Learning Resources

Investing for Retirement: Why so urgent, how to do it

31 Mar 2022

Investing for Retirement | Money Money Home | VI

You're ages away from retirement. You don't need to prepare for it now... or do you?

If this is you, choosing to "enjoy life now" and leaving future you to worry about your retirement, you might want to keep reading. 

"I'm only going to retire 20 or 30 years from now. Why am I investing for retirement today? I should be enjoying my life with my hard-earned money! I'm only young once!" You've probably heard yourself or someone you know say these words before.

We are not refuting that you should enjoy your life, nor do we disagree that we are only young once. However, even though it doesn't seem like it at the moment, retirement is something you urgently need to prepare for, especially if you intend to live and retire in Singapore. 

The topic of retirement is often overlooked or taken for granted, simply because it is seen as something that is still far off. "It's still so far away, why not just talk about it when it happens?"

Well.... we'll tell you why not, and why investing for retirement now is not such a crazy or lame idea after all.

Why so urgent?

We don't know about you but we've seen a lot, and we mean A LOT of people who seem to think that investment brings overnight results. And they're not wrong.

Yes, there are forms of investments out there that can bring you overnight results. But these usually involve sitting in front of your computer screen for days on end, highly risky, and you can possibly lose a lot of money in just a snap of a finger.

What we’re talking about here is low-risk fundamental investment which usually involves a longer time to "bear fruit" and see returns coming in.

So why is it too urgent to invest for retirement, you ask?

It's just so that you can get your returns earlier in your life and use that to invest some more so your money can roll faster.

On top of that, people who don't start preparing for their retirement early often find themselves having not enough money to retire when the time comes.

What with the ever-increasing inflation rates and our almost-never-increasing salary, we have less and less money at our disposal over the years.

So when you realise you don't have enough to get through your retirement days without working, what else can you do but to continue working?

So, again, why need to be so urgent in investing for retirement?

It's simply so you can enjoy life when you retire and don't have to work. You CAN if you wish to, but at least, you don't HAVE to. 

Getting the entire process started is not all that difficult either. There is a simple step-by-step calculation system you can use:

Step 1: Calculate your monthly expenses

Your monthly expenses should include basic things like savings, food, bills, and transport.

You can also include the not-so-basic things like a small entertainment fund for you to experience life from time to time. Just because we're investing doesn’t mean we should forgo the little pleasures in life. That said, it should also be nothing extravagant.

Instead of multiple expensive trips abroad in a year or a few times of upscale dining in a week, maybe we can go for one trip abroad per year and just one upscale dining experience per month.

As an example, let's say your monthly expenses today came up to $3000 a month, and you are now 30 years old.

Step 2: Calculate how much you'll need when you retire

Inflation is VERY real. 

If you have not noticed that, maybe you'll realise this: that cup of coffee at the coffee shop, that roti prata, and the plate of chicken rice that you've been eating for years, have the price remained the same over the last... say 5 years? Or have they increased?

Some of you might say you don't know, but if you've been paying close attention to your expenses, you will realise that the price has somewhat increased.

Now imagine THAT increase, multiplied by another 25 years, when you're 55 and ready to retire.

Investing for Retirement | Money Money Home | VI

After factoring in inflation, your current $3000/month expense will be at a whopping $6300/month when you're 55, assuming inflation is 3% per year.

To retire safely, you'll need AT LEAST $3.8 million in your bank account by then.

To calculate your own number, you may use the Retirement Calculator in VI App.

Step 3: Know your compound rate and start investing to get there

Using the example above, let's say you already have $10,000 in savings and you only intend to add on $1000 each month WITHOUT investing in anything. By the end of 25 years, you will only have a measly $310,000.

Remember, you need $3.8 million to retire. So, you effectively have a $3.5 million gap!

HOWEVER, if you invest in stocks that can give you 17% compounding return each year, you will have more than $4 million after 25 years!

(To calculate this, you may use the Financial Calculator in VI App)

After finding out how much you need and at how many per cent on average your money needs to compound each year for you to safely retire, start sourcing for investment tools and products that can give you that rate of annual return.

Watch below Money Money Home episode and learn more about investing while being entertained by the shenanigans between Sharon And Darren.

It is advised that you diversify your investment in a few different products to minimise your risks. 

If you're still not convinced by now that you need to start investing for retirement TODAY, we pose you this question - what IF, something bad happens to you and you're no longer able to work to bring in income?

Investing is more than just a retirement plan. It is a way for you to put your money to good use and work for you in the background, even if you can't work yourself.

Learn about investing today. Come to our complimentary two-hour masterclass.

DISCLAIMER

This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

No representations, warranties, or guarantees, whether expressed or implied, made to the contents in the article is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

We, 8VI Global Pte Ltd, disclaim any responsibility for any liability, loss, or risk or otherwise, which is incurred as a consequence, directly or indirectly, from the use and application of any of the contents of the article.