Lately I’ve been thinking about life. Particularly now; it’s all about going to work and becoming financially secure but is that all there is? Sure, I have my hobbies, this blog and social life. But how sustainable is this lifestyle? As you’ve guessed from the post title, I’m talking about retirement and what comes after our careers. You could say it’s kind of like a mid (one-third?) life crisis except it’s more like me sitting there, staring at my screen, and pondering.
One of the mantras of our current society is “Graduate University and get a good job”. This is good in the sense that it encourages people to get educated. But what happens after getting a job? What they don’t tell you is: you just keep working until you can’t. So how do you break this cycle? Of course many of us look to retirement!
Believe it or not, I had to scrap the last draft I’ve done up on this. The last one was similar but it trailed off to the usual things:
And frankly, it does feel like I’m writing in circles. So while I will touch a little on these, I’ll be more pensive here. It’s just what I think on the subject as someone working towards it.
What is Retirement?
So what really is retirement? The standard definition tells us it’s “the action or fact of leaving one’s job and ceasing to work.” Simply stopping work is retirement? Can we say that those who are retrenched are retired? Possibly; and against their will too.
How I imagine retirement is the classic “Not needing to work any more than you already have”. Meaning you’ve reached some point in life that you can sustain your lifestyle without needing to work for income. How does one achieve such a unicorn-like status in life? Frankly, it’s planning and making the right financial choices as early as you can. This is pretty broad and I apologise for not going in depth here but I’ll cover general points below. What we have to realise is without necessary action, there will not be a result we want. I’ll give you my 2-cents and possibly those who are on track or even the retirees can chime in.
When should you think about retirement?
As with a lot of financial matters that do not begin with a substantial lottery win or inheritance, I believe we should plan for retirement as soon as we realise its importance. I can safely tell you that I have never thought about retirement during my student times or even early graduate life. Because, come on, why would you think about stopping work when you have none?
But once I started working, the thoughts soon came after. Often fleeting daydreams and sometimes I lose myself in thought. Thinking “Is this how I am going to go on forever?”. I do not fancy doing things that are “not important” to me; not to say money isn’t important but work that I’m not passionate or invested in. But back to my daydreams. I see being able to do whatever I want without caring about cost or needing to get more money. This is when the reality sinks: I have no such gold mine sitting in my backyard or necessary amounts of money in the bank for that matter. Then it’s back to the daily grind for the pieces of polymer we exchange for goods.
But you see, while I do not have the means to retire now, knowing this; or rather, wanting it actually sets the foundation for which I will build upon.
Living your life: What do I need to retire?
Before even looking at retirement, we should look at how we sustain ourselves daily. The reality is some people cannot even hope to stop working. These are people living beyond their means, heavily in debt or simply being the one their family depends on financially. But there are silver linings for everyone as long as they employ a strategy that works for them. Simply going with the flow and being rocked by the tides of life isn’t going to bring you any closer to making life better.
I did mention previously that retirement to me means “you can sustain your lifestyle without needing to work for income.” With this idea, it’s easy to imagine that anyone can retire! The only limitation is time and money which translates to “How long will it last?”
Let’s take a simple calculation as our example:
Let’s say you are at the ripe age of 55 years old and need $1,000 to pay for everything monthly: rent/mortgage, fuel, food, bills, etc. If you were to retire now, how much would you need? With modern medicine and the like, let’s assume you survive until 90 years old.
Monthly budget = $1,000
Months of retirement = (90 – 55) x 12 = 420
Amount required to retire = $420,000
This crude calculation tell us you need $420,000 to retire. But what we didn’t include is inflation which makes our money worth less every year. If I included a 2% inflation every year, you would need around $600,000 to retire for 35 years! Considering you started working at 25 years, you’d need to save:
Amount needed = $600,000
Age starting work = 25 years old
Career = 55 – 25 = 30 years
Amount required to be saved per month = 600,000 / (30 x 12) = $1,666
I, personally, am not able to save this amount per month. While some people can, I highly doubt the majority of us can do this.
