Singaporeans are among the wealthiest people in South East Asia, but that notion goes out the window after a five-minute conversation in a coffee shop. Every quote in this Straits Times article, for example, reads like the interviewees are one bad accident away from living in dumpsters behind the nearest kopi tiam. Granted, some of it is fear-mongering to sell you a savings plan; but just in case you’re worried your situation is inescapable, here are some of the common retirement strategies we’ve seen. One of these may work for you:
1. Retire by rightsizing
This largely came about due to the meteoric rise in property prices during our parents’ day. Both HDB and private property prices soared during Singapore’s transition to developed-nation status; and it became a norm to right-size (i.e., sell and move to a smaller home), and use the sale proceeds to fund retirement.
Today, the most common example of this is investing in a private property, then right-sizing to an HDB flat at retirement. This works so long as historical trends are maintained, and private homes continue to appreciate much faster than HDB flats.
In January 2014, average resale condo prices islandwide stood at $1,204 psf. As of January 2024, when I’m writing this, the average is $1,610 psf; an increase of about 33.7 per cent.
HDB resale flats, in the same period, have risen from $457 to $577 psf, an increase of only about 25.6 per cent; hence the general preference for private rather than HDB housing.
However, that’s not to say you can’t also do the same thing with HDB flats – you can buy a 5-room flat, then sell it and move into a 3-room flat after the children have moved out. The price difference can fund a significant portion of your retirement.
The upside of this method is that it’s relatively simple to do. Buy a home, stay in it, and eventually sell it and move into something smaller. Due to the nature of property assets, you don’t need to stare obsessively at market movements every year or month.
There’s an added element of safety too, when it comes to real estate. If your stocks and bonds or other paper assets fall to zero, you have nothing. They’re so intangible you can’t so much as use them for toilet paper. If your home price falls, it’s less of a disaster; it’s still a place you can live or rent out.
The downside is that “property” is not a fungible asset like gold or oil. One bar of gold or one barrel of oil is pretty much the same as the next, it doesn’t matter which one you buy.
With real estate, no two units are alike: from renovations to floor level, to what gets built next door, there are thousands of variables impacting the price; and it’s entirely possible for a unit just one floor above yours to be worth $100,000 more.
What I’m saying is, you need a degree of acumen to pick the right real estate – and when you have financial goals interfering with lifestyle needs, it can be unpleasant. You might find out a house too far from work (or your child’s school) is the ideal choice for long term appreciation; but are you going to spend an hour travelling to and from work for the next 15 to 25 years because of it?
2. Financial Independence, Retire Early (FIRE)
Back in 1992, two people named Dominguez and Robin wrote a book called Your Money or Your Life.
That book is to disgruntled employees what the Communist Manifesto is to your edgy socialist friend in Uni, or what Rich Dad, Poor Dad is to people with room-temperature IQs (i.e., an inspiration).
The religion built around this book didn’t coin the term FIRE, but the cult..err, followers did. The people who use this strategy hate their jobs so much, they are happy to go on an intense journey of financial discipline and self-deprivation, saving up 70+ per cent of their income every year.
How early do they want to retire? Some aim for 35, some aim for 45, but they all hate the notion of having to work till 65. A loose rule of thumb is that, once they accumulate around 30 times their annual expenses, they’re mostly set to quit their job. After that, they aim to withdraw about three to four per cent of their accrued wealth every year, to live out the remainder of their lives.
How do you save up to 70 per cent of your annual income? This is the fun part! The less you spend on things you enjoy, the fewer hobbies you blow money on, and the less you live your life, the more you will save. That’s called lean fire. You basically need a lifestyle that’s so minimalist, you make monks look like trust-fund babies.
There are other variations, like Fat Fire, where you don’t deprive yourself as much – but then you put your money into more active management (probably managing it yourself to skip fees), to try and make up for your shameful, non-FIRE like weakness.
Now I don’t want to say that most people who attain FIRE are higher-income types from upper-middle families, who were going to make it anyway. However:
Most people who attain FIRE are higher-income types from upper-middle families, who were going to make it anyway.
If you don’t understand why, ask the underpaid cleaner at your coffee shop why she doesn’t just save 70 per cent of her income every year. But be ready to dodge whatever she throws at you.
3. 1M65
Despite sounding like a J-Pop band where every English lyric is a typo, this is actually a hyperlocal retirement strategy.
It involves the use of maximising your Central Provident Fund (CPF) for retirement. In a move that I now officially title the Reverse Han Hui Hui (RHHH) ©, this involves wanting more money in your CPF – enough, in fact, to reach $1 million in your CPF account by the time you retire at 65.
This strategy typically impacts how you pay for your housing. When you buy a property, you can use your CPF Ordinary Account (CPF OA) to pay for:
- The down payment
- Legal fees
- Stamp duties (yes, including the ABSD if that matters)
- Servicing the monthly mortgage payments
Followers of 1M65, however, try to cover some of this in cash, instead of tapping their CPF. They might, for instance, pay some or all of their home loan in cash, or they might even cover the down payment and stamp duties in cash.
Since they’re using their own wallet, this allows them to transfer their CPF OA funds to their CPF Special Account (CPF SA). This matters because the CPF OA has an interest rate of 2.5 per cent, whereas the CPF SA has an interest rate of four per cent.
There’s an added layer of safety to all this: CPF monies are closely guarded, and they can’t be touched even if, say, your business goes down and you get sued, or someone tries to have you declared bankrupt.
Besides that, CPF interest rates are fixed, so you have absolute returns. It’s not like a unit trust, ETF, or other instrument where returns might go down when the wider market does.
4. 30 over 30
This one was inspired by The Woke Salaryman, which is what this site would be like if I hadn’t been discouraged from art school and could draw something on a higher level than a drunk Pictionary player.
30 over 30 looks at diversifying income streams early. The idea is to try and have 30 per cent of your total income from sources beyond your pay cheque, by the time you’re 30 years old. That income source could be a side-business, dividend payouts, rental income, bond coupons, etc. The main point is to ensure you’re not fully dependent on your work to survive.
This is partly about financial security. If you end up unable to work, for instance, you want to make sure something else is keeping you in the green. Incidentally, 30 per cent is not an arbitrary number: consider that if you have disability income insurance, these policies typically pay out 70 per cent (not the full amount) of your regular income.
But where it impacts retirement, is that it drives you to grow your income rather than just focus on budgeting. There’s an upper limit to how much you can budget, but no theoretical limit on how much more you could earn (I’m being an optimist here). And if you start your retirement planning late, such as at 40 or 50 years old, then having added income may be the only real way to catch up.
As a little tip from us at Single Digit Millionaire: you’ll know you’ve found a viable source of added income if you can make at least $1,500+ from it, for a period of at least a year.
Anything less may be too insubstantial to justify the effort, while anything that’s too sporadic (e.g., you get the income in one or two months out of the year) can’t be counted on.
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