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A Beginner Approach to Saving for Retirement, While Paying for a House

Updated: Feb 9

CNA published a commentary on how 'Singaporeans were saving too little and too late'. Young adults planned to retire between 55 and 65 with an income of $3,500 yet they only start planning for said retirement once they hit the big 4-0.

Many Singaporeans rely only on their CPF for retirement - but given the small amount of interest and the short time that most people start actively saving for retirement, it's highly unrealistic that your CPF will be enough.

Let's skip the part where you're hit by the bleakness of reality and jump straight into how you can solve this problem.

Investing and Insurance

In a nutshell, when done right, these two strategies could make that pipe dream of retirement, or even early retirement, come true.

One of my dogmas when it comes to investing and insurance (let's abbreviate that to I-I) is that everything must be done with a purpose. For example, if your life plan's sum assured is $150k, you must have had a good reason for selecting $150k rather than just because.

Money in this economy is too tight to blow on unnecessary crap so it's crucial you strike a balance between what you absolutely need and what you're buying for kicks.

Buying Term and Investing the Rest (BTIR) is a strategy I like, if you have a fixed term goal in mind.

Imagine a couple in their 50s recently took on a second property - and that loan will be paid across a twenty year mortgage. One's sudden passing or inability to work would inevitably saddle the other one with debt.

Instead of a whole life plan that carries on beyond the mortgage duration, consider a targeted, 20 year no-frills plan that can protect you during that 20 years so that you can avoid that worst case scenario, while investing the difference that you might have paid for the whole life plan.

Once the term plan expires, you would have made enough to cover your loan and made excess profits to celebrate your loan repayment.

That is of course, if you BTIRed correctly. There are non-monetary problems of BTIR that people forget to consider, and if you're not up for the challenge, a pricier whole life insurance plan may save you time and grief with the option to take out a i) lump sum of cash, ii) complement your CPF as an annuity or iii) leave a legacy behind.

See: Do you know if you can handle these 4 psychological problems of BTIR?

There are a variety of ways to invest, depending on a variety of factors as well. Ultimately, whether you want to learn how to BTIR or not, investing is a useful skill that historical scales or exceeds inflation rates while becoming a secondary source of income over time.

It can be very discouraging for beginners to try investing and see the value of their money plummet by huge, numerical numbers. That's one of the reasons that I don't endorse the STI ETF, despite it's convenience, due to it's non-beginner friendly qualities.

See: The STI ETF is NOT for beginners... No matter what the Internet says

In my years of experience investing, beginners are largely encouraged by dividend funds with low volatility.

Imagine that while you're taking your time to learn about your risk profile and investing style, you are also receiving notices of dividends soon to be re-invested on your behalf. While you study, you'll have the security of mind that your money is working for you. It is a really good feeling to have and I certainly enjoyed it.

If you enjoyed the article or have some thoughts or comments on how you can start developing your streams of income, do like - comment and subscribe!

Money Maverick

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