OCBC Life Goals

Am I too young to think about retirement?

Starting young has given 27-year old Dan more confidence and opportunities to attain a comfortable retirement.

At 27, retirement is the last thing on Dan’s mind. Recently married, his immediate priorities are buying a house, having children, and ensuring the success of his family business, which is his only source of income.

Financially, Dan is stable with a healthy net positive cash flow of about S$2,500 per month after expenses. He has a savings of S$50,000 to delve into in case of emergencies and has insurance coverage for life, death, critical illness and hospitalisation. Additionally, his parents had signed him up for an endowment plan that would contribute an additional S$12,000 upon maturity in 20 years.

Retirement is the holy grail of life goals

Dan is a classic example of why some young adults leave retirement planning until it is too late. With immediate financial priorities such as buying a car or a house, retirement often takes a backseat. The reality is that it’s just a matter of time before he has to plan for the bigger goals like his children’s education.

The earlier he starts, the smaller the amount he needs to set aside. If Dan waits too long, the lump sum or monthly amount required to invest becomes larger and larger, and depending on his financial scenario, it may not be feasible, forcing him to settle for a less ideal retirement. The best scenario is to start earlier with a smaller sum, and let compound interest take over.

Have a rough retirement figure in mind

The key to good retirement planning is having a rough target in mind. Dan is likely to live for an average of 15 - 20 years after 65. This is a long time, and people tend to underestimate how much they would need after taking inflation into account. CPF Life will guarantee Dan a monthly income of between S$1,200 - S$1,400 throughout his retirement, and this is the foundation on which to build on for a comfortable retirement.

Dan went through the OCBC Life Goals programme with Eric, an OCBC Personal Financial Consultant, to understand how his short-term goals impact his retirement. Going through the retirement calculator with Eric, Dan was shocked to find that he has a shortfall of about S$900,000 to make up for his retirement. However, with smart planning, the target is within reach.

Building a comprehensive, customised retirement plan

Unknowingly, Dan has the basics of manage and safeguard locked down. These include being cash flow positive, having an emergency fund of 3 months of his monthly expenses set aside, and protecting himself, his family, and his assets from unexpected risks, enabling him to focus on growing his retirement fund.

Unusual for his age, he had a conservative investment approach, hindering his ability to make up his retirement shortfall. His parents had gone through a bad experience where they lost a lot of money in the stock market. With this mind set, he prefers staying liquid, a firm follower of the “cash is king” stream of thought.

As such, Dan has a fixed mind-set that all equity-related products are inherently risky and should be avoided. However, the reality is that while equities themselves offer higher risk and reward, other equity-related products such as unit trusts and exchange traded funds provide income and growth opportunities while balancing the risks by virtue of being part of a larger portfolio of equities, bonds and other asset class products. As Dan is young, he can look at unit trust options as part of his portfolio.

Another misconception that Dan had was that insurance was only for protection. However, there are insurance products such as endowment plans that can be viable investment alternatives for a balanced portfolio. For Dan’s case, he has the opportunity to avail of compounded interest for a period of 30 years or more, which would give him a big pay-out upon maturity.

"After understanding my growth options and how different types of products work, I’ve increased my risk appetite to a growth investment approach. The OCBC Life Goals conversation was refreshing. Eric took time to understand my needs and taught me a lot of new things I didn’t know about. I am now comfortable that I am working towards meeting my retirement goals by investing a small monthly sum from today onwards and taking on a balanced portfolio which I know I can afford at this stage of my life. Next step on my agenda “set a date in my calendar for a review with Eric one year from now to see where I stand.” - Dan

A comprehensive plan for Dan to act on

Manage your cash flow
  • Increase emergency fund from three times to at least six times your monthly expenditure
  • Maintain your savings pool at current amount
  • Channel additional savings into investments
  • Maintain your current net positive cash flow
Safeguard yourself
  • Continue your life, critical illness and hospitalisation insurance policies
Build your wealth
  • Channel at least S$800 from monthly savings into investments
  • Invest for the long term aiming at a 30 year horizon
  • Create a more stable portfolio of 50% endowment plans that offers assurance and 50% unit trusts that offers diversification
    • Invest in 30 year endowment plans to capitalise on accumulation and compounding interest
    • Invest in Multi-Assets Income strategy unit trusts that pay regular dividends and reinvest the dividends to capitalise on compounding interest
Things to look out for that could affect your allocation
  • Increase the amount invested as your salary increases
  • Set aside savings to cater for the possibility of having children
  • Set aside savings to cater for buying a house
  • Revalidate your protection needs as life stage changes