Below are my best ways to save money for your retirement. The Sweet Retirement Blog was created to share my journey towards achieving a comfortable retirement life. Hence I am writing this post to share what I am doing in terms of building my retirement income with you.
I am a working salaried professional in my 40s. Just like most Singaporeans, I worked long office working hours, often trying very hard to find some work life balance.
I know that most Singaporeans rely on their Central Provident Fund (CPF) for retirement because schemes such as CPF Life provides you with lifelong monthly payouts. Why worry for retirement? But, is the monthly payout enough for a sweet retirement?
The below ways can help to give you that extra payout on top of your CPF monthly payout when you retire.
Invest in Supplementary Retirement Scheme
The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement. You can open an account with any of the 3 Singapore local banks (DBS Group Holdings Ltd, Overseas-Chinese Banking Corporation (OCBC) Ltd, United Overseas Bank (UOB) Ltd).
Some major benefits of SRS are:
- Contributions are eligible for tax relief.
- Only 50% of the withdrawals from SRS are taxable at retirement.
- Invest in Singapore Savings Bonds for greater returns.
You may make penalty-free withdrawals from your SRS account over 10 years starting from the date of your first penalty-free withdrawal.
When you make your first contribution to the SRS account, the retirement age where you can start withdrawal will be locked down. Any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you. For example, I can start making penalty-free withdrawals from my SRS account at the age of 62.
Withdrawals from SRS accounts are subject to tax in the Year of Assessment following the year of withdrawal. For the first S$20,000 in 2024, the income tax rate remains at 0%. This means that you can withdraw S$20,000 without paying taxes if you are eligible to withdraw money from your SRS account in 2024.
For myself, my retirement plan is to withdraw S$20,000 from my SRS account yearly starting from the age of 62 till 72 (10 years). This means that I need to accumulate S$200,000 in my SRS account before I reach my retirement age of 62.
Invest in Dividend Paying Stocks
Most retired folks live off their savings that they have accumulated during their working days until their retirement savings get depleted. Since retirees are no longer paid a salary, they have no cash flowing in. Daily expenses continue to deplete their savings.
One of the ways to still have cash flowing in to your bank account after retirement is to invest in dividend paying stocks. That is exactly what I am doing now. I am building a dividend paying stock portfolio that pays me dividends even after I retire. This is not difficult in Singapore as there are many quality REITs listed on the Singapore Stock Exchange (SGX).
If you want to know what are the dividend paying stocks, you can start off with looking through the list of REITs that pay dividends.
I also want to share that I use Stocks Café to keep track of the total value worth of my stocks. Stocks Café is my preferred tool for managing my stock portfolio. It is packed with tonnes of intelligent features such as portfolio monitoring and reporting, dividend tracking, stock screening. All these features are automated which means no manual entry is required.
Invest in Singapore Savings Bonds or T-Bills
Well, many Singaporeans are sceptical of Singapore Savings Bonds because the return rates have always been lower than what Fixed Deposits or Treasury Bill (T-Bills) can offer. However, I still enjoy purchasing Singapore Saving Bonds because you can redeem them anytime and it is almost risk free.
When the interest rate is not that much lower than fixed deposits or T-bills, I will simply purchase some and forget it since Singapore Saving Bonds will pay me interest on a 6 month basis for the next 10 years.
Treasury bills (T-bills) are short-term Singapore Government Securities (SGS) issued at a discount to their face value. Investors receive the full face value at maturity. The Government issues 6-month and 1-year T-bills.
This is probably the difference between Singapore Savings Bond and T-bills because upon maturity, you need to find another financial instrument to park your money and opportunity may not exist then.
Invest in Fixed Deposits
The downside of investing in fixed deposits is that you need to wait for the fixed deposit to mature before you get your principle and interest back.
Nevertheless, fixed deposit is a great way to save for retirement because the bank locks your money away and you cannot spend them. The interest is also guaranteed upon maturity.
Money in fixed deposits are insured by the Singapore Deposit Insurance Corporation Limited (SDIC), up to S$75,000.
I have done several fixed deposit placements with my favourite CIMB Bank for the below reasons.
- High interest rate
- Short tenor period
- Easy placement done via their mobile application (CIMB Clicks)
- Flexibility of auto renewal of principle and interest in fixed deposits or withdraw the principle and interest back to savings account upon maturity
Check out 3 Fixed Deposit Promotion July 2023.
Purchase Insurance
Endowment plans are life insurance saving plans offered by insurance companies. The aim is to help policyholders save towards specific financial goals. Policy holders can contribute a regular amount for a designated period of time or pay a lump sum upfront at the start of the policy.
Upon maturity of the policy, you will be given a lump sum payout with the guaranteed return. It is best to study the plan carefully as certain endowment plans offers non-guaranteed returns.
Buying a short term Endowment plan is like lending money to insurance companies and they pay you interest for the money borrowed. Insurance companies are doing this because banks are charging higher interest rates under the current economic environment.
A few endowment polices that offer great returns are GREAT SP Series 11, Gro Capital Ease June 2023 and Tiq 3 Year Endowment Plan.
These endowment plans are often on a limited tranche basis but a great and low risk way to grow your retirement savings.
Summary
I am a strong believer that an early and comfortable retirement can be achieved by value investing and accumulation of passive income through stocks that pays stable and consistent dividends.
I hope that this blog post benefits you and if you have more ways to save for retirement, share them in the comments below!