I feel fairly confident in saying that most Singaporeans won’t be able to stop work. Many will have to stay employed well into their 70s, and will plead for the privilege.
The environment for retirement is the worst it has ever been. This generation and the next have it much tougher than their parents. I will touch on four aspects why this is so, though I think there are quite a few more.
Low Interest Rates
First, we are looking at ridiculously low interest rates for the foreseeable future. The lowest it has ever been. This is bad for most Singaporeans, because much if not most of their money is tied up with insurance, such as in whole life and endowments. With low interest rates, insurance companies can’t make the same kind of returns when fixed deposits and government bonds were going at 5% or even 2%. Chances are that the projected returns will go considerably lower, unless insurers start adding riskier equities to their portfolio.
Low interest rates mean that investments that pay steady returns are dwindling. Singaporeans are generally conservative and prefer small consistent payouts over large uncertain rewards. It shows in the popularity of dividend yielding counters and cash. But now dividend investors have the worst of both worlds, depreciating capital and reduced payouts. Just look at the telecomms, banks, oil and gas stocks. It will take years for these to recover, if at all. Cash will continue to erode due to inflation and bank accounts paying next to nothing in interest.
No Job Security
Secondly, job security is non-existent. Millions of jobs will be wiped out due to work from home, automation, and robots. If a company doesn’t need someone in the office, it doesn’t matter if that person is 5 km or 5,000 km away. Judging by the number of people working from home, it is a very sizeable part of the workforce.
The probability of being retrenched in your 40s and 50s is near certain in some sectors. Retrenchments will start earlier and earlier, and many people in their thirties are already going through it.
There is no real defence against this, besides side-stepping the entire process by gaining financial independence early. Training or upgrading is unlikely to save a job. It will only save the worker by making it possible for him or her to join another sector. But more often than not, this new sector comes with more work and less pay. Restart at the bottom. Repeat every 5-10 years.
Inequality will be greatly exacerbated. It will only be a select few that will keep making outsized gains in their career. But many do so at a high cost, such as not being able to have or enjoy children.
Property will no longer contribute to retirement
Thirdly, property won’t appreciate like how it used to in the 1970s and 80s. Quite frankly, the older generation isn’t more financially savvy than their children. They just needed one good decision, which was owning their own home. The more they leveraged, the better. It is also the reason why our parents insist we do the same and buy property.
But that strategy is in serious doubt today. No one thinks that Singapore will grow at the same rate it did before. Most Singaporeans are clamouring for expats to go home. Who do you think will rent these empty condos, which are predominately owned by Singaporeans?
The outlook for HDB flats is even worse. The government has made it clear that the vast majority of HDB flats will be returned to the state at 99 years. 80% of Singaporeans stay in HDBs, which are depreciating in value. At best, HDB flats are cheap rentals. At worse, they are illiquid liabilities.
Finally, most Singaporeans will shoot themselves in the foot. The majority of people work against their own interests and never realise it. Investing and saving are done late in life, crippling compounding power. Funds are funnelled through biased advice into products with high fees and low returns. There is no concept of low-cost investing and insurance, which beats the so-called experts by a wide margin. Most follow the crowd and inevitably panic sell.
I don’t have hope for most Singaporeans. They want to be spoon-fed and told what to do. They fall easily for simple shows of wealth and promises to get rich. There is no saving them.
But I don’t believe my readers are like most Singaporeans. If you want a better retirement for you and your parents, maybe take a look at my e-book The Essential Guide to Retirement. It provides everything you need to plan a secure and satisfying retirement. I promise the tone there is much gentler. The subscription of $10 with a 50% discount is a better deal though. The paperback will be launched in another month or two.
Retirement should be a choice. But the reality is that it will be forced upon an increasing number of people. Recognise retirement is your responsibility. Not your employer, government or children. You are the one who will have to get through it.
Don’t put off planning for too long.