Impossible To Retire in Singapore

How many times have we heard the phrase mentioned by Singaporeans? 'Singapore is getting too expensive.' 'How to retire here?' 'Government must do something'. It always irks me that many people expect the Government should do something for them, anything goes wrong its the Government. MRT breakdown, Government fault. Bus driver strike Government fault. Toilet breakdown, Government fault. Lorry knock down people, Government fault. I cannot retire, Government fault. 

The way I see it, many things are within the control of ourselves. Whether we can retire in future is very much dependent on the things we do today. For example, if you know you need to have 1 million in future at retirement, what do you do today? You save. But Tang, things getting more expensive in future! You save more. But Tang things so expensive now how to save? Why you never save earlier? But the truth is its all about managing your money. Too many of us (including me in the past) saves after spending. Our saving formula looks like that:

Salary - Expenses = Savings

But every month we have an excuse to spend on something or we want to go on a trip or there is a newly launched gadget or new season fashion or new handbag, new shoes, new everything... so Tang how to save?

Lets move the formula:

Salary - Savings = Expenses

Wa Tang like that no need to spend already. Well maybe, but  I dare bet that if your formula changes to the above you will definitely be able to retire. If you were to spend on one less gadget or one less holiday or even one less beer per week, you will have found some extra money to save for the future. 

If you believe that the above formula can work you will probably ask how much to set aside each month. Rule of thumb 10% to 20% of your current income will be a good start. As your salary increases (and I hope it does, if it doesn't please take a good hard look at yourself) you increase the saving amount to maintain the 10% to 20% ratio. 

Have a good mix of asset to ensure the monies you have set aside is moving your monies closer to the inflation rate. Yes property is a good hedge but please it should not be the only hedge. It is still an asset and the value will fluctuate. 

If you are currently planning for your retirement already, get a financial adviser to project and estimate the amount of retirement fund you will need and work backwards to ascertain the amount to save today towards your goal. This will give you a more specific amount to set aside on a regular basis. Once again, if this actually concerns you and you do not have somebody to speak to, please email me tngjinyau@gmail.com. Whatsapp or SMS me 9180 3448. My consultation is on a no-obligation basis and I do not charge a fee.... yet...

The Unseen Monster

Read this in the papers yesterday and I was thinking of the times when I was in corporate, working 9 to 5 and receiving a take home pay at the end of the month.

I have always wondered 'Why does my pay never seem to be enough even when I get a raise every year? Why is it that I get a raise every years yet, you never seem to have more savings or a better standard of living?

After being in the financial industry I started realising the mistakes that most of us make and I have been through it myself.

Firstly, inflation has been slowly eroding away the value of our monies. We all know about inflation but many do not do anything about it. 

The government tells us CPI increased. CPI? What's that? Can eat or not?

For those who knows what CPI represents, most will also ignore the consequences of high CPI.

Some who knows what CPI is, what is its repercussion and consequences, they will still procrastinate about doing something about it.

So what is CPI? CPI, Consumer Price Index or what we know commonly as Inflation is the silent killer that has been eating at our monies. So how does inflation affect us.

I remembered the year 2003 when I started to indulge in kopi-o. One cup of kopi-o then cost $0.50. 8 years on in 2012, my indulgence is now, $0.90 per cup. (And I do not take only a cup one day.) What do you think inflation of my kopi-o has been the past 8 years. On an average the inflation for my cup of kopi-o per year is 7.6%. 

 Many of you might think: 'But its only $0.40 what! Tang why you bother write blog for $0.40!'

Let us move the decimal points, something that cost $5 will cost $9. Something costing $50 will cost $90. Something that had cost $500 now cost $900. The difference is now, $4, $40 and $400 respectively. The difference will get bigger once the sum of money becomes bigger. $0.40 seems acceptable, but does $40,000 in 8 years sound reasonable?

To put inflation into perspective, imagine you earn $4000 every month, you spend $3,500, and save $500. You get a pay raise of 4% and inflation has been at 7%. After 8 years, your income after a pay raise of 4% every year will be $5,475. Your expenses that is growing with inflation of 7% will be at $6,013, with no more extra for savings.

Based on the above example, how can we maintain our standard of living when the cost of our expenses are moving faster than our pay! It has moved beyond our means and we have to start digging into our savings just to maintain the lifestyle we enjoyed just 8 years ago. And once our savings run out, we either start signing our credit cards or compromise our standard of living.

