Financial Planning

6 factors to think about when building your retirement fund

It's never too early to start planning for your retirement! With discipline and determination, you can be on your way to a comfortable life after years of hard work. Here are 6 tips to help you get started on this journey of retirement planning.

Are you planning your retirement in Singapore? Building a retirement fund requires one to save enough money to pay your bills and continue living comfortably when you are no longer drawing an income. The thought of it may be daunting; it can feel like an impossible mission. But with early planning, building up your nest egg is more discipline than difficult.

The process of building a retirement fund typically involves a combination of consistent saving and long-term investments, but saving and investing for your retirement can look pretty different during your twenties versus your forties.

Building a retirement fund requires more certainty in your financial planning and less risk-taking. But first, you need to figure out how much you need in order to set a goal.

My Retirement Goal

Setting up a retirement goal requires you to find out how much income you need when you have stopped working. To get an indication of this, use the following questions to help you:

  • At what age do you plan to retire?
  • How many years do you plan to be in retirement?
  • What is your desired monthly income during retirement?

One possible method could be using 70% of your last-drawn salary to find out how much you need each month (1). If not, you can use an absolute amount you have in mind, taking into consideration the type of lifestyle you will lead during retirement.

First, figure out the amount you need annually before multiplying it by the number of years in retirement. For instance, if you need $4,000 a month and plan to be in retirement for 25 years, the amount will be $4,000 X 12 X 25 = $1.2 million

Remember that this is only an indicative amount, and does not take into account your current liabilities, assets and inflation rate. It is advised that you work with a qualified financial representative for a more accurate assessment.

Factors to consider

While you can definitely save your way to a comfortable retirement, but is not the smartest way to do it. Why?

Saving your money in a normal savings account actually erodes its value due to inflation. There are many other better alternatives. More importantly, you want your money to work harder for you, which includes taking a certain amount of risk for higher potential returns. But a retirement fund needs certainty as well - you can't risk losing your savings because you need it as a stable income. So how can one balance between the need for growth and certainty of returns when building a retirement fund?

The key lies in considering these 6 factors:


Risk appetite

Are you a "conservative" investor who cannot afford to lose the initial capital you put up? Can you sacrifice the certainty of having your principal protected in order to gain higher potential earnings?

If you do not already have a large sum of retirement savings, you probably shouldn't take too much risk when you invest since you may not have the luxury of time to recoup the losses should your investment turn awry.


Time Horizon

Generally, a bigger portion of your retirement portfolio can be apportioned for higher-risk investments if you start in your twenties. As you progress nearer towards the retirement years, your portfolio should increasingly focus on investments/savings that has lower risk and provide stable returns.

You can consider allocating your investments into products suitable for different investment horizons (short, medium and longer term) depending on your risk appetite. For example, a short-term investment can include some risker asset such as single equities or investing in a fast growing speciality fund. You should always be reminded that with higher expected returns come higher risks.

This may be something you want to closely monitor for the next 2 to 3 years before you exit your investment. For longer term investment, you can consider a retirement income plan.



Remember we said that if you choose to save your way to retirement by putting cash in a savings account, the value of your money will be eroded due to inflation?

While the average inflation rate in Singapore from 1962 until 2018 is 2.62% (2), the rates are fluctuating over the years, with the last 6 years seeing inflation rates between -0.53% to 4.58%.(3) With the average minimum interest of a bank's savings account at just 0.1% (4), you are definitely losing purchasing power over time.

So in order to ensure that the money you have now preserve its purchasing power during your retirement years, you need to choose savings or investments that give you a higher returns.



Like how you should not put all your retirement savings in a bank account, you shouldn't invest all in shares as well. The key to growing your retirement fund includes having different asset classes in your portfolio, which is otherwise known as diversification. Diversification not only helps you manage the risk of your investments, it also involves re-balancing your portfolio to maintain the risk levels over time.



Building a retirement sum is a long process - a study by Manulife shows that most Singaporeans start planning for retirement only around age 38. This may also be the reason why only two out of five Singaporeans feel confident about retiring comfortably.

By starting late, you may find that you need to set aside a larger amount for your retirement sum. This reduces your current disposable income, and may cause you to reduce your current quality of life. You may end up unhappy, or worse, giving up saving totally.

Therefore, you'd want your retirement sum to be an affordable amount for your current lifestyle. You can work with a financial representative to help you take a look at your current commitments to make saving for your retirement a sustainable habit.


Payout mode

Many people neglect the payout mode when they do their retirement planning. With investments, you may not have the liquidity you need if you need to lock them in for a fixed number of years.

Thus, you need to consider when you will need the money and whether you have quick access to them. Take for instance, certain insurance savings plans require you to lock in the amount for a fixed number of years before you get a lump sum payout, whereas others may provide a yearly guaranteed coupon which you can consider using it for a holiday or two.

Speak to your financial representative to find out more on the insurance plans that can give you a steady stream of cash.

Planning for your retirement can look like a daunting process - this is why you can achieve a stress-free experience with the help of a financial representative. Keep in mind that there are no hard and fast formulas to how you build your retirement funds, but keeping the above factors in mind will definitely help you work successfully with a financial representative.

Date: 05/04/2018

The information in this article does not necessarily reflect the views of Manulife (Singapore) Pte. Ltd. These are general information and does not constitute or form any recommendation of insurance plan.


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