Early Retirement in Singapore: Is It Achievable and How?

Starting to plan for retirement early, especially by age 50, is one of the wisest financial decisions a young adult can make. 

Here’s why you should start now and how you can achieve this goal: The Power of Early Planning

1. Compound Interest: The earlier you start, the more time your money has to grow. Even small, consistent investments can lead to significant wealth over time. 

Based on sample parameters, after 20 years with a 4% interest rate and $500 monthly savings, you would have saved approximately $185,309.48, cumulated from a total contribution of $120,000 over 20 years and compound interest of $65,309.48. The power of compound interest is evident in this example, as the interest earned ($65,309.48) represents a significant portion of the final balance, effectively growing your savings by more than 54% over your total contributions.

2. Financial Freedom: Early retirement planning gives you the option to choose when you want to stop working, rather than being forced to work longer due to financial constraints. A general guide is to prepare for up to 70% -80% of your pre-retirement income in retirement. 

https://www.moneysense.gov.sg/legacy-planning/retirement-needs/

3. Reduced Stress: Knowing you’re prepared for the future can significantly reduce financial anxiety and improve your overall quality of life.

Financial Tools for Early Retirement Savings

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• Maximize contributions to tax-advantaged retirement accounts like CPF Central Provident Fund and Supplementary Retirement Scheme.
  • https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/srs-contributions
• Create an emergency fund to avoid dipping into retirement savings for unexpected expenses.

Investments

• Diversify your portfolio across stocks, bonds, and other assets to balance risk and potential returns. 
• Consider low-cost index funds or ETFs for broad market exposure. 
• Explore real estate investments for potential passive income streams.  Singapore’s property market has historically displayed resilience during times of volatility, supported by factors such as government intervention, strong economic fundamentals, and its reputation as a stable investment destination

Insurance

• Look into retirement income insurance plans that offer monthly payouts upon reaching your desired retirement age.  Today’s insurance products are creatively designed to support financial goals for medium to long term goals.  
• Consider critical illness coverage to protect your savings from unexpected health issues.  

Talk to your financial advisor early to plan for wealth accumulation using insurance for a steady consistent return.

“The Millionaire Next Door” by Thomas J. Stanley and William D. Danko is an excellent resource for understanding the habits of successful wealth accumulators. The book reveals that many millionaires live below their means, budget wisely, and prioritise financial independence over displaying high social status.

Key takeaways from the book include: 

• Living below your means, delayed gratification 
• Allocating time, energy, and money efficiently in ways conducive to building wealth 
• Believing that financial independence is more important than displaying social status  

Many readers found it relevant and life-changing, praising its timeless financial principles.

Several pitfalls and blocks can affect keeping to the plan for early retirement: 

1. Starting too late: Many people underestimate the time needed to build sufficient savings, missing out on the power of compound interest. 
2. Misjudging expenses: Retirees often underestimate their post-retirement costs, especially for healthcare and general living expenses. 
3. Insufficient savings: Inadequate contributions to retirement accounts can leave you short of your financial goals. 
4. Market volatility: Investment performance can significantly impact retirement savings, potentially derailing plans. 
5. Inflation: Rising costs can erode the purchasing power of savings, making it challenging to maintain the desired lifestyle. 
6. Tax changes: Alterations in tax laws can affect retirement savings and withdrawal strategies. 
7. Unexpected health issues: Disability or major health problems can drain savings and force early retirement before you’re financially ready. 
8. Longevity risk: Underestimating your lifespan can lead to insufficient savings for a longer retirement period. 
9. Employment gaps: Taking time off work for caregiving or other reasons can reduce retirement savings. 
10. Difficulty re-entering the workforce: If you need to return to work after early retirement, long employment gaps can make it challenging to find suitable employment. 
11. Limited access to retirement funds: Early withdrawal penalties on retirement accounts can restrict access to savings before age 59. 
12. Social and psychological challenges: Early retirees may face social stigma and struggle with the loss of work identity.  To overcome these challenges, it’s crucial to start planning early, save aggressively, diversify investments, and regularly reassess your retirement strategy to stay on track for your early retirement goals.

Practical Steps

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1. Set clear financial goals and create a detailed roadmap to achieve them. 
2. Educate yourself about various retirement savings vehicles and investment options. 
3. Start budgeting and tracking your expenses to identify areas where you can cut back and save more. 
4. Consider working with a financial advisor to develop a personalised retirement plan
5. Remember, the path to early retirement is not about deprivation, but about making smart choices that align with your long-term goals. By starting early and being consistent, you can set yourself up for a comfortable and fulfilling retirement by age 50. 

“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb”

“Do not save what is left after spending; instead spend what is left after saving.” – Warren Buffett

The article above should not be taken as financial advice. Investments and their corresponding products have risks. Please seek advice from a financial adviser representative before making any investment decisions. In the event that you choose not to seek advice from a financial adviser representative, you should consider whether the investment or product in question is suitable for you.