Are you a Gen Z-er who dreams of retiring when you want to? If you’re anything like the youths polled by a recent survey on Gen Z’s attitudes towards jobs, savings and retirement, you probably want to stop working in your 50s.
The survey, conducted by national broadcaster CNA, revealed that nearly two out of three (63 per cent) young adults want to retire in their 50s.
Notably, more than half (54 per cent) said they needed or expected to have $1 million in the bank to achieve financial freedom by the age of 55.
This multi-national study polled around 3,000 people aged between 21 and 28 across six Asian countries, including Singapore.
While retiring when you desire may seem like a dream now, financial analyst Albert Tan believes that it is a feasible goal if you embark on prudent financial planning upon securing a full-time job with consistent pay growth.
Albert, who conducts NTUC Youth’s financial literacy workshops for young adults, has some basic strategies for you to consider. NTUC Youth, the trade union body’s youth wing, supports young individuals aged 18 to 25 in achieving their ambitions through holistic initiatives, including financial planning.
Assuming you are 25 and plan to stop working at 50, you will have 25 years to grow your money. The Senior Trainer and Partnership Specialist at financial advisory firm MoneyOwl suggests investing $1,000 a month and increasing that amount by 3 per cent every year. Based on estimated annual returns of 7 per cent, you should accumulate around $1,064,212 by the time you are 50.
According to Albert, who used retirement expenditure data from the national statistics agency SingStat, this $1 million should be enough to cover the basic expenses of an average retiree in 2050.
However, he warns that this financial strategy doesn’t cater for other life goals, such as buying a property or starting a family. Additionally, since the plan relies on linear wage growth, which may not always occur, it could be challenging to sustain for a few years, let alone 25 years.
“$1,000 a month may be easy for a university graduate living with parents, but it could be half of the take-home pay of an ITE first jobber. Individuals also start with varying financial situations, for example, having to pay off study loans and support family commitments. Finally, market conditions are volatile, and investment returns are hard to forecast,” he explained.
Now that Albert has shared the fundamentals for an adequate retirement, the real question is: how will you put them into action? Here are the deets from the financial guy himself.
Albert suggests focusing on monthly financial management, such as reducing expenses and increasing income.
He recommends saving 15 per cent of your monthly income after deducting fixed expenses, like loan repayments and living costs. For this plan to work, you must also set aside six months’ worth of monthly expenses as emergency funds before investing. Think of it as a rainy-day fund to cover your monthly fixed expenses in case you lose your income.
Once all these expenses are settled, the remaining amount or surplus can be allocated to long-term investments. As Albert mentioned earlier, consider increasing your investment by 3 per cent annually.
The diagram above illustrates how you can plan your monthly income. Refer to MoneyOwl’s website for more details.
Grow your income
Since continually cutting expenses can be challenging, the financial trainer recommends exploring ways to increase your income instead.
“You take home, say, $3,000. You scrimp and save everything you can and manage to save 50 per cent or $1,000. However, you must do a lot to reduce your expenses.
“But if you imagine increasing your income by, say, 50 per cent, your take-home pay goes up to $4,000. Now you have $1,500 [in savings] without doing anything to your existing expenses,” he explains.
Need help to snag a better-paying job? Consider joining the NTUC Starter Membership programme for young adults aged 18-25. You’ll receive personalised one-on-one career guidance from industry mentors. Additionally, you can power up your career with the membership’s range of career support programmes, such as resume workshops and mock interviews.
New skills could also lead to a higher-paying role. With the NTUC Starter Membership, you will receive $200 in fee support for over 6,000 courses, like data analytics and digital marketing.
Albert adds that cashback schemes, such as the DBS PayLah $3 cashback or the OCBC 365 Credit Card cashback of up to $160, can help reduce costs. However, he feels that it’s more important to focus on long-term savings.
“Whatever you have left, you can spend every single dollar. Therefore, whatever cashback you get becomes a bonus,” he says.
If you’re into cashbacks, here’s a good deal: The NTUC Starter Membership offers members extra savings on Shopee! New users can enjoy $15 off with no minimum spend, while existing users will receive a $3 discount with a minimum purchase of $30.
Invest consistently
When it comes to investing, our financial expert advises playing the slow-and-steady game, rather than banking on get-rich-quick schemes.
“Building your ability to earn a good income and manage your expenses is within your control. This will give you a better chance at financial freedom in your later years, instead of aiming for superior investment returns that are beyond your control,” he cautions.
Albert recommends following these four investment principles:
1 Pick the right balance of stocks and bonds that suits your risk profile
“Imagine today you have a plate of food on your lunch table. If you are overweight, you must cut down on carbs. Some people want to build muscle. Then, you would want to increase the protein, and so on. Each of us will have our own ideal plate to invest in.”
“Stocks and bonds are the key drivers of the economy, and that’s where the money is. These are real-world assets that you are buying.”
2 Diversify your investments
“Don’t put all your eggs in one basket. By basket, we mean a market represented by an index. For the Singapore market, that is the Straits Times Index (STI). But rather than focus on individual markets like China, India, or Singapore, just ‘buy the whole world’.”
3 Avoid timing the market
“Don’t move in and out; don’t try to guess when it’s the lowest, and buy low, sell high. There’s no need to do all that guesswork, just consistently invest and stay invested.”
4 Focus on low-maintenance funds
“Keep your costs low, so that every dollar you save is a dollar you earn. In Singapore, the STI has the 30 biggest companies in the Singapore Stock Exchange. You have your three local banks, domestic companies, Singapore Airlines, and all these stocks that perform well. [Investing in an index] assures that you are always buying the best companies.”
Even as you kickstart the plan to retire, don’t forget about CPF. Albert suggests that CPF should be the foundation of your retirement planning.
“Aim for at least the Full Retirement Sum (FRS) in your CPF Special Account or Retirement Account as soon as possible. If you have the FRS of $213,000 at 55, you’ll receive about $1,700 a month from 65 for as long as you live. This is a stable and lifelong stream of income that provides for your basic living expenses when you retire, forming your safe retirement income floor,” he elaborates.
In recommending the FRS, the financial planner referred to SingStat data, which indicates that retirees spent an average of $1,384 on basic expenses in 2023. Albert notes that with inflation adjustment, the sum is around $2,270 in 25 years.
Since CPF retirement payouts start at 65, he suggests investing outside of the CPF to plug the 15-year gap between 50 and 65.
Albert is an advocate of being more knowledgeable. He says that the NTUC Youth financial literacy workshops he conducts provide practical tips that can help you make sense of the theories.
“To make the most out of the workshops, you should act on your plans and execute what you have learned to achieve your financial goals,” he advises.
Not an NTUC Starter member yet? Sign up today to gain access to customised financial literacy programmes and career guidance.
