S’poreans’ retirement funds enough for only 13 years: DBS survey

[investor101]

Here's my opinion on retirement. Some of it may be familiar to you. I read a bit online, learnt some hard lessons and received advice from people wiser than I am.

Basic rules that worked for me:

1. Always spend less than you earn

2. Don't overpay for your heavy-duty expenses: home, wedding, car, overseas education (warren buffet's ideas of margin-of-safety and buying low when people are fearful worked very well for me)

3. keep physically fit (good health is the key driver to accumulating and keeping your financial wealth)

4. improve your professional skills by reading, attending courses, being open to new opportunities and networking

5. diversify your income stream: stock market, property, online business, hobby turned into sideline etc etc

6. read to learn more about how to manage your wealth (lots of people who earned big bucks ended up bankrupt)


My sensing is that many people overpaid for their homes. Hence, by the time they pay off their housing loans, home renovation loans, car loans and whatever big ticket expenses, they are actually left with very little.

Your CPF is not designed to help you save money for retirement, regardless what you think. CPF interest rate remains flat, you use your CPF to pay for housing whose price jumped much faster than your CPF returns or salary. That alone already puts you at a tremendous disadvantage.

Our gahment's plan to help you retire is not to give you a better CPF return, but rather, to keep increasing minimum sum and drawdown age to match inflation. In short, you fend for yourself, you finance your own retirement.

If you walk around, you would also notice that many old people are still working. Many are working because they can't afford to retire, rather than to kill boredom. You have people holding multiple directorships, earning over half million a year explaining to you why raising the minimum sum would make Singapore uncompetitive and chase away businesses. I assume you are intelligent enough to realize that such people are speaking more to protect their high incomes, rather than out of genuine concern for the poor, who would only earn barely enough to live a simple life with little savings to fall back on.

Our financial laws are also very weak. If you bought into a crappy investment plan designed against the average retail investor, the law is not going to step in and take the errant mastermind to task. Instead, you would be told that you went in with your eyes opened. Good luck to you!

The system here doesn't seem to like the idea of people retiring by 55 in a comfortable manner. From a macro viewpoint, it would mean that you are a useless digit. Money is no substitute for labour. Menial jobs would still need to be done. Need to maximize labour by getting people to work until they are too sickly to work, and hopefully they die within a short time after getting too feeble. That would squeeze maximum benefit from the supply of elderly who are cleaning tables and manning security posts.


The system here doesn't want you to have enough to retire. If they did, we wouldn't have so many old people working till 10pm at night doing hard labour. You still can retire, but you have to make plans early and work actively on it. Most people haven't.

[Belg]

This rings true to me as locals who worked and dwell in singapore not supposed to retire and looks like we are just another statistic. Just have a look at the high cost of living for big ticket items. Sometimes I wonder why nobody or ministry come out with an alternative view of this for us to be prudent in our financial planning.

Just my 2 cents worth

[Temperament]

Here's my opinion on retirement. Some of it may be familiar to you. I read a bit online, learnt some hard lessons and received advice from people wiser than I am.

Basic rules that worked for me:

1. Always spend less than you earn

2. Don't overpay for your heavy-duty expenses: home, wedding, car, overseas education (warren buffet's ideas of margin-of-safety and buying low when people are fearful worked very well for me)

3. keep physically fit (good health is the key driver to accumulating and keeping your financial wealth)

4. improve your professional skills by reading, attending courses, being open to new opportunities and networking

5. diversify your income stream: stock market, property, online business, hobby turned into sideline etc etc

6. read to learn more about how to manage your wealth (lots of people who earned big bucks ended up bankrupt)


My sensing is that many people overpaid for their homes. Hence, by the time they pay off their housing loans, home renovation loans, car loans and whatever big ticket expenses, they are actually left with very little.

Your CPF is not designed to help you save money for retirement, regardless what you think. CPF interest rate remains flat, you use your CPF to pay for housing whose price jumped much faster than your CPF returns or salary. That alone already puts you at a tremendous disadvantage.

Our gahment's plan to help you retire is not to give you a better CPF return, but rather, to keep increasing minimum sum and drawdown age to match inflation. In short, you fend for yourself, you finance your own retirement.

If you walk around, you would also notice that many old people are still working. Many are working because they can't afford to retire, rather than to kill boredom. You have people holding multiple directorships, earning over half million a year explaining to you why raising the minimum sum would make Singapore uncompetitive and chase away businesses. I assume you are intelligent enough to realize that such people are speaking more to protect their high incomes, rather than out of genuine concern for the poor, who would only earn barely enough to live a simple life with little savings to fall back on.

Our financial laws are also very weak. If you bought into a crappy investment plan designed against the average retail investor, the law is not going to step in and take the errant mastermind to task. Instead, you would be told that you went in with your eyes opened. Good luck to you!

The system here doesn't seem to like the idea of people retiring by 55 in a comfortable manner. From a macro viewpoint, it would mean that you are a useless digit. Money is no substitute for labour. Menial jobs would still need to be done. Need to maximize labour by getting people to work until they are too sickly to work, and hopefully they die within a short time after getting too feeble. That would squeeze maximum benefit from the supply of elderly who are cleaning tables and manning security posts.


