This article was contributed to us by Wina Appleton, Retirement Strategist, J.P. Morgan Asset Management.
YouTube is full of viral videos showing novelty shortcuts for increasing productivity. There are so-called ‘life hacks’ for everything from household chores to academia.
What about life hacks to help make your retirement all you hope it will be? These are commonly overlooked, but they may be the most critical for your future.
The best way to get started is to focus on what you can control – how much you save and how you invest.
Singaporean households tend to be good savers, in fact, they are required to save 37% of their income into the CPF. Of the 37% contributed to CPF, only 6-8% goes to their special account which is dedicated for retirement.
Let’s say you and your spouse are 65 and both of you managed to set aside the basic retirement sum of $88,000 each in your Retirement account when you were 55. The estimated monthly CPF LIFE payout both of you receive today is just under $800 per month (based on the escalating plan). These payouts alone very likely won’t be sufficient to maintain your lifestyle in retirement, let alone allow you to enjoy the retirement lifestyle you want. CPF LIFE and other insurance solutions can help provide you a floor – meaning a regular income in retirement to cover your basic spending needs (e.g. to keep the lights on and put food on the table).
Good savings behaviors are handicapped by the fact that a large portion of savings outside of the CPF are in cash, an asset class that has delivered negative real returns against Singapore CPI over the past 15 years, meaning Singaporeans are effectively losing purchasing power by saving in cash.
To enrich your lifestyle and enjoy the retirement you want (e.g. to go on holiday with your grandchildren or your friends), you need to take control and put your savings to work by investing in growth assets in a diversified way and balancing current income with long-term growth.
There are three retirement life hacks that can help:
#1 Invest In Long-Term Growth Assets
In order to meet your retirement goals, it is important to invest in long-term growth assets to protect against the eroding effects of inflation.
When you are young and saving for retirement, investing in growth assets allows you to use the power of compounding to achieve your long-term retirement goals at a lower cost compared to cash savings.
As you shift into retirement, it is natural to prioritize income, but growth is equally important to keep up with inflation, especially health-care inflation. Health-care cost inflation in Singapore outpaces general inflation, making it a significant future expense. A report by Asia Pacific Risk Center in 2016 projected that Singapore health-care cost per elderly person will skyrocket 4.6 times from $8k in 2015 to $37k by 2030.
Moreover, you will need more care as you age. According to the 2012/13 Singapore Household survey, health-care cost as a percentage of total household expense increases as you get older.
So, even in retirement, you can’t just look for income and not consider growth investing. You will need a balanced approach that includes equities for growth to cover future health care expenses.
#2 Diversify Across And Within Asset Classes
As market conditions change, you should be well-diversified to protect your wealth.
With the ever changing market environment, there is not one single asset class that can consistently outperform every year. But investing in a diversified portfolio over the long term could help generate a more stable risk and return profile compared to holding only one asset class. A well-diversified long-term portfolio is better placed to protect against today’s market uncertainties while growing your wealth for spending needs in the future.
Most people have other priorities for their time that don’t include active investing. Using investments such as multi-asset funds to participate in the market, and thereby tapping into the stock-picking and asset allocation expertise of a professional for a small fee, could save the expense of your time and be a less complicated way of preparing for your future and saving towards retirement.
#3 Balance Current Income With Long-Term Growth
When it comes to investing, many Singaporeans generally seek to maximise current income, regardless of their age. One way to achieve this is by investing in multi-asset income strategies. This flexible investment approach balances income and growth by seeking income opportunities globally, aiming to provide stable, risk-adjusted income and long-term growth potential.
While you may be tempted to chase the highest yield, it is important to not overreach as it can expose you to higher risks (be it from over stretching into risky assets or at the expense of eating into capital). Look for managers who focus on risk-adjusted returns in an effort to deliver strong income and growth potential in a balanced way – without overextending for it. At different points in life, you will have varying needs and face changing risks. Multi-asset income investing can play a role no matter where you are in your retirement journey.
When you are young, it is important to maximize growth. Reinvest your income, so that you can put more of your money to work towards your future. When you are in retirement, you may want a consistent income stream to cover your day-to-day expense, whilst at the same time growing your principal and protecting your wealth.
Planning For Your Future Should Be A Priority
No matter how near or far you are from retirement, planning for your future should be a priority. Even if you haven’t focused on it, it’s never too late to begin speaking to a financial advisor to explore what investments options may be right for your retirement planning goals. The simple retirement life hacks here can help towards the goal to make your retirement all you hope it will be.