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Budgeting 101

What Singaporeans Can Do To Balance Immediate Financial Pressures Of COVID-19 With Long-Term Financial Wellness

Long-term needs like retirement adequacy, personal aspirations, and family support are no less important than short-term needs of today.


This article was contributed to us by Wina Appleton, Retirement Strategist, J.P. Morgan Asset Management.

COVID-19 has prompted rapid public health and societal changes in Singapore. And with the resulting economic fallout, workers are concerned about their finances.

With so many closed businesses, attention has focused on how working families can make ends meet. But there is also a significant financial impact on older adults who could be financially vulnerable if the pandemic leads to a sustained drop in their income and retirement savings, or if the sudden healthcare needs result in significant out of pocket costs.

Measures Introduced Addressed Today’s Needs, Without Affecting Our Future Retirement Adequacy

To help mitigate the financial impact of the pandemic, the government has introduced various support measures worth more than S$60 billion for Singaporeans through the Unity, Resilience, Solidarity and Fortitude Budgets. These includes cash handouts, deferment of housing loan repayment and support to employers to help retain jobs.

These measures help to balance households’ short-term funding issues while keeping retirement savings on track. As such, individuals’ retirement will not be set back. Singapore should be commended for prioritising retirement savings even in a crisis.

Offering cash support and subsidies are better than allowing early CPF withdrawals (as some have suggested) or reducing CPF contributions (as was done previously in 2003) because they address short-term income needs without affecting future retirement income adequacy. Liquidation of retirement assets at massive losses could be hard to recoup, especially for older CPF contributors.

It’s important to remember that CPF LIFE annuity payouts alone very likely won’t allow you to enjoy the retirement lifestyle you want, making it critical to continue investing for retirement outside of CPF.

Practical Steps We Can Take To Safeguard Our Retirement Nest Egg – Even Amidst The Current Crisis

In trying to navigate this crisis with a goal of keeping long-term savings as intact as possible, there are a few tenets for Singaporeans to keep in mind.

First, focus on what you can control – your savings rate and investments. Don’t worry so much about things that you can’t control, like the health of the macro economy or stock market volatility.

Cash flow is an area you need to navigate in a recession to ensure that you have enough liquidity reserves. Ideally you should try to have sufficient savings to cover 3-6 months of total expenses on-hand at all times. The silver lining of staying home over the Circuit Breaker period and not spending on dining out or travel, is that your savings rate is likely to benefit in the short-term.

Singaporean investors tend to have high cash balances, so if you have cash on the sidelines, there are buying opportunities right now. Think about putting your money to work by investing in strategies that match your long-term financial goals.

With markets slowly returning to more normal levels after whipsawing for most of March, bring some perspective to your personal finances. This is an opportunity to stress test your retirement plan’s sustainability. If you’re invested, especially in long-term retirement portfolios, try not to look at your account balances too often. Resist the urge to tinker because long-standing investment principles are more important now than ever. It is important to invest regularly, stay invested, diversify and adjust your allocation over time as your time horizon changes.

Investing regularly, even through this challenging time, provides discipline and helps ensure you capture opportunities at times when your emotions might inhibit getting invested. You can also benefit from dollar cost averaging because you are buying more shares when prices are low and buying fewer shares when prices are higher, smoothing out your investment’s cost and spreading out your investment risk. This way, you don’t have to worry about deciding ‘when’ to invest, which can help reduce the mental burden.

It’s also worth remembering that selling in down markets means locking in losses. The best days in the markets often closely follow the worst days, making it all but impossible to avoid the worst days and benefit from the best. Missing even a handful of these big rebound days could be damaging to your long-term returns. So, if you don’t need the money, stay invested.

Today’s environment also underscores the need to maintain diversification and rebalance your portfolio. Following the 2008–09 market decline, a diversified (60% equity/40% bond) portfolio that was rebalanced annually declined less dramatically and recovered 17 months ahead of the S&P 500 index, as shown in the chart below.

Portfolio returns with different blends of equities and fixed income assets (Source: J.P. Morgan Asset Management; Barclays, Bloomberg, FactSet, Standard & Poor’s. Data as of March 31, 2020)

Investing in professionally managed solutions like multi-asset mutual funds that are diversified and periodically rebalanced can keep you on track.

Finally, adjust your asset allocation over time by being thoughtful about appropriate risk levels at different phases of life, based on an honest assessment of your risk capacity and risk tolerance. This involves gradually lowering the volatility of your portfolio through diversification strategies and decreasing risk assets a few years before and through retirement. Try not to let short-term volatility derail your long-term retirement goal.

Take Actions That Your Future Self Will Thank You For

Riding out the immediate challenges from this unprecedented crisis is unquestionably everyone’s near-term priority, but your future self will thank you for not forgetting the need to try to protect your future financial life as well.