How to maximise your chances to retire on your terms

This article is for information purposes only.

We all differ in what sort of retirement is most fulfilling for us. Some of us prefer a simple life after retirement, in exchange for retiring earlier; others may enjoy working even during retirement to keep themselves active. When you are clear of your retirement goals, you have a greater chance of succeeding. Here’s how:

Retiring in the way that makes you happy

Retirement goals are not universal, as they vary between each person.

To some individuals, three square meals, and time spent with friends in a coffee shop, defines a happy retirement. Others may have bigger ambitions, such as 100-day round-the-world cruises, or visiting exotic locations like Antarctica.

Besides aspirations, another factor to think about is retirement age. Some people want to keep working for as long as they can; and continue to earn an income well past the retirement age of 65. The crucial difference is the choice to work past 65, rather than being forced to for the sake of survival.

On the other hand, some aspire to “quit the rat race” early, with philosophies like Financial Independence, Retire Early (FIRE); where they save and invest aggressively in order to retire as young as 30 or 40.

Figure out your target retirement number

As the desires are so varied, a useful method to figure out how much you need for retirement is to use the Income Replacement Rate (IRR). The IRR is the percentage of your current income that you want to have after you retire.

Assume you currently earn $4,000 per month and want an IRR of 70%. This would come to $2,800 per month. If you choose to stop working at the age of 65, and live till 90, your retirement fund must provide $2,800 per month, for 25 years. This comes to $840,000. This is, roughly speaking, the amount you should aim to save by the time you retire at 65.

Note that there is no “correct” IRR, as it varies based on your own aspirations.

You could, for example, aim for an IRR of just 50%, but a retirement age of 55. This would mean an income of $2,000 per month after retirement; but it would have to last 35 years instead (the approximate sum is still $840,000).

Alternatively, use Standard Chartered Goal Planner to simulate your retirement goal and find out how you can achieve your target retirement amount. It is localised to Singapore’s social security framework while providing a holistic view of your net worth, cash flow and savings. As everyone’s situation and aspirations are different, discover suitable opportunities for your money and optimise your road to the retirement lifestyle you prefer.

You may end up needing more than you expected to retire

1. Longer life expectancy

The global average life expectancy at birth for men is 70.8 years, while for women it is 75.6 years. Countries like Singapore have among the highest life expectancies in the world. The average lifespan for men is around 81.4 years, while the average for women is 85.7 years. With people living longer, they will need to set aside more for retirement.

2. Rising healthcare costs

We cannot assume that all the years will be spent in good health. It may be possible that we require more frequent hospitalisation, or live-in assistance, toward the last decade of our lives.

In recent years, there has also been a global trend toward smaller families and lifelong singles. This can reduce the viability of relying on our children as caregivers, and we may have to provide entirely for ourselves in our twilight years.

Private nursing homes can incur significant ongoing costs, which may not fall within the budget of every retiree. The basic cost to stay in a nursing home, before subsidies, ranges from S$2,000 to S$3,600 a month, while at the premium end private nursing homes can cost between S$7,000 to $8,000 per month (depending on the home chosen).

As such, your retirement goals should be planned as if you will live to around the average lifespan; and you should bear in mind the accompanying healthcare costs for those years, when setting your IRR.

3. Inflation rate risk

Inflation refers to the rising cost of living over the years. Healthcare spending in the U.S. has increased from 5% to 20% of the total GDP between 1960 and 2020. In many other countries, the inflation rate is around 3 to 4% per annum; so it is important that your savings grow at the same or higher pace.

If we look at  an inflation rate calculator for Singapore, for example, we can see that a $25 medical consultation – in the year 2000, would have cost over $32 by the year 2009. By the year 2019, the cost would have risen to about $40.

For younger investors in their 20’s or 30’s, there is an ongoing risk that the cost of living could rise faster than expected, thus raising the needed amount for retirement. Ongoing review of your financial plan, such as rebalancing your portfolio once a year, can help to accommodate for these changes.

4. Availability and cost of insurance

The cost of insurance will increase as we grow older, so we should ensure sufficient coverage for health insurance, life insurance, critical illness, etc. while we are young.

If you do end up needing to buy insurance when you are older, you should prepare for significantly higher premiums. Also note that you may be unable to purchase insurance, once you have suffered certain conditions (insurers label these as pre-existing conditions).

In the event that you cannot get coverage, your retirement amount will need to take account of that. You will need to accumulate enough savings that, should you suffer a critical illness, you have the funds to tide you through even without insurance.

It is difficult to estimate these hefty costs, the best way would be to get yourself insured early.

5. Limited financing options

Certain credit facilities may become more restrictive as you age.

In Singapore, for example, the maximum quantum of certain loans – such as housing loans – may decrease if your loan tenure extends past the retirement age of 65. Other countries may have similar restrictions, depending on local regulations.

Likewise, some retirees may be denied access to lines of credit or personal loans, or find that their limited income allows them to borrow much less.

As financing is more difficult, it is important to have savings set aside for emergencies. You may not, for instance, be able to take out a personal loan for medical bills.

Make preparations to retire on your own terms

Using the IRR method above, you can approximate the amount of retirement figure you need.

For example, say you are aiming to accumulate $840,000 for retirement. Your portfolio has returns of 4% per annum, and you start saving at the age of 30; giving you an investment horizon of 35 years (assuming a retirement age of 65). You would have to set aside roughly $900 per month to meet this amount.

However, if you start later – say from the age of 40 – you would either need to set aside much more per month, or find an instrument that can give you a higher rate of return. For example, with an investment horizon of just 25 years, you would need to set aside about $1,630 per month, to accumulate around $840,000.

Your portfolio’s rate of return also plays a significant role. Consider you only put money in fixed deposits with interest of 1%. You would need to set aside close to $1,670 per month, for 35 years, just to come close to the target of $840,000.

As such, it is important to find the right mix of assets in your investment portfolio, according to your risk appetite, to meet retirement goals in the time you have.

Find the balanced mix of assets and not worry about outliving your financial resources

Consider a balanced mix of assets, such as insurance savings plans, bonds and unit trusts to grow your retirement savings, or be able to leave a legacy for your loved ones.

Try out our interactive Fund Library to compare over 300 fund offerings couple with fund details, research and fund-factsheets. If you’re clueless on what funds to pick, you can refer to our Fund Select List which covers across a wide range of asset class from equities, fixed income, multi-asset to liquid alternatives, and represents our selection of high quality funds using a rigorous, in-house proprietary quantitative and qualitative selection process.

It is important to review your financial plans and portfolio at least once a year to ensure that they are on track to meet your goals, and to adapt to new circumstances as retirement needs and goals may change over the years.

Financial independence enables you to have a comfortable retirement, one where you don’t have to make unnecessary sacrifices to make ends meet or worry about outliving your financial resources. Take charge of your finances by equipping yourself with the right knowledge, tools and resources. Speak to Standard Chartered’s Relationship Managers or visit any of our branches to learn how to manage and grow your wealth today.