Live modestly while you're gainfully employed so that there will be more savings and less adjustments upon your retirement.
Recently, I took a break from work to attend a two-day workshop designed to equip older working professionals with the know-how to cope financially. One exercise generated some surprising responses from course participants. We were asked to work out how a 55-year-old breadwinner could continue to support a homemaker wife, a son doing national service, and a bedridden mother being looked after by a maid – if he loses his S$7,000-a-month job.
To a hard-headed financial writer like myself, the first thing the breadwinner should do is to check if the investment strategy he uses to deploy his S$700,000 CPF savings and cash can generate sufficient passive income to carry on with the lifestyle his family is used to.
Other responses were sometimes bizarre, such as the suggestion to bump off the ailing mother in order to send the maid home. Others were hilarious, like the advice from one person who said the son should live permanently in the army barracks so his room could be rented out for extra income.
The consensus was that the breadwinner and his wife should both try to get part-time jobs, as their CPF nest egg would be insufficient to last them through their golden years even though it seemed like a large sum. There would also have to be painful adjustments to be made, such as getting rid of the family car and the maid – in short, giving up the lifestyle to which they had become accustomed.
Since this exercise relates to a typical Singaporean family, it's a chilling reminder of the fate which may befall us if we fail to do proper financial planning while still gainfully employed. It's also a problem which may become more prevalent, since Singaporeans aged between 45 and 64 make up about 29.5% of the resident population.
A report released last year by the Institute of Policy Studies, based on interviews with 5,000 senior citizens in 2011, sheds some light on the financial issues faced after retirement. It noted that one in five respondents had no savings by the end of each month. For those aged 75 and older, the figure rose to an even more worrying 40%. Among the respondents looking for a job after retiring, more than half said they needed money for current expenses.
In light of this, it should come as no surprise that a financial adviser is likely to serve up a blunt message: Save your way to retirement – and try not to spend more than you earn.
Still, I don’t believe in trying to cut expenses to the bone and confining myself to a fixed budget every day just to reap some savings. Such strictures make a person feel small and kill the spirit. Our lives lie ahead for us to enjoy. It would be very miserable if we have to worry about how we spend our money all the time. That condemns us to a life of mediocrity and makes us unwilling to take any kind of risks.
Having said that, I have many friends who stopped working in their late 40s or early 50s, and chose to live only on their savings and investments. They don't seem to be any worse off for it. Indeed, they live rich and fulfilling lives. One of them volunteers twice a week at a hospice after giving up a career as a high-flying investment banker, while another is a former partner with a top accounting firm who spends her time teaching preschool children for free.
One common trait is that they have tended to live below their means even while they were holding high-paying jobs, which would have enabled them to live a much more lavish lifestyle if they chose to. They're more likely to be savers than spenders.
But that doesn't mean that they're miserly about how they spend their money. Rather, it's more a matter of making better use of the money they earn in order to enjoy the finer things in life, as they consider the value of each purchase before deciding to hand over their cash.
And since they have always lived modestly, they don't feel the need to make any big adjustments to their lifestyle after they stop working, like downsizing to a smaller house, or switching from driving a flashy luxury car to using public transport. It’s life as usual for them, job or no job.
Another trait is their high personal involvement in managing their own money. They gauge the risk of each investment carefully before they put in the money. You're unlikely to find them getting panicked by a sudden rout in the stock market, or joining the queue to buy a condo in order not to miss the boat because real estate prices are going up.
Maybe some of my friends’ excellent traits have rubbed off on me, based on the personality profile provided free for each participant in our course. Mine described my personality type as having learnt how to master money and use some of it for enjoyment.
“This balanced way of operating gives them a real sense of security when it comes to financial matters,” it said. The description is flattering. I hope it holds true. – The Straits Times, Singapore/Asia News Network