Read and understand materials about self-empowerment, investment, and money management. Here are four books to get you started with:
“The War of Art” by Steven Pressfield
“Why Stocks Go Up and Down” by William Pike
“The Intelligent Investor” by Benjamin Graham
“Turning Pro” by Steven Pressfield
2. CONNECT AND DISCONNECT MORE.
Networking is very important especially if you will be dabbling in the field of business. Meeting people with shared interests will not only bring a life of fun but also a life of opportunities. Your network may refer you to your first job or even challenge you to be a business partner. On the other hand, you must disconnect with the distractions such as excessive amounts of alcohol or other vices that are harmful to your body.
IN YOUR 30s
3. BEGIN NOW.
The sooner you start, the more money you part with. In order to retire on 80% of an income, a 30-year-old must save 10% of his or her salary.
4. INVEST IN STOCKS.
Even if the economy suffers badly, your account will have time to recover. For instance, The Fidelity Select Software and Computer fund has yielded more than 11% a year since 1996. Keep it basic with a low-cost index fund.
IN YOUR 40s
5. PUT VALUE TO YOURSELF.
You may want to put your retirement savings into hold because of your child’s college fund. But, keep in mind that you cannot load for retirement yet you can loan for college fees or even get a scholarship.
6. SEEK THE EXPERT’S ADVICE.
To reach the maximum level of your retirement savings, sit down with a financial planner. Create a financial goal together and learn how to save more, spend wisely, and invest to reach it.
IN YOUR 50s
7. STAY WITH STOCKS.
You may increase your percentage of savings by investing in bonds but do not totally quit on stocks. To battle inflation, you must lean on the stocks’ higher growth potential.
When you are young, in your 20s or 30s, retirement feels like a looooong way ahead.
Typically in your 20s, the only person you have to spend for is yourself. In your 30s, you will have new financial priorities such as the wedding, child’s schooling, house loans, etc.
If you consider all the aspects of your finances and fast-paced life today however, you will realize that it is the best time to start saving for retirement before you hit 35. Even the strategies to save for retirement are in-lined with the ideal to start saving while you are young.
Here are the 4 strategies to save for your retirement before your mid-30s…
1. PAY OFF YOUR DEBTS
It makes sense to pay off your debts or at least your high-interest debts before you save for your retirement. Since not all debts are equal, pay off your high-interest debts first followed by the lower ones.
2. SET UP A BUDGET
Systematically allocate your income onto different categories and stick to that budget. Do not spend beyond what your budget is for that month. This allows you to save regularly rather than arbitrarily.
3. SEEK FOR AN EMPLOYER THAT SUPPORTS YOUR GOALS
Image Credits: American Advisors Group via Flickr
As much as possible, look for an employer that supports your long-term goals. If your employer offers Retirement or Pension Plan then embrace this company benefit.
4. TRACK YOUR RETIREMENT SAVINGS
During your…
a. 20s
It is best to start saving at least 5% of your income or sign up for your employer’s Retirement Plan. Avoid debt as much as possible and get educated about your finances.
b. 30s
Invest your money and check whether it is in lined with your goals. Increase your contribution to your Retirement Savings while preparing for your child’s school fees.
c. 40s
Make thought-through decisions about your expenses and cut down the unnecessary. This is when you hit your savings to the maximum. By this time you should have at least S$80, 000 to your Retirement Savings.
d. 50s
During your 50s, you must prepare for the unexpected. Seek the financial experts’ help if you must. Then, plan your exit with glee because you are well prepared for it.
Note: This is just an ideal time frame for your Retirement Savings. Contemplate and reconsider the realistic measures that are suited for you.
After countless years of routinely work, most people cannot imagine a life without it. Retirement, a course that can happen either by choice or by circumstance, came as an easy decision for Lee Wachtsetter.
Lee Wachtsetter or commonly called as Mama Lee has been spending the past seven years on the luxury liner named Crystal Serenity.
