This article was contributed to us by Syfe, an MAS-licensed digital wealth manager.
Your 50s is full of opportunities and new possibilities. You’ve enjoyed much of your peak earning years. After years of climbing the corporate ladder, you now have one eye on retiring. And while you may still have financial commitments like your children’s higher education or the tail end of your mortgage, you know that in a few years, these will all be behind you.
In this pivotal decade, it is time to take planning for your golden years a lot more seriously. Your 30s and 40s may have been devoted to your marriage, children, career and other financial responsibilities, but your 50s should be when you strategise your savings, investments, and debt repayments for your own goals.
A good way to start is by conducting a thorough assessment of your finances. Determine if you are still on track to reach your financial goals. Are there any issues that could undermine your future financial security? Many people in their late 40s and 50s still have about 10 to 20 years before retirement comes. That’s still time to grow your wealth further or make up for any shortfalls.
#1 Review Of Your Current And Projected Savings
With retirement on the horizon, start thinking about the lifestyle you want when you finally hang up those boots. Find out how much you’ll need to save to make that dream a reality. You can make use of online retirement calculators and check your retirement readiness score to see where you stand compared to other Singaporeans.
If there’s a gap between your anticipated retirement income and the amount you need, consider making some adjustments now. A good place is to start saving at least 20% of your income and trimming expenses. The goal of a financially secure future must outweigh the satisfaction of spending today’s wealth.
#2 Grow Excess Funds Using Risk-Appropriate Investments
As life expectancy increases – the average Singaporean can expect to live till 85 or longer – saving alone won’t be not enough. If you want a comfortable retirement, you need to invest more of your savings.
That’s because you risk losing money in real terms if you keep too much as cash. Singapore’s yearly inflation rate of around 2% already outpaces many savings accounts. Following the spate of interest rate cuts we have seen by local banks, the gap is likely to widen. As such, your cash savings should mainly be set aside as an emergency fund and any surplus should be invested.
Investing more doesn’t mean investing into a hodgepodge of assets. Instead, proper diversification matters. A well-diversified portfolio contains a good mix of equities, bonds, real estate, and other assets. These should have exposure to different sectors and geographies.
While important for any age, having the right asset allocation for your investment portfolio becomes ever more critical in this decade of your life. Two things will help you decide: your risk tolerance – how well you can stomach the value of your portfolio going up and down with the market – and your investment timeline i.e when you expect needing the money from your portfolio.
#3 Give Your Investment Portfolio A Detailed Check-Up
As you get older, it is likely that your appetite and need for investment risk may change. Re-assessing your risk tolerance ensures you continue to be exposed to the correct level of risk in your portfolio.
Managing risk, especially drawdown risk, is what creates a smooth journey to retirement. As markets fluctuate, your portfolio may experience temporary losses. But what you don’t want is a catastrophic loss from which you never recover from. Remember, a 50% loss would need a 100% gain on the investment just to breakeven.
One way is to consider investing in risk-managed portfolios. Syfe’s Global Portfolio is designed to shield you from significant losses when markets crash and be on the front foot when markets recover. In times of significant volatility, Syfe’s Automated Risk-managed Investing (ARI) strategy reduces investors’ exposure to equities while increasing the allocation to bonds.
The adjustment is done to keep portfolio risk in line with investors’ risk tolerance.
When mis-aligned, the tendency is for investors to panic when they see their portfolios in the red. That fear can drive investors to permanently exit their investments and flock to cash. This is one of the worst money traps to fall into in your 50s. You are not just missing subsequent rallies, but potentially losing out on another 10 to 15 years of solid returns in the market.
Syfe’s Global Portfolio will not keep a conservative allocation permanently. The average equities allocation is about 60% for a moderate risk portfolio. When volatility starts to subside, the share of equities in the portfolio will increase again to benefit from the recovery.
#4 Consider Boosting Your CPF Savings
Another milestone to look forward to as you pass 50 is related to CPF. At 55, a CPF Retirement Account will be created for you, and you can withdraw your savings from your Special and Ordinary Accounts after setting aside your retirement sum.
If you don’t need the money now, consider withdrawing your CPF savings at a later date. That’s because your CPF savings can earn up to 6% interest per year after you turn 55. This outstrips the interest rates for savings accounts and even fixed deposits with the banks. Moreover, your risk is nearly zero. Used alongside your other investments, you’re essentially diversifying your risk exposure even further.
And if your spouse is a homemaker, chances are that they may not have accumulated much CPF savings. To help boost their CPF monthly payouts, consider making a top-up to their Retirement Account using CPF or cash. The good thing about using cash is the personal tax reliefs of up to $7,000 you will enjoy. Want more tax savings? Top up your own CPF account too. You will also receive up to $7,000 in tax relief while earning more interest compared to leaving your cash in the bank.
#5 Pay Down High-Interest Debt
As you look through your finances, another item to work through this decade is paying down debt. Now is the time to pay off all major loans, from credit card balances to car loans and other obligations. In terms of priority, focus on paying off loans that have the highest interest rates. This also means that your mortgage (if still outstanding) should be the last debt you repay. Housing loans in Singapore typically have lower rates ranging from 1.5% to 2.6% per annum depending on whether you get your loan from a bank or HDB.
Reducing your debt at this stage of life is important. Once you retire, the interest payments on outstanding loans can eat into your retirement income. This can create unnecessary stress and worse, make it more difficult for you to service your debt.
Set The Foundation For Your Golden Years Today
In this decade of your life, a comprehensive financial check-up is as important as a physical health examination. Understanding how much you have and how much more you need to achieve the future you want is the first step to financial security in your golden years. Many find that speaking with a trusted financial advisor can help.
Moving forward on the money moves above will also shield you from any economic headwinds ahead. You don’t have to make drastic changes immediately. It’s okay to take small steps towards these goals, like increasing your monthly investment contribution by $500, or committing to invest any bonuses received.
Your 50s may be a busy period, but taking the time to carefully assess your financial situation and investments will bring you closer to the retirement you are dreaming of.
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