Being young and having my first credit card was detrimental. With inflation increasing, and me trying to keep up with my standard of living, I ran up a total of almost $30,000 in credit card bills. And with the interest rates of credit cards at 24% p.a it is almost impossible to clear my debt while just trying to pay off the minimum amount. 

But when I started in the financial industry, the idea of planning began to sink in. I always thought that Income - Expense = Savings, but some seminars I attended changed my whole perspective. One speaker actually mentioned that the real formula to be rich and financially independent is to save and to save the formula is Income - SAVINGS = Expenses!

That blew me away! I had been a slave to my money! I have allowed myself to work for money, I have not allowed money to work for me. I have to be a master of money and not a slave to it! That day, I got home, took out my scissors, cut away my cards. 

Found some personal loan that will give a slightly lower interest and transferred my balance so that I can pay off my debt in a very systematic way. 

In the mean time, I also walked into POSB,  ask them about an account that will take my money from my salary on a monthly basis on a fixed date. I do not want an ATM card or internet access for this account. They told me about the fabulous MySavings account that allowed flexibility of setting aside a fixed amount of my salary on a user defined date! If I need to withdraw from the account I had to go to the branch, queue, to get my money. (Though now the account has changed, they now give internet access and tie it to your ATM card. But the habit of savings has been formed)

Life changed, debts was cleared and inflation was still a concern. 

Savings interest: 0.125%

Inflation: 7%

Real rate of return on my money: - 6.875%

I knew I had to do something about it.

Lessons From A Taxi Driver

23/10/2012 Tuesday

Dropped my bike off at AMK industrial park 2 for some oil leaking from my engine and decided to grab a cab home. As I was walking towards the junction, a cab pulled up going to make a left turn. Flagged it. Uncle wound down his window,

'Where you going?' He asked. 'Uncle, Simei.'. He hesitated , took a second glance at his clock and waved me on board. 'How you want to go? CTE then PIE then exit Simei?' he asked.

'Uncle, TPE also can' I said.

'CTE then PIE then exit Simei? Ok ah?' he asked again. Figured he was hard of hearing already, I said: 'Ok, ok, can can.'

As I was sitting in the back of the taxi, I remembered attending one of Dr Andrew Goh's training titled: Think Like A Taxi Driver and decided to engage with uncle. 'Uncle, you had lunch already?' I asked.

'After I drop you off I am going to return taxi at Sengkang.' he said.

Eeeerrrrr... ok ok uncle hard of hearing. Ask again: 'Uncle, you had lunch already?' 

'Eat liao. But nowadays don't eat rice, just eat porridge. Drive taxi no time eat.'

'So uncle, how long have you been driving taxi already?' Uncle ask me guess. '10 years?' I answered.

'34 years already. This year I 67. (At that moment I felt at peace knowing I had at least a million dollars worth of insurance coverage) 3 years time, I going to retire'

'Wa uncle so long ah? You got kids or not?' Uncle said got kids, 1 boy, 1 girl. 'Then uncle relax liao la, no need work so hard.' I said.

Uncle went on to tell me his wisdom; he said he used to drive taxi for 12-14 hours when younger now drive for 6 hours, enough to cover his basic needs. He told me not to expect from my kids. If they make it big in life they can give you more ok. If cannot then have to continue working to sustain. He gets $300 from CPF and he has some savings. He said he co-owned his taxi for 20 years. If you don't co-own, you pay $60 rental for taxi in 1980s. If co-own you pay $60 for 4 years and $30 after that. He said he saved the $30 per day and now has savings to pay off some stuff every month. In essence, he told me he cannot stop driving his taxi.

Then he told me: Young man, now that you are still young, better save for your retirement. Don't anyhow spend your money. When young earn more, but also save more.

Sigh! As a financial planner we advocate that to people on a daily basis. We have plans and solutions for many of these financial objectives including retirement. But half of the replies you get when you want to meet up with people: I got already. You people earn so much. Bluff people one. Think about it. No need. And finally the best: NOT INTERESTED. 

And guess when will people be interested to do something about their retirement?

During retirement.  

Well guess life's like that. The quote from Gladiator sums it up: What You Do In Life Echoes in Eternity. So whether your retirement allows you a choice to work or not depends on what you do today.