Image Credits: YouTube.com
She told USA Todaythat she was always fond of cruises. In fact, she has been on more than 283 ships since 1962. She spends about $164,000 a year to live cruise-ship lifestyle, which includes a single-occupancy seventh deck stateroom, all her meals, and the cruise’s entertainment.
In order for her to afford this, she sold her five-bedroom Fort Lauderdale-area home after her husband died.
Before her husband died in 1997, he told her to never stop cruising because both of them have deeply rooted love for it…and so cruising she shall! She chose the luxury liner because of their dance programs. Aside from frequent cocktail parties, Mama Lee enjoys watching movies, interesting lectures, and other free daily entertainment such as ballroom dancing.
Image Credits: Gary Bembridge via Flickr
The sea life has brought Mama Lee nothing but joy but the hardest part of her retirement is being away from her three sons and seven grandchildren. Luckily, technology paved way for regular Skype and email conversations.
She has been on the Crystal Serenity since 2008, a period of time that is longer than most of the crew. The relationship she built with the crewmembers made her feel close to home. On an interview, she once said: “The crewmembers bend over backwards to keep me happy. Some are almost like family now. If they don’t have what I want, they get it. Even if they have to buy it off the ship or make it to my specific needs.”
A YouTube clip of their Christmas dance show proves that she can still shake it even at 86…
To retire on a luxury cruise is truly a dream of a lifetime. It makes you realize how to live in the moment like Mama Lee — Dancing, Cruising, and Enjoying Life.
Supplementary Retirement Scheme (SRS), as the name suggests, is a plan designed to help fund your retirement besides the CPF. It forms one of the multi-pronged approach by the government to help tackle the problem of a silver tsunami that Singapore is facing.
SRS is a voluntary scheme which offers tax benefits in the form of a tax relief for every dollar you contribute up to a maximum of $12,750 per year. There is no minimum amount and you are free to contribute any amount to your account with any of the SRS operators: DBS, OCBC & UOB.
You can also invest the amount in SRS in a variety of instruments such as stocks, bonds, unit trusts, fixed deposits, insurance and many more. You also have the option to keep them as cash which give you a meagre return of 0.05% per year.
One thing to take note is once you have decided to fund your SRS, any premature withdrawal before the statutory retirement age (currently at 62), there is a 5% penalty fee and 100% of the amount withdrawn is taxable.
If you have the discipline to keep it till the statutory retirement age, good news is only 50% of the withdrawals from SRS are taxable or what they call it as a 50% tax concession. And you can spread the withdrawal over a period of 10 years.
In other words, if you have manage to accumulate $400,000 in your SRS at retirement, you can strategically withdraw it over 10 years, i.e $40,000 a year – to pay zero tax. (Since only 50% of the $40,000 is taxable and the first $20,000 is not taxable.
In the cumulative SRS statistics published by MOF, less than half of the account holders are aged between 21 – 45 in December 2013. Only 11% of those those aged between 21 – 35. While it is understandable that these group of people are financially strapped due to family commitments, it would be wise to apportion at least part of their income to SRS to enjoy tax benefits.
While some may argue that the tax benefits are merely deferred and locking your cash up till the statutory retirement age of 62 is not attractive, a closer look into the numbers may prove otherwise.
Let’s take a look into a few scenarios, making certain assumptions.
1. 32 years old earning $50,000 a year
For someone who is taking home $50,000 a year, the tax payable is $1,250 ($550 for the first $40,00 + 7% of the next $10,000)
If he/she decide to fund the maximum SRS amount of $12,750, the taxable income would be reduced to $37,250 and the tax payable is therefore $453.75 ($200 + 3.5%*$7,250). The amount of tax saving amounts to $796.25.
a. If he/she decide to contribute all the way to 62 (30 years)
Assuming a growth of 8%, the SRS account would be sitting at a value of $1,444,360.94. There are many different way on how the withdrawal can be made. For now, let’s take it as an equal drawdown over 10 years, or $144,436 per year. Half of this amount is taxable which is $72,218. With a tax rate of $550 for the first $40,000 and 7% for the next $32,218, we get $2,805.26 of tax.
