Oct 15, 2006The Sunday Times article goes on to feature four Singaporeans each of whom has their own financial strategies for saving towards their retirement. Here's one of the four Singaporeans:
Saving their way to early retirement
To some, a quicker exit from the rat race may be a pipe dream, but the four people featured here are working on turning that into reality
By Leong Chan Teik
LIKE most of us, Ms Chong Yih Tyng hopes to retire early.
But unlike most Singaporeans who were surveyed by a life insurance company recently, Ms Chong, 35, is on track to achieving her goal.
The chartered financial consultant and her 39-year-old husband aim to have $3.5 million in 15 years' time.
Their recipe: a lifestyle that is modest in comparison to their income, and lots of investing.
They are a rarity considering that 90 per cent of Singaporeans surveyed by insurer AXA Life think they are saving enough by contributing regularly to their Central Provident Fund.
Sadly, they will find themselves well short.
The AXA report, part of the insurer's global survey of 10,000 people, found that Singaporeans dream of retiring at an average age of 54, earlier than people of any other country.
Ms Chong Yih Tyng, 35I often find the topic of long-term planning (for anything, not necessarily money) very interesting. What I like to investigate are the assumptions made in the planning process. Small errors in an assumption can, over the long term, lead to a large divergence between the actual and expected outcomes.
MS CHONG and her husband, a department head of a multinational company, are on the way to achieving a $3.5 million retirement nest egg.
She declined to disclose the dollar amount of what they have at the moment but says it would grow to the desired amount if two things happen over the next 15 years:
Their incomes grow by 5 per cent a year on average; and
They save regularly and plough the savings into investments that grow 10 per cent a year.
To ensure that there is money for investing, they lead a relatively simple lifestyle.
Home is a five-room HDB maisonette in Clementi, which they bought for $400,000 when they married eight years ago. It will be paid up in four years and they do not plan to upgrade to a fancier home.
Holidays are inexpensive: the couple and their five-year-old daughter usually check into a local hotel to enjoy the beach and to cycle.
To ensure their retirement goal is not derailed by ill health, they have bought insurance cover to pay for hospitalisation, critical illnesses and long-term care.
To boost their net worth, the couple invest their money, and strive to become savvy about investing.
'I spend no less than an hour every night to research on investments,' says Ms Chong. 'Our portfolio has achieved no less than 10 per cent growth a year in the last five years.'
She invests in Singapore stocks as well as park money with fund managers.
She has also invested in funds that are passive: They simply track the performance of stock indexes such as those for India, China and the Standard & Poor's 500 Index.
The couple desire to achieve $3.5 million not just so they can have the option to retire early but also for the sake of their parents, who will be in their late 70s or 80s in 15 years.
'We want to be 'free' to tend to their needs without the stress of job, time and money,' says Ms Chong.
It would also mean time for her and her husband to pursue higher education, play golf and spend time doing church work.
It's like standing in the middle of a soccer field and trying to kick the ball straight between the goal posts (assume that there are no defenders and no goalkeeper). This is a very difficult challenge. Theoretically all you have to do is kick the ball straight and hard. However, a small angle of deviation over a long distance (half a soccer field) means that it is very easy for the ball to completely miss the goal posts.
Let's say that like Ms Chong, you are 35 years old right now. You go to a financial planner for advice. It's very likely that the financial planner would proceed on two assumptions:
(1) You will retire around the age of, say, 60.
(2) You will die around the age of, say, 75.
Actually these are extremely huge assumptions. It is not at all obvious that in the year 2031, people would usually retire around the age of 60. Nor is it obvious that in the year 2046, people would usually die around the age of 75.
Life expectancy studies show that human beings (especially in developed countries) have been steadily living longer and longer. In ancient Greece, life expectancy for human beings was around 28 years. By 1901 in the US, life expectancy had risen to 49 years. By the year 2000, it had further risen to 77 years. In the year 2006, Singapore's life expectancy is even higher - 81.7 years.
Today, there are many scientists who believe that in future, many human beings will routinely live past 100 or 110 years.
What does this mean, in the financial planning context? Well, firstly, if you are 35 years old today and planning to save enough to support yourself until the age of 75, maybe you need to think about saving enough to support yourself for an additional 10 or 20 or 30 years (for you may die at age 85 or 95 or 105 instead).
Secondly, if you were planning to retire at 60, maybe you should contemplate the idea that at 60, you could still be quite young and energetic and could easily run a few marathons, climb a few mountain and work full-time for another 10 or 20 years.
Thirdly, you may want to consider the possibility that the long-term financial plan which your financial adviser had so painstakingly drawn up for you may, in the distant future, turn out to be an utter piece of crap. Right now, it may have its uses, but you should be regularly reviewing and tweaking it over the many years ahead.
That would be like an intelligent, self-correcting ball that constantly adjusts its own flight, as it travels across half a soccer field. It has much higher chances of scoring.
Technorati: Singapore; financial planning; life expectancy.