The official age of retirement is a “one size fits all measure”. Set at 65, it is about the average inhabitant of Singapore, not about every individual. After all, every situation and every person is different. Thus a question arises for all of us, at some point. We ask ourselves what the right age to retire actually is.
Because of the regulation, a lot of us plan everything towards retiring at 65, but that might not necessarily be the right thing for you to do. Before you decide to build your entire life towards that 65th birthday and retirement, there could be some other things that merit consideration.
First of all, let us have a look at what it actually means to retire. Some people do indeed retire at 65, but many others work on. Others still do not work until that age at all. Billionaire Warren Buffett, for example, at 87 still works because he likes what he does. In contrast, some lucky young men invented something at age 14 and never have to work a day the rest of their lives.
There are really two ways, besides using the official guideline, to determine what is the right age to retire for you. These have to do with what you have on the books and what it is you want from your life.
Let us start with the first one, because there is a relatively easy way to work out what you need in financial reserves to get by after your retirement.
There is something called the Income Replacement Rate, or IRR for short, which is the percentage of current income that you will need to live on comfortably. As a rule of thumb, this is about 70% for the remainder of your life.
Say you currently earn S$60,000 a year. Using our IRR guideline, you would want to calculate 70% of your current income to get by, which comes in at a post-retirement income of S$42,000. If you assume you will live to the age of 90, you could then retire age 60 if you have s$1.26 million in the bank.
You might be able to do this by downsizing, by saving or by clever investments. Through these means you could get these funds together and retire on the comfortable sum of S$42,000 a year.
Do note though that your investments still want to grow by 3 to 5 percent to keep up with inflation. A financial advisor can help you with that.
Of course, you might be happy to get by with much less than that. If you wish to live a simpler, less luxurious life than that, you could retire earlier. If you wish to sacrifice eating out and overseas holidays, you could get by with an IRR of 50%.
This would give you an income of S$30,000 per year and you would only need S$1.14 million in the bank by the age of 52 to retire.
There is also the option of going in the opposite direction and choosing to stop working with an IRR of 100%. Using the same math, you could then have S$60,000 a year until the age of 90 if you retire age 70.
In this way you can begin to think of your retirement as a number, a monetary value, rather than a specific age. This way, you can plan your retirement based on the what kind of a life you want to have, not on what the Singapore government tells you is the right age.
Unfortunately, life does sometimes overtake the best laid plans. However much you plan, you cannot plan for a sudden illness or accident which forces you to stop working. It is foolhardy to plan to work until a specific age and assume you will make it without making any sort of plans for if life does not go your way.
Not just that, a lot of this can depend on what you do for a living. Someone with an office job runs far fewer risks with his or her body than someone who does manual labour. It could then pay off for someone who works in the port to make ready for not being able to work until the age of 65, especially in that same job, where someone who works in finance could easily work on past that age.
It is important that you find a good insurance, including a life insurance, which sees to it that enough money is available for the remainder of your life, or for that of your family members, to get by comfortably if something bad were to happen.
Again, you should contact a good financial advisor on this subject. It takes a bit of commitment to make the perfect fit in insurance, depending on your total needs and wants. Besides this, there is the matter of balancing the premiums you pay for this with accumulating the funds you wish to invest, or use to retire on.
But of course, insurance is not the only measure you can take to prepare for an unfortunate forced retirement from the labour market. You can also find alternative sources of income, such as stock dividends or bond coupons, or even venturing into investing in a portfolio of rental properties. These are all passive forms of income, investments that give you a stable income for the rest of your life, should you be unable to keep on working.
The thing is though, you should make these preparations when you are healthy and able. After all, there might be a time when it is too late to do these things and it could come to cost you dearly.
All in all, planning your retirement comes down to only 3 things. A comprehensive insurance plan, passive income through the right investments, and a certain level of accumulated wealth. If you organise these things in the right way, and you plan using these guidelines, you can determine the perfect retirement age for yourself, rather than use the fixed number of 65.
If you plan this way, you find the right way to do things for yourself and how to make the best of your retirement. The result of that will be that you spend the remainder of your days much happier than someone who just retired at age 65 because that is the age at which one should retire, and then faces the difficulties of not having prepared for life after that. And ultimately, being happy is what we all want, especially in old age. Read up more on finance articles at https://credithubcapital.sg