still a realistic prospect in Singapore?

We all have our version of what we think retirement will be.

For some, it’s images of an idyllic time spent with loved ones. For others, maybe it’s pursuing your hobbies and sitting on a sandy beach drinking tequila.

Yet the prospect of retirement can also seem increasingly out of reach for many Singaporeans.

Earlier, we shared that DBS recommends a retirement nest egg of S$550,000 for basic needs and up to S$1.3 million for aspirational goals.

Yet in a survey of 2000 adults by OCBC Bank, it was found that not only do many seem woefully unprepared for retirement, many also underestimated the amount they needed. 

Around 75% of seniors in their 60s and 85% of those who were married without kids underestimated the amount they needed, even though they selected the most basic lifestyle among the choices provided.

And in this same survey group, only 54%, or slightly more than half of the respondents, had started making financial plans for retirement. 

To exacerbate these worries, several signs are making retirement a more distant prospect.

Persistent inflation has led to a rise in the cost of living, with the prices of necessities increasing sharply since the Covid-19 pandemic. Insurance coverage is also getting more expensive as health insurance policies no longer cover the full medical bills—riders may not fully cover deductibles, and there is also a larger co-payment component.

In other words: you will need to fork out increasingly larger sums of money as you age, in tandem with the inevitable increase in prices of goods and services.

Given all this, can someone still reasonably expect to retire happily in Singapore, or should they expect to struggle to afford even a basic retirement lifestyle?

Saving alone is not enough

Many of us were taught since young to save for a rainy day. Parents would even purchase piggy banks for their kids to get started on inculcating the savings habit.

However, not many of our parents would have told us that savings alone are insufficient to help you retire. After all, our grandparents might have found it easier to retire as the cost of living was lower decades ago, but this assumption is no longer relevant.

Add on the fact that banks continue to pay marginal interest rates on savings accounts, sometimes as little as 0.05% per annum; even fixed deposit accounts can average interest rates of between 1% to 2%.

Hence, many of us will need to look for other sources of income to supplement this interest income.

Which brings us to the next question: what is considered a basic retirement lifestyle in Singapore, and how much would this cost?

A “basic” retirement lifestyle

To make a realistic estimate of how much you need per month for retirement, we need to define what a retirement lifestyle looks like.

After all, you want to live well, with the emphasis being on quality of life and not just quantity of the years lived.

The most basic standard of living involves keeping your current lifestyle with no changes, meaning you get to enjoy the same quality of life as you did before you retired. This is the “basic” that most surveys will ask about, and it involves a different number for every person, as no two people have the same lifestyle.

But here’s the catch.

Even if you manage to calculate how much you need per month, you should go on to add 20% or 30% to account for inflation and emergencies. So, if you project that you need S$3,000 per month for subsistence, then you probably need closer to S$4,000 or even slightly more.

There are also two additional aspects to retirement.

Not only do you need to build a buffer of cash, but you should also have a source(s) of income to help support you through retirement.

And if you wish to add on travelling, occasional restaurant meals and other more expensive pursuits, be prepared for this number to grow larger.

Remember, too, that you will need to pay insurance premiums to cover yourself for major illnesses, hospitalisation, and operations/procedures.

This is an additional but necessary expense to avoid blowing a hole in your retirement plan should an emergency occur.

Building multiple sources of income

With all this in mind, what does it actually take to prepare yourself financially for retirement?

For starters, you should start building your nest egg as soon as you hit the workforce, rather than wait until you are much older to begin retirement planning.

This means that you should earn and save while investing the money in suitable investment products such as unit trusts, bonds, or shares. This is where passive income can help to support your retirement goals and keep you afloat once you stop working.

You can check out our comprehensive guide on how to generate multiple sources of passive income. Here, we discuss how there are essentially two key aspects to retiring happily.

You need to build and grow your retirement fund through savings, bonuses, and savvy investing. At the same time, you also need to generate streams of passive income that will provide you with much-needed cash flow once you retire.

Your retirement fund serves as a buffer that you can draw upon for larger expenses and emergencies, while the passive income acts as a steady source of cash inflow that you use for daily expenses.In particular, investing in shares is one of the best ways you can grow your money and passive income over the long term.

Companies such as DBS Group and OCBC pay a consistent dividend, while real estate investment trusts such as Mapletree Logistics Trust and CapitaLand Ascendas REIT also dish out regular distributions.

You can also harness the power of compounding to grow your income stream by reinvesting the dividends you receive to buy more shares of these solid names.

As time goes by, you will end up with a comfortable nest egg and also have multiple sources of passive income that can put your mind at ease.

What would Beansprout do? 

Most people tend to view “work” and “retirement” as an “either, or” situation. 

However, as shared in our interview with someone who pursued FIRE and obtained financial freedom, the situation may differ quite a lot from one individual to another based on their aspirations and preferences. 

For instance, if you enjoy what you do, you may not actually need to stop working. Instead, retirement can be a hybrid model of working at your own pace while enjoying time with hobbies or loved ones. It could also involve some aspect of work while you spend time volunteering or engaging in a meaningful activity.

On the other hand, if you want to finally get started on travelling to every country in the world, then you’ll need to ensure you have adequate funds and the right investment approach to support such a pursuit. 

So while we do need to be more prepared for retirement against a backdrop of rising inflation and cost of living, it is also important to ask ourselves how we define “retirement”, and how it can be on our own terms. Wealth, after all, goes beyond purely financial considerations. 

Hence, any investment strategy should be tailored to these goals so that it can provide you with the money you need, along with that extra shot in the arm when it comes to passive income. Learn more about the different ways to generate passive income. 

Start retirement planning as early as you can, as compounding works the best when executed over years or decades. And with a well-thought-out retirement plan that you can execute consistently, retirement may no longer be a pipe dream. 

Join the Beansprout Telegram group for the latest financial insights to grow your wealth.