You might think that’s a huge amount ($28,052.60) considering that you have to pay it over 10 years and it is something which you could avoid should you not contribute to SRS as capital gain on shares are not taxable.
But let’s not forget that you also save $796.25 of tax per year for 30 years (assuming same income and tax rate), and should you have been more responsible with your finance to grow these extra savings at a modest rate of 4%, these savings would miraculously amounts to $44,657.63. That’s not too bad isn’t it?
The only drawback is you cannot withdraw from your SRS before the statutory retirement age without incurring any penalty fee.
b. If he/she only made a one time contribution of $12,750
Again, let’s assume growth is at 8%, $12,750 of contribution will grow to $128,298 in 30 years. This amount by itself will not be taxed if you are wise enough to spread the withdrawal over 10 years. (or 4 years)
Don’t touch it for 30 years? For a humble amount of $12,750, i will take it. Tax savings? $796.25. Opportunity cost saved? $8,021 at 8%, or $2,583 at 4%.
2. 32 years old earning $150,000 a year
For income earner in the higher tax bracket, the tax benefit are more evident than those in the lower bracket.
Tax payable without SRS: $7,950 for the first $120,000 + 15% of $30,000 = $12,450
Tax payable, contributing $12,750 to SRS: $7,950 for the first $120,000 + 15% of $17,250 = $10,537.50
Tax saving: $12,450 – $10,537.50 = $1,912.50
a. If he/she decide to contribute all the way to 62 (30 years)
Same as (1), you will be taxed at $2,805.26 per year for 10 years.
Which will you choose? Save $1,912.50 per year for 30 years or $2,805.26 per year for 10 years?
It’s a no brainer.
b. If he/she only made a one time contribution of $12,750
Do i even need to calculate this?
So is SRS a sure win?
The thing to note in both examples is if you have other income sources at your retirement and say it adds up to $150,000. This would have cost you $12,450 of tax. If you add your SRS’s taxable amount of $72,218, you may end up in the higher bracket with $222,218 of chargeable income. Doing the maths, your tax payable end up to be $24,749.24. ($12,300 of additional tax per year for 10 years) More than what you would have saved from the tax.
In addition, your children will not be able to claim for ‘Parent relief’ since your income is definitely more than $4,000 a year. (But look, i can’t fathom the idea of someone retiring with less than $4,000 of income in a year anyway)
Some may also argue that you can make a cash top-up to your CPF and enjoy a risk-free rate of 4% in your Special or Retirement Account. (Currently with a $7,000 cap for yourself and $7,000 for your family members)
There are many other scenarios which may throw SRS out.
But the trick here is to keep the value of your SRS within the lower tax bracket while maximising the tax benefits on the other hand. (A yardstick of $440,000 will not cost you any tax since you can spread $400,000 over 10 years and the remaining $40,000 is not taxable once it is reduced by 50%)
I am also assuming you will not be letting your money sleep in your SRS account. You need to make it work harder than the 0.05% that the banks currently offer while managing the exposure to your risk and age profile.
An option is to consider using your SRS to buy into the STI ETF.
Many people cannot imagine themselves to be retired. It may be so many years away that it does not resonate to the current ideology of working hard for success and financial freedom or to simply stop working.
There are two kinds of retirement: by choice or by circumstances.
If you choose to (or not to) retire, it means you have either achieve financial freedom or you have relieved yourself from most financial obligations such as paying off your mortgage and raising your child to legal age. You may also choose not to retire as you gain satisfaction from working incessantly till the day your body can no longer take it physically. Alas, you throw in the white towel.
Like it or not, the truth is you may also fall in the latter category. With bills to pay and mouths to feed, you try to impress your superior so that you can keep the job as long as you could. Unfortunately, besides culminated years of experience, you are also the few who has inflated the labour cost of a company. In contrast, a fresh graduate costs much less and has more drive and in a company’s perspective, it makes complete economic sense to choose the latter. Fortunately, in Singapore you are protected by the Retirement and Re-employment Act. Under section 7a, your employer should offer re-employment when you attained the specified retirement age of 62, until age 65 or up to 67 as may be prescribed by the Minister. Of course, your work must be satisfactory and you must be healthy in order to be re-employed. What if you are completely debilitate by common illness such as diabetes? Stroke?
