Maximising retirement savings with supplementary regular savings plans

Retirement is a significant milestone in life that most of us look forward to. It’s when we finally relax and enjoy the fruits of our labour. Unfortunately, many people struggle financially during retirement because they do not plan properly. In Singapore, the average life expectancy is 83 years for men and 87 years for women.

With a longer lifespan, having enough savings to sustain our lifestyle during retirement is essential. However, with the rising cost of living and increasing healthcare expenses, relying solely on CPF (Central Provident Fund) may not be sufficient. It is where supplementary regular savings come in. By consistently setting aside a portion of our income into supplementary savings, we can maximise our retirement savings and have a comfortable retirement. This article will discuss steps investors in Singapore can take to achieve this goal.

Understand your retirement needs

Before diving into supplementary regular savings, it’s crucial to understand your retirement needs. It involves determining your desired lifestyle during retirement and estimating the expenses needed to sustain it. Housing, healthcare, utilities, transportation, food and leisure activities are some factors to consider. You can use online calculators or consult a financial advisor for an accurate estimate. Once you clearly understand your retirement needs, you can set a savings goal and work towards achieving it.

Investors should also take into account the inflation rate when planning for retirement. In Singapore, the current average inflation rate is around 1%. Therefore, your savings will lose purchasing power over time if you do not factor in inflation. Therefore, investing your supplementary regular savings in instruments yielding higher returns than the inflation rate is essential.

Start early and be consistent

Starting early and being consistent are crucial factors in maximising your retirement savings. By initiating your savings early, you grant your investments ample time to flourish through the remarkable force of compounding interest. This phenomenon allows your earnings to generate further revenues over time, leading to substantial growth. By starting early, you can also afford to contribute smaller amounts regularly while significantly impacting your retirement savings. Contributing 10-15% of your income into supplementary regular savings is recommended.

Consistency is also crucial. Set up a regular savings plan that automatically deducts a set amount from your monthly salary. It will ensure that you consistently save and prevent you from missing out on contributions during financial strain.

Diversify your investment portfolio

Diversification is essential when investing for retirement. By spreading your investments across different asset classes, you can reduce the risk of losing all your savings in a single market downturn. It’s recommended to have a mix of stocks, bonds and other instruments such as property and gold in your portfolio.

When choosing investments, consider your risk tolerance and investment horizon. If you have a lower risk tolerance, opt for more conservative investments such as bonds and fixed deposits. Investing in stocks and REITs (Real Estate Investment Trusts) may suit those with a higher risk appetite. Regularly reviewing your portfolio is crucial to rebalance it according to market conditions.

Consider Supplementary Retirement Scheme (SRS)

The Supplementary Retirement Scheme (SRS) is a voluntary scheme in Singapore that encourages individuals to save for retirement. Contributions to SRS are eligible for tax relief up to a cap of $80,000 per year. The SRS account offers the flexibility to invest funds in various instruments, including stocks, bonds, and unit trusts. One significant advantage of using SRS for retirement savings is that the withdrawal is taxed at a lower rate of 50% instead of your marginal tax rate.

However, do note that there is a penalty for early withdrawals before the statutory retirement age. Therefore, it’s essential to consider your investment horizon and risk tolerance before utilising this scheme.

Take advantage of supplementary retirement income

Apart from regular savings plans, there are other ways to supplement your retirement income in Singapore. It includes investing in green securities lending. Green securities lending refers to lending your shares or bonds to institutions for a fee. These institutions may use the securities for short selling or arbitrage purposes and must return them by an agreed-upon date.

The benefit of green securities lending is that it can generate additional income for investors while promoting sustainable and ethical investments. The institutions may use the borrowed securities to fund renewable energy projects or companies with environmentally friendly practices.

Investors should carefully consider the risks involved in green securities lending, such as counterparty risk and potential capital loss. It’s essential to conduct thorough research on the institution you are lending to and clearly understand the terms and conditions.