>The system here doesn't want you to have enough to retire. If they did, we wouldn't have so many old people working till 10pm at night doing hard labour. You still can retire, but you have to make plans early and work actively on it. Most people haven't.

i can not agree with you more. i have been doing what you think more or less. And i am now 66+. My late mother's generation, she past away at the age of 89 about 3 years ago always think the G just wants Singaporeans to have enough to eat but not enough to "relax". If we can relax no need to work so hard, what's going to happen to all these $Million Ministars and their cronies? Where's all the money going to come from? We just a little "RED DOT" with nothing, you know.

[Life is a game]

Thank you investor 101 for sharing, well written and I couldn't agree more. Wealth gap is getting bigger and from what I see, the future trend is to have a full time day job and set aside some salary for investing then set up part time business using technology on your advantage to support miscellaneous expenses.

[tikam tikam]

Here's my opinion on retirement. Some of it may be familiar to you. I read a bit online, learnt some hard lessons and received advice from people wiser than I am.

Basic rules that worked for me:

1. Always spend less than you earn

2. Don't overpay for your heavy-duty expenses: home, wedding, car, overseas education (warren buffet's ideas of margin-of-safety and buying low when people are fearful worked very well for me)

3. keep physically fit (good health is the key driver to accumulating and keeping your financial wealth)

4. improve your professional skills by reading, attending courses, being open to new opportunities and networking

5. diversify your income stream: stock market, property, online business, hobby turned into sideline etc etc

6. read to learn more about how to manage your wealth (lots of people who earned big bucks ended up bankrupt)


My sensing is that many people overpaid for their homes. Hence, by the time they pay off their housing loans, home renovation loans, car loans and whatever big ticket expenses, they are actually left with very little.

Your CPF is not designed to help you save money for retirement, regardless what you think. CPF interest rate remains flat, you use your CPF to pay for housing whose price jumped much faster than your CPF returns or salary. That alone already puts you at a tremendous disadvantage.

Our gahment's plan to help you retire is not to give you a better CPF return, but rather, to keep increasing minimum sum and drawdown age to match inflation. In short, you fend for yourself, you finance your own retirement.

If you walk around, you would also notice that many old people are still working. Many are working because they can't afford to retire, rather than to kill boredom. You have people holding multiple directorships, earning over half million a year explaining to you why raising the minimum sum would make Singapore uncompetitive and chase away businesses. I assume you are intelligent enough to realize that such people are speaking more to protect their high incomes, rather than out of genuine concern for the poor, who would only earn barely enough to live a simple life with little savings to fall back on.

Our financial laws are also very weak. If you bought into a crappy investment plan designed against the average retail investor, the law is not going to step in and take the errant mastermind to task. Instead, you would be told that you went in with your eyes opened. Good luck to you!

The system here doesn't seem to like the idea of people retiring by 55 in a comfortable manner. From a macro viewpoint, it would mean that you are a useless digit. Money is no substitute for labour. Menial jobs would still need to be done. Need to maximize labour by getting people to work until they are too sickly to work, and hopefully they die within a short time after getting too feeble. That would squeeze maximum benefit from the supply of elderly who are cleaning tables and manning security posts.


>The system here doesn't want you to have enough to retire. If they did, we wouldn't have so many old people working till 10pm at night doing hard labour. You still can retire, but you have to make plans early and work actively on it. Most people haven't.

i can not agree with you more. i have been doing what you think more or less. And i am now 66+. My late mother's generation, she past away at the age of 89 about 3 years ago always think the G just wants Singaporeans to have enough to eat but not enough to "relax". If we can relax no need to work so hard, what's going to happen to all these $Million Ministars and their cronies? Where's all the money going to come from? We just a little "RED DOT" with nothing, you know.

O Government, for how long more must you prostitute away your less well-off citizens? (like as if, as this author suggests, you steal have our best interests at heart?) This statement is fair enough play, right?

(These things happening right under your watch you say you don't know?)

[kichialo]

I dare venture many of our respected Vb members will make good opposition to the govt by challenging them in the fields of personal finance or securities regulation. We have a few good posts here such as how the SRS scheme has rooms for improvement

Just that instead of fighting them, our members mainly prefer to stick to our day jobs in the public/civil service or private sector and make investments in great companies. If ever, an opposition wishes to fight based on retirement planning etc against the ministers in MOM, the resources here is sufficient to mount a strong claim.

Agree with you. There are many good and capable people around, but they are not joining politics. The ruling party's brand of politics is also attracting the wrong kind of people. The rot will continue for a long time. Why bang one's head against a wall? Easier to just make money here and look elsewhere for retirement. Sorry for the off topic.

[greengiraffe]

Everywhere also share the same sob stories...

CHRISTOPHER JOYE
‘One in four Aussies will run out of money’
PUBLISHED: 0 HOUR 18 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO

‘One in four Aussies will run out of money’
Asset consulting firm Mercer says the age pension provides only half of what’s needed for a comfortable lifestyle. Photo: iStock
CHRISTOPHER JOYE
For those transitioning into retirement the news is grim: one in four Australians will outlive their savings by 11 years, according to the asset consulting firm Mercer.

