Table of Contents
It may seem odd that a person in his thirties is writing a book about retirement. What would I know about having to leave a career and planning the next phase of life?
Well, it’s because I am retired. I was diagnosed with stage three cancer when I was 33 years old, which was a life-changing event to put it mildly. Thankfully, I had insurance to cover treatment and the loss of income. Besides receiving the best possible care, I received a lump sum payout of over $700,000. That payout generates investment income of about $4,000 a month. Insurance added another $3,000, leading to passive monthly income of over $7,000.
The combination of a likely short lifespan and a sizeable cushion led me to seriously consider if I could retire and if I had enough. I researched how to grow and preserve my savings. I looked abroad to see if it made sense to settle there. I thought through the kind of life I want to live. My conclusion was that there was enough to thrive on, and I could effectively retire. I could move on to a life filled with more meaning, free of the struggles of the working world.
But it’s more than just the finances of retirement. It was harder than I thought to walk away from my career. I wondered if I did the right thing. The adjustment took some time, and after a few months, I found that retiring to do nothing was not the right thing to do. There was still more I could contribute.
I decided to write this book because, during my research and thinking phase, I found that there was little complete information on how to retire successfully, beyond just having enough money. There is so much more to consider in retirement, and these topics are barely discussed. There is no retirement book written by a Singaporean, for Singaporeans. There aren’t even many books from an Asian perspective. As someone with experience in finance, policy, and retirement, I felt I had an obligation to share my experiences and thoughts on how to end work successfully. This book is the culmination of years of training and thinking about financial independence and retirement. I hope it can help you.
You have worked hard and spent decades building up your life and career. After a lifetime of toil, you are finally considering if it is the right time to retire. Or, you have already retired and are wondering what you can do. By picking up this book, you are taking the first step towards making these decisions, and living your best life after work ends.
Retirement is a significant milestone. There is great potential for it to be among your best years, a chance to connect with your true self and build a deeper relationship with your loved ones. It is an opportunity for profound personal growth. Don’t waste what could be your best and last chance to fulfil your potential and achieve any lingering dreams.
But there will be new challenges and pitfalls you have to navigate. Stopping work will put an end to decades of routine and status, bringing doubts to your sense of worth. You no longer draw a stable income and face uncertainty on whether your money can last your entire lifetime. As a retiree, you become a prime target for schemers who will stoop to any means to take advantage of your trust and steal your hard-earned money.
To meet these challenges and live your best life, you have to keep an open mind, and be prepared to challenge your assumptions about retirement. Your retirement will be different from your parents and peers, and it is unique to yourself. This book, spanning the early and late stages of retirement, aims to be your complete guide.
Retirement: Is it for You?
Not all those who wander are lost – J.R.R Tolkien
Retirement is a new idea in our history. Humanity has been around for at least 200,000 years, but it is only in the last 130 years that we have been able to reach the concept of retirement, i.e. no longer having to work.
The first federal system of retirement was conceived in the late 19th century when Otto Von Bismarck, the Chancellor of Germany, announced that anyone over 65 years would be forced to retire and paid a pension by the government. He did this to prevent the growth of Marxists, which had advocated for even more radical socialist ideas for the working class.
This system was a novel idea at the time. Before that, people simply worked until they died. That was the default retirement plan.
In the centuries before modern medicine was created, it was considered rare to live over 60, and most were lucky to live past 30. Most people did not live to have a retirement. Early government planners had calculated that pensions for retirees were financially viable because most of the population would not actually live to collect them.
How times have changed. Now, the median life expectancy for most developed countries is above 80 years old. That is just the median. It means 50% of people will live past that. One in three Singaporeans will live beyond 90. With the retirement age still at 62 years old, most Singaporeans have over 20 years in retirement. That is a long time.
It is all the more reason to plan early and figure out how you will be spending your day. Retirement is not the end of you as a person. Indeed, retirement should be seen as the beginning of a new and rewarding chapter of your life.
What are the Major Forces Affecting You?
We have to be aware of the world around us and how things are changing. Like it or not, events from distant lands affect our retirement income and expenses and have a profound impact on our quality of life. Hence, we should pause to examine global trends and try to make sense of how they will impact us and our retirement. There are three major trends that I will discuss:
- Less Job Security
- Low-Interest Rates
Less Job Security
Economic restructuring is accelerating, meaning that as time passes, it is highly likely that the economic and business environment will change or become disrupted. It could mean that your employer can no longer operate, your work skills become outdated, or you become too expensive to keep on the job. More automation and digitisation in the workplace are being introduced, reducing the need for human labour. This trend will only accelerate given the COVID-19 (coronavirus disease 2019) pandemic, where people became the greatest risk to business as many couldn’t get to work and were forced to stay home. In contrast, robots and software can’t get infected, go into quarantine or require medical leave.
