My 8-year-old son, Maxime, was next to me when I completed my presentation on savings plan for retirement. I showed him my slides, and, to my delight, we had a very lively one hour discussion! Never underestimate what goes on in that brain of theirs. Never too young to engage them.
Average life expectancy of Singapore has gone up from age 68 in 1970 to age 83 in 2017. In line with living longer, retirement age has also gone up from age 55 to 62. This will increase to age 70 by 2030.
With more people living till age 100, “what are the challenges and choices that, all of us, of any age, need to make, in order to turn greater life expectancy into a gift and not a curse” – The 100 Year Life by longevity expert/British economist, Andrew Scott.
- How do we finance a long life?
Apart from investing in your health, relationships and skills, amongst others, one should also start retirement planning early.
One never knows how long one will live, so let’s assume a life expectancy of 80. Divide that into 4 stages, with each stage being 20 years.
Stage 1 (Age 0-20): The Spending Stage
First quarter of our life is spent on studying, thus little or no income generated.
Stage 2 (Age 21-40): Working Stage
One typically enters the workforce at this stage with low starting salary and high expenses (socializing, marriage, mortgage, children education, etc), thus little savings.
Stage 3 (Age 41-60): The Saving stage
That leaves us 20 years to save for our retirement!
Stage 4 (Age 61-80): Retirement Stage
Similar to Stage 1, no/little income during the retirement stage.
When do you want to start saving for your retirement?
- The Power of Compound Interest
Start now and let compound interest work for you.
=> At age 21, Helen started investing S$5,000 per year for 10 years. Total amount saved is S$50,000.
=> At age 31, John started investing S$5,000 per year for 20 years. Total amount saved is S$100,000.
=> Assuming a rate of return of 4.75%, who do you think will have more money at age 66?
=> At age 66, John’s portfolio is worth S$260,413, making a profit of S$160,413. However, Helen’s portfolio is worth S$254,375, making a profit of S$204,375.
John’s capital outlay is double that of Helen’s but his profit is still less than hers by S$43,962 at age 66. By starting 10 years earlier, the power of compounding has made Helen’s money work harder for her.
So start your savings plan as early as possible to enjoy the power of compounding interest. Contact us if you want to know more.