Rethinking Retirement - Strategies for a new generation

My work involves having conversations with professionals and executives on how they manage their wealth and plan for life goals such as financial freedom, retirement and legacy for the next generation.

Increasingly, the conversation in recent years tend to revolve around some form of early retirement or slow down the pace of work at some point in their professional life. If this is something that may interest you, read on as I formulate a few strategies that you may explore.

Slowing Down for the Spouse

As our pace of work intensifies in recent years, more are finding it unsustainable to maintain the pace and intensity of work into their 60s. With a high cost of living in Singapore, many families tend to have dual income to support family needs and wants such as housing, children education and family vacations.

The first strategy is for dual income families. With proper communication and planning, it is generally possible for one spouse to slow down at some point. This will generally involve having some kind of a joint retirement plan, where the reliance on one spouse's income decreases with time.

This allows one spouse to go on some part time work arrangements at some point in their professional working life. This leaves the other spouse to take on the main role of paying off the house and saving for retirement.

This strategy tends to work better if one spouse has a higher earning ability than the other, and the one with a higher earning ability tend to continue working full time while the other slow down in their 40s or 50s.

Paying off the Home Loan with CPF Investments

The second strategy is applicable for both singles and couples. One of the main challenge for those who want to slow down or early retire is paying for the monthly mortgage of the house. Depending on the cost of housing, they may be committed to a monthly mortgage up to 65. This is usually a big deterrent for slowing down as they may not have sufficient funds to pay for the monthly mortgage if they earn a lower income.

One way to address this is using CPF Ordinary Account (OA) investments to build up an investment portfolio to pay off the home loan by around 50 or 55. This assumes that not all CPF OA funds are used for the down payment of the house. The remaining funds can be invested to accumulate up to around 50 or 55. The funds can then be used to pay off the remaining home loan pre-retirement.

This allows the single or couple to be more or less debt free by 55 and earn a possibly lower income to slow down the pace of work if they have already set aside funds for retirement.

Setting Aside Emergency Funds for Sabbaticals

The third strategy involves taking sabbaticals. With the intensity of work in the work place, the risk of burn out is real. With the traditional employment model, employees typically keep working till retirement, managing with some paid annual leave in the course of the year. But very often, if the employer allows, a sabbatical of one to three months is sometimes all that is needed to feel rejuvenated to come back and tackle the challenges at work.

Some may even better appreciate the workplace and co-workers more with the interim absence from work. For those intending to take sabbaticals whether to study or just to take a break from work, my suggestion is to set aside emergency funds of up to a year to fund your living expenses during sabbatical as well as prepare for any emergencies that may arise.

Conclusion

The modern workplace is becoming increasingly challenging, with faster pacing and more intense work rate. Both employers and employees may need to rethink more flexible and sustainable work arrangements for the modern workforce. I hope some of the ideas mentioned above can help you explore ways to better manage your professional life and finances.

About

Royston works with professionals and executives towards financial freedom. He is an accredited Chartered Financial Consultant (ChFC) and Associate Specialist in Estate Planning (ASEP). He is a certified IBF Advanced (IBFA) practitioner by the Institute of Banking and Finance Singapore. Do get in touch if you like to explore how you can work towards financial freedom.

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Disclaimer

Royston is a financial representative of Great Eastern Financial Advisers (GEFA). Any views, opinions, references, assertions of fact and/or other statements that a financial representative may set out on his/her social media account(s) or otherwise are his/her personal views and are not necessarily the views held by the Great Eastern group. The Great Eastern group disclaims any liability whatsoever that may arise out of or in connection with such statements.