More than half of us expect to have less money in retirement than we need for the lifestyle we desire (the average shortfall is almost $500,000). And we are retiring earlier and living longer than we expect, which is exacerbating the adverse financial consequences of longevity.

Whereas most folks believe they will retire at age 68, the average is 60. A stunning 40 per cent of Aussies retire due to redundancy or health reasons before they were financially prepared to do so.

“Longevity risk is a huge threat to Australians’ quality of life in retirement,” says a Mercer managing director, David Anderson. Imagine our financial dilemmas if a medical innovation finds the next penicillin or cure for cancer. What will we do if life expectancy jumps another five years?

One of the existential challenges retirees face is finding solutions that furnish the right balance between returns above their cost of living and income security.

Australian equities, which give you exposure to the riskiest part of the corporate capital structure, always look good over the long run. The problem is that your probability of living long enough to weather equities’ inherent volatility declines as you age. And equities subject you to unusually high “sequencing risk”. The massive slump in shares in 2008 threw many retirement plans out the window.

The equities market’s total 7.5 per cent annual return after fees over the past decade appears enticing. Yet you had to contend with gross capital losses of 1 per cent this year, 15 per cent in 2011, 1 per cent in 2010 and 43 per cent in 2008. And most returns over this period were earned before the global financial crisis. Since January 2007, your annual net return would have been 2.5 per cent, or below the average Reserve Bank of Australia cash rate.

BANK HYBRIDS DISAPPOINTING
With parsimonious deposit rates that barely beat inflation, many retirees hung their hats on bank-issued hybrids to get the extra yield. But they’ve also been disappointing: Commonwealth Bank’s Perls VII, which attracted $3 billion of retail money, is still trading 2.5 per cent below its face value, which means investors will be lucky to make a 3 per cent total return before fees over their first 12 months.

But there are answers out there. Seriously smart people at National Australia Bank and Mercer are coming up with solutions. In contrast to CBA and Westpac, which focus on home loans, NAB considers itself the nation’s “business bank”.

NAB’s executive general manager of capital financing, Steve Lambert, is leading a strategy to open the unrated corporate debt markets to mums and dads. The idea is that where NAB has done its due diligence on a business and has a debt facility in place, it will help that firm issue long-term bonds to outside investors, who can effectively co-invest alongside NAB.

“The unlisted bond markets can provide many businesses with long-horizon financing options at reasonable interest rates that are complementary to their shorter-term bank facilities,” Lambert explains.

One example is the corporate data centre and cloud computing provider NEXTDC, which listed in 2010 and now has a $400 million market cap.

NEXTDC had a bank facility but wanted to lock in some longer-term borrowings. So NAB helped it issue $60 million in unrated senior-ranking, five-year bonds with a fixed 8 per cent annual interest rate. The minimum investment was $100,000. Investors in the deal have reportedly made capital gains of 3.5 per cent as secondary buyers have been willing to accept a lower yield for NEXTDC’s risks.

Crucially, NAB can use its enormous balance sheet and debt trading skills to give investors “after-market” liquidity in these unrated bonds, which would ordinarily be hard to move.

It’s an attractive growth strategy for NAB because, in addition to earning interest on the bank facility, it can capture debt advisory and underwriting fees and spreads as a market maker for secondary trades.

NEXTDC wins because NAB has liberated a new pool of liquidity for them. And retirees benefit by getting exposure to relatively low-risk bonds paying attractive long-dated income streams that have the support of one of the biggest banks in the world.

LIFETIME PLUS
Another longevity risk innovation is what the investment consulting Goliath Mercer claims is a game-changing product, LifetimePlus.

In exchange for a cheap total all-in annual fee of only 0.4 per cent, LifetimePlus, which is a fully distributing unit trust, will pay you quarterly income for the rest of your life. “It requires around half the upfront capital as an annuity with similar annual income,” says Mercer’s David Anderson.

LifetimePlus is an investment option within an allocated (or account-based) pension, which you can buy with a lump sum from a super fund, and targets returns above the RBA cash rate plus 1 per cent after all fees by investing in deposits and absolute return funds. And you retain liquidity: Mercer will accept withdrawals of up to 95 per cent of your capital up to the age of 75.

“Once savings run out the age pension will only provide about half the amount required for a comfortable lifestyle,” Anderson says. “What happens when medical expenses increase or aged care is required? With LifetimePlus you can receive an income until the day you die. And it’s more accessible and more affordable than anything currently available.”

Today there are 20 Aussies aged 64 and older for every 100 workers. Within a pre-retiree’s lifetime that will rise to almost 40 people. Sustaining living standards and hedging against longevity risk is therefore something we should all be focused on.

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The author is a director of Smarter Money Investments.
The Australian Financial Review

BY CHRISTOPHER JOYE
Christopher Joye
Christopher Joye is a leading economist, fund manager and policy adviser. He previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of YBR Funds Management Pty Ltd.

@cjoye