Job loss often affects those who are in their 40s and older, and will increasingly affect those in their 30s. These are the years when many people reach their peak earnings and start to take on heavy financial burdens such as property, insurance, and investments. They also begin to live an increasingly expensive lifestyle by buying cars or upgrading their homes.
It can be a stressful time as many belong to the sandwich generation and care for both younger and older family members at the same time. The sandwich generation has to help their children with reaching university and paying tuition. They must also support ageing parents with their care and finances. There is an increasing number of those who are still supporting their parents who are in their 70s and older. Most of us have to work hard and fight to keep our jobs to support our dependents and lifestyle. But ultimately, you don’t have full control over whether you keep your job or not.
It is challenging to be retrenched as an older professional. The chance of re-entry into the labour market within six months after a retrenchment is about 60-65% in normal times. Even if they do manage to find work again, some would have to accept a reduced title and salary. Together with sizeable financial demands, it makes saving for your retirement harder, and many would have to work longer than what they have imagined.
Less job security means less retirement security. Long gone are the days where people could work at the same company until retirement and walk off with an ironclad lifetime pension and medical insurance coverage. The burden of planning for retirement has increasingly shifted from the employer or government to the individual. You are now the one most responsible for your retirement.
There is no easy solution to reduced job security. It is happening all over the world, and Singapore is no exception. But you can reduce the odds of it being devastating. The critical thing is to attain your retirement sum as soon as possible. With a substantial cushion, you can take your time to find a new job suitable for you, and not be forced into any role that comes along. You can even retire if you have done the math and determined that you have enough. Security can be achieved by saving, investing, and living below your means.
Even so, try to preserve your income from your job by upgrading your skills. Move on when you sense your career, company, or industry is stagnating. It’s best not to hang on and ignore the warning signs as it will become more difficult to move and reskill the longer you wait.
With that said, I believe that as long as you keep a positive and open attitude, you will always be able to find employment.
In 1965, the year of Singapore’s founding, our life expectancy was 67. It has since steadily increased, reaching 85 years old in 2019, with no signs of stopping. More and more of us will live to 100 years old and beyond.
Longevity is celebrated in most cultures as a blessing, and it is something to be cheerful about. We can do more of the things we love, as well as be there for our family and friends. Having said that, there are things to consider. Living longer means that many of us develop and have to live with chronic health conditions. We would be in poor health for lengthier periods, and Singaporeans spend an average of 8 years in ill health. These conditions need to be cared for by doctors, and treatment and medication can last for years. All of this requires money.
Longevity also means our lives after retirement are longer. We retire in our 60s and have a life expectancy in the 80s. Retirement savings must then last for least 20 years. That can be daunting with no more income coming in and without proper planning. The upside is that many people can work longer, well past the official retirement age. We have more time to build a nest egg or accumulate for a more comfortable lifestyle.
The implications of living longer doesn’t just apply to us. Our parents are experiencing it too and will continue to require care and financial assistance in their old age. Many will expect and rely on their adult children to continue supporting them. While we should not shirk our filial duties, it does make it more challenging to put aside money for our own retirement.
We have been living with low-interest rates for over 20 years. The chart below shows the fixed deposit rates at Singapore banks since 1980. It peaked at around 13% in 1981, then dropped to about 5% throughout the 1990s. In the early 2000s, it fell below 2% and has continued dropping since then to near 0% in 2020. This trend shows no signs of changing any time soon. It may even fall to negative rates, meaning that you will have to pay the bank to store your money.
Governments set low-interest rates to stimulate economic growth. Businesses then borrow money at cheap rates, letting them expand and generate jobs. But this is at the expense of savers like retirees. With fixed deposits dropping to near 0%, it means that retirees have few ways to store their money at a reasonable return. You would have to take on more risk to generate a return that beats inflation. Inflation is an increase in the prices of goods and services in a country. Historically, it has been around 2% a year in Singapore. Inflation is not the same across all goods, and certain items such as medical and education costs rise much more than the average of 2%. With interest rates close to zero and inflation at 2%, the value of your savings will keep decreasing if you leave it in the bank.
To illustrate how fast your money can drain, let’s say you have saved $300,000 and retired at the age of 65. Assuming inflation of 2% and a withdrawal of $2,000 monthly, you would have entirely run out of money by 77 years old, which is probably just midway through retirement. Even if that sum is increased to $500,000, it only buys a bit more time and runs out at 82 years old, still below the average life expectancy.
To make your money last for your lifetime, without hoarding millions, you must put your money to work. If you do it right, a $300,000 retirement sum can keep up and even grow with you as you age.
When should I Retire?
Retirement can feel very distant while our present needs and wants are immediate. But the day will come. Most people don’t think about retirement until it’s too late, so they find themselves woefully unprepared. A growing number of people in their 60s, 70s and 80s will be forced into working longer than what they have ever imagined….
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