This is also taking into consideration you started saving when you started working; probably as a graduate! If you started planning for retirement later, the amount required would be much higher because you need to save more in a smaller timeframe. It also omits things like medical bills and other unexpected events which would take significant chunks off your saved amount.
So what can I do?
I know you’re probably tired of me saying some of these by now. But honestly it’s still the only structured way I can think of! Once you start thinking about what you want, only then will you be able to make a realistic plan for retirement. All in all, you should consult a professional financial consultant for a tailored and, hopefully, solid plan. But in a nutshell, the things to look out for are:
This is a primary consideration for me. How much does it take to maintain your lifestyle? If you like to take a vacation a year, can you do it without an income to back it up? So think about your spending on:
- Mortgage and rent
- Utility bills
- Loans and other debt
- Luxuries such as vacation or shopping
Most people will need to sacrifice some things to accommodate necessities without an income.
So you’ve saved up a significant sum over the years. That’s excellent! So how long can this sum last you? Is it possible to project retiring for up to 35 years? Consider:
- How much you need per month (from your expenses)?
- How many years you need to sustain this?
That will be the amount you need to raise to retire. Regardless, as I mentioned, one inconvenient truth of our world is our savings are at the mercy of inflation. So your $1 today will be worth less in the next few decades.
By the time you retire, investments should go hand-in-hand with your savings. I don’t mean a 50-50 split but you should probably have both in your portfolio.
Everyone invests for the same reason: to make your money grow into a larger amount than you put in. They may have other reasons but let’s face it; no one invests to lose money. You may have looked into multiple investment vehicles and possibly put your hard earned cash in some. Some investments could potentially earn you “income” albeit not guaranteed. These may be rent from letting out a rental property or dividends from stocks.
Another type of investment quite a number people have done is starting a business. However, bear in mind that starting a business is easy; running a successful and profitable business is not. You may have seen successful businessmen still working at it. I think for those with entrepreneurial spirits, full retirement is out of the question as they need to satisfy the inner hunger to create. Regardless, who’s to say some are not semi-retired?
But wait, I have TAP and SCP!
Ah, our solution to the Government withdrawing the pensions scheme. TAP and SCP have their benefits. And they are pretty good benefits too; that is if you satisfy their conditions. Some conditions are pretty heavy such as SCP’s “35 years of continuous contribution” in order to get the Monthly payment benefit.
But let’s not tear into the details and just look at the face value. We’re contributing 5% to TAP which is matched 5% by our employers. That makes 10% per month. So imagine the scenario from above again. If you need $1,000 to survive, to put 5% away, you’d need to earn $5,000 a month before deductions. And let me just say, if you earn $5,000 per month, your expenses will likely NOT be $1,000.
Do you see where this train of thought is going? If we rely solely on TAP for retirement, we are going to wake up in a nightmare. This nightmare is where we need to downgrade lifestyles, lower standard of living and (probably) suddenly become frugal. Frugality is a habit and does not happen overnight too.
What about my kids?
Our Asian culture has a strong sense of family ingrained. So it’s no wonder many offsprings grow up to want to “pay back” their parents by taking care of them in turn. That being said, the mentality of “Ah, but my kids will look after me!” we have is not helping either! Culture is one thing; but you’re basically putting your future in the hands of your kids. If somehow they decide to not be responsible for you, what are you going to do?
A bad case scenario for this is you’ll be put in a retirement home because they can’t be bothered. Worse comes to worst, you’re literally left without anything. The only one future-you can rely on financially is you; the you now. So at least have some sort of safety net for yourself.
Retirement is a privilege many working adults, particularly youngsters, do not think about. Whilst it’s never too late to plan for it (well, unless there’s literally no time left) a head start will reap bigger rewards. And this is likely cheaper too; the later you start, it becomes potentially more expensive. Relying on social security programs like TAP is not going to be good enough realistically. It’s only meant to supplement your retirement, not fund its entirety.
I guess what I want to say is: If you haven’t thought about your future and the need to work forever, now’s the time.
The trouble with retirement is that you never get a day off.
– Abe Lemons