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Going beyond savings: Millennials, here’s why you should make your money work harder

Among working adults in Singapore, young millennials (aged 24 to 34) are the most confident in achieving their investing and retirement goals.

This finding was revealed in a Straits Times poll of about 500 people conducted in August to understand the financial sentiments of Singapore residents. These young millennials and their older counterparts (aged 35 to 44) are super savers, with the majority of them citing savings as their top strategy to achieve their financial goals.

Is this wise, especially in times of stubborn inflation? Mr Abel Lim, head of wealth management advisory and strategy at UOB, answers some of your key concerns.

Mr Lim, who