Oh no, another lecture on retirement planning, etc. Relax, we’re not here to do that today. We accept that, as a single digit millionaire – however you got to this point – you probably have a money-saving mentality, or above-average financial literacy. So you’ve seen all the charts and graphs, seen the “power of compounding interest” demonstration a few hundred times, etc. But there’s just one other important thing to consider: and that’s how we approach the notion of retirement.
Singaporeans tend to think of retirement as a luxury
Even those who claim they’re not materialistic betray this prejudice. You’ve probably heard someone say something like: “I am a simple person, kaya toast and coffee every morning is enough to make me happy; I don’t even need $102,900* for retirement.”
But even that statement reveals a bias: it shows they think of a “good” retirement as a luxury product, as if it’s a holiday or design handbag that they can do without.
Then there are Singaporeans who are so defeated, they have a “I give up, I’ll just work until I die” attitude. This group thinks of retirement as if it’s some kind of Good Class Bungalow or Rolex: a desirable thing that is too expensive, so they may as well give up on it. This is a dangerous belief too – because unlike a bungalow or Rolex, retirement is something that you have no choice but to “buy.”
*CPF Basic Retirement Sum if you turn 55 in 2024
In reality, some aspects of retirement are “wants,” but retirement as a whole is a NEED
Which parts of retirements are wants, or pure luxuries? These would be elements like:
- Early retirement – if you want to retire before 40, for example, this can be considered a want (even if your plan for post-retirement years are very modest and non-luxurious)
- High Income Replacement Rate (IRR) – Most Singaporeans can manage an IRR of about 60 to 70 per cent through careful investing. That is, they can create an income stream that’s 60 to 70 per cent of what they’re earning now. But if you have a very high target, like a 100 per cent IRR, this could be interpreted as a want (depending on your unique financial needs).
- Excessive legacy planning – Providing for yourself in retirement is a need; but if you also want to provide for your children, grandchildren, religious institution, charitable causes, etc. then you have to accept that some of those may be plain wishes (i.e., wants). Insisting on having $1 million to donate to an organisation is an example of this.
These are aspects of retirement that, ultimately, most people can do without. If your job sucks, it may hurt to work past 40 – but if you have no choice you probably could. Likewise, it may be painful to leave less to your children or grandchildren; but factually speaking, if you paid for their schooling and they have decent jobs, they can probably get by without more help.
Because of marketing fatigue, some of us associate these wants with retirement planning
Blame it on the ads from Financial Institutions (FIs) or finance gurus, who go on and on about setting higher targets, getting better returns, and having luxury holidays in your old age.
We’re all fatigued from this kind of marketing; and it’s driven us to the point where, when we hear the term “retirement planning,” we roll our eyes and treat it like someone trying to sell us a condo, BMW, or some other pipe dream. That’s really the fault of the FIs, and the tacky way they’ve advertised retirement planning over the years.
But don’t let it blind you to some simple facts:
Retirement planning is always a need, because:
1. You don’t actually have the option to “work till you die,” even if you feel you can take it
For some jobs, there’s a level of physicality involved. If you’re a manager or director, sure, a company might be happy to retain your services past the age of 65, at full pay. But if you’re a dock worker, welder, or delivery driver?
Then it gets tougher. As you age, you can’t push your body as hard as you used to; and you’re more prone to using sick days. Even if your employer will never say it out loud, they’re wondering why they should pay you the same rate, when your productivity is steadily declining.
Simply put, you may be ready to “work till you die,” but your employer is not ready for it. Health conditions, along with other practical realities, might mean you absolutely can’t work past 65; or maybe even earlier if you’re unlucky. So you need to ensure that, if that happens, you can somehow feed yourself.
This is what life insurance and critical illness insurance is for, by the way – to ensure that you can survive financially without working, if you’re permanently disabled or terminally ill.
2. Basic necessities break and go obsolete faster today
Ask your grandparents if you don’t believe us. In the 1970’s or earlier, basic appliances like fridges, TVs, washing machines, etc. were all built like battle tanks. They were meant to last practically forever, and if they broke down, we didn’t throw them away – we could fix them (yes, companies actually sold the parts).
Today, most companies use planned obsolescence for products. They aren’t meant to last as long; that’s why you need to keep changing your phone. And a retiree today is going to have to contend with that: it’s not about having more money for luxuries, it’s about having enough money to even maintain your stuff going forward.
Your TV will break sooner, your phone will go obsolete earlier, and you’ll face mounting replacement costs; so you’ll be doing much more shopping than you probably expect, even in your 70s and 80s. And remember: inflation means replacing your stuff gets more expensive each year.
3. The amount you spend on healthcare can only go up
Unless you’re in a real Benjamin Button situation, you can only accumulate more health conditions as you grow older. No matter how fit or healthy your lifestyle, there’s a 100 per cent chance that you will end up with a disease or in the hospital at some point; probably more than once.
And as more of your body atrophies (and it will happen), you could end up spending a fortune on healthcare, even if you stay in a subsidised ward, or go to public hospitals. At that point, even very high retirement savings might lead to a modest way of life, when conditions like heart disease, cancer, or diabetes are taking up a huge chunk of the funds.
4. Once you’re retired, the opportunities to find money evaporate
A 40 year-old can invest for 25 years if they’re retiring at 65. But if you reach 65 with no retirement fund, then you may well be finished: there may be few opportunities to invest, beyond wildly speculative and super-risky gambles.
There are few ways to take loans once retired. If you run out of cash, you may struggle to get a personal loan, home loan, business loan, etc. at your age. Even if you do, the short loan tenure can mean an unmanageable monthly repayment.
In effect, what money you have once you’re retired may well be most – if not all – the money you’ll have left for the rest of your life. And that scary notion is why we need to start treating retirement as a need:
It’s time to ignore the flashy advertising about world cruises or annual trips to Europe, and start thinking of retirement along the lines of oxygen or drinking water. It’s an absolute necessity, and one that you have very limited time to acquire the funds for. That may be a frightening thought, but it’s an important one to have.
If you’re in dire straits or uncertain, reach out to us on Single Digit Millionaire.
