Insurance company AIA Group (SEHK: 1299) recently published the results of a survey it conducted on retirement savings.
The findings were unflattering, to say the least.
More than half of Singaporeans polled, 54% to be exact, will fall far short of what they require when they retire.
The survey found a significant “gap” in retirement savings.
The base assumption is that a person can, on average, live up to 84.
But the survey found that the average person’s savings will run out by the time he or she turns 70.
It’s a grim reality that many have to confront in the future — the possibility that they may have to continue working past 70 just to afford the bills.
A recent panel discussion explored this topic.
The common reason is overspending, says Tan Huey Min, General Manager of Credit Counseling Singapore.
Another reason is the lack of financial literacy, according to Melita Teo, chief customer and digital officer at AIA Singapore.
The lack of financial understanding means a whopping 92% of Singaporeans put money in bank deposits and just around one-fifth of this group supplement these savings with investments.
How should you better prepare yourself for retirement?
Here are three steps you can take to ensure you can sustain yourself in your golden years.
Save before you spend
It may sound like basic common sense, but the first step in building up enough for retirement is to have a regular savings habit.
A point brought up by AIA is that many people end up over-spending, thus drawing down on their savings instead of topping them up.
To be able to save, you need to get into the habit of putting some money aside whenever you receive your salary or bonus.
This mentality of “saving before you spend” is important as you will end up only spending the reminder after you’ve socked away some cash.
If you do the opposite, which is to save what’s left after you spend, you may not be able to resist spending more than you should.
Another effective method is budgeting.
By allocating specific amounts to items such as food, entertainment, tuition (for kids) and insurance, you resist the urge to splurge and can instill the discipline in keeping your expenses in check.
Growing your nest egg
The second method is to slowly but surely grow your retirement funds by placing them in promising investments.
Growth investing is a tried-and-tested method for growing your investment dollars faster than the rate of inflation.
By parking your money in local blue-chip companies such as DBS Group (SGX: D05) or OCBC Ltd (SGX: O39), you can slowly but surely increase the value of your portfolio.
And if you’re looking for faster growth outside of Singapore, there’s always the option of investing in shares of US or Hong Kong companies.
Some well-recognised growth stocks include Apple (NASDAQ: AAPL), Nike (NYSE: NKE), Tencent (HKSE: 0700), and Microsoft (NASDAQ: MSFT).
Patience is required, though, as the growth in the business will eventually lead to its share price increasing, rewarding you with capital gains.
That’s why it’s recommended that you start as soon as possible to allow for compounding to take place.
Generating a stream of passive income
Finally, the key to enjoying a blissful retirement is to generate a stream of income from your investments.
Businesses that pay dividends can provide an additional source of cash inflow that can supplement your earned income and sustain your lifestyle as you get older.
Singapore is well-known for being a REIT hub and investors here will be spoilt for choice at the wide diversity of REITs offered.
Some of the well-known REITs with strong sponsors include Mapletree Industrial Trust (SGX: ME8U), Frasers Centrepoint Trust (SGX: J69U) and CapitaLand Integrated Commercial Trust (SGX: C38U).
Some businesses have been paying out a consistent dividend over many years, such as Singapore Exchange Limited (SGX: S68), VICOM Limited (SGX: WJP) and Boustead Singapore Limited (SGX: F9D).
By owning a portfolio of dividend-paying stocks, you can enjoy a stream of cash flows into your retirement years.
Get Smart: A three-prong plan for success
So, there you have it.
A simple, three-prong plan to better prepare yourself for retirement.
By adhering to the above, you need not worry about the retirement gap.
Prepare yourself well in advance and ensure you build up a comfortable stash.
And you’ll never need to fret about not having enough for retirement.
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Disclaimer: Royston Yang owns shares of Apple, Nike, DBS Group, Singapore Exchange Limited, VICOM Limited and Boustead Singapore Limited.