Whichever the case, learning to live within your means when you retire is important. You need to ensure your money is sufficient to cover you until the day you call it quits. You don’t want to blow the last candle on your 80th birthday cake knowing that you have spent the last dollar on it,
Here are 8 tips to make sure you live within your means.
Create a retirement budget plan
Look you may have done this when you first started working but circumstances has changed, your income and expenses are no longer the same. Without a budget plan, you simply cannot predict (or to be as accurate as possible) when you will finish exhausting your retirement reserves. And that is dangerous or just plain irresponsible on your part. Start off by aggregating your sources of recurring income such as CPF, stocks dividends, rental income, proceeds from your business and interests from you cash reserves.
Track your expenses
To complement your budget plan, you need to be able to track your expenses to make sure you are in line. There are free money management apps available on your phone which you can use. So you can do away with the traditional way of budgeting with pen and paper and not worry that Alzheimer or Dementia may take them away.
Spend less than you earn
With the two tips above in place, spending less than you earn should be easily achievable. But don’t count on it should you decide to travel often and hit the greens every weekend. It is paramount to make sure that money that goes out is less than the money that comes in so that you will not deplete your retirement savings faster than you are even aware of it.
Don’t keep up with the Joneses
When you retired, you will have an army of retirement kakis (buddies) that are in the same boat as you. You will go golfing, play chess, go fishing and even travel together so no one will blame you when you want to get that Rolex that your buddy has or if you want to buy the most expensive golf equipment to unleash your Tiger-Wood-Skills in Sentosa Golf Club or in your state-of-the-art home theater with your virtual golf simulator. I won’t be surprised when you also pick up expensive hobby such as a punt in the casino when you see your ‘Chow Yun-Fat’-inspired buddy visit the casino daily. These activities are extravagant and while it is acceptable to occasionally indulge yourself, overdoing it will be detrimental to your retirement goals.
Form a saving group
Rather than a group of kakis trying to keep up with one another, why not do it the beneficial way? Form a saving group that reward the one that save the most for the week. A beer or even a treat to an afternoon high tea after living frugally for a week? I will take it.
Look out for free stuffs
Who say you can only keep yourself entertained by spending money? There are many community and social centres that regularly organise activities for the elderlies. Activities such as karaoke, mahjong session, excursions and road trips are easily available so make full use of them. If not there are also many attractions such as the National Orchid Garden, Malay Heritage Centre, or the S.E.A aquarium that offer senior citizens a discounted entry. You can also organise a fishing trip, a chess session or simply parading the birds in birds-singing corners.
Make use of senior citizen benefits
Besides having a concession travel pass, make sure you are savvy enough to know what are the privileges and benefits that are available to senior citizens. Some examples are the 2% discount for your shopping at NTUC Fairprice on Tuesday when you are aged 60 and above, 10% discounts at Watsons and 5% at Unity or Guardians, CHAS programme for the pioneer generation or even catching a movie at discounted senior citizen price.
Monetising your homes
Often viewed as a last resort, your home is an asset which you can monetize when you are asset rich cash poor. There are various options available for right-sizing. You may consider selling your HDB flats and move in with your family members to get the Silver Housing Bonus (SHB) of up to $20,000 to top up CPF Retirement Account. You can also join the Lease Buyback Scheme (LSB) where you sell part of the lease back to HDB and retains a 30 years lease. More info here: http://www.hdb.gov.sg/fi10/fi10325p.nsf/w/MaxFinancesOverviewLeaseBuyback?OpenDocument
There are also alternatives such as renting out your spare rooms and reverse mortgage that is currently in reviewed.
As you reflect on your retirement options, make sure you work towards creating a strong pot of retirement funds. While money is not everything, you would not want to rely on others if given the option to. Start saving for your retirement now and of course, don’t be penny wise and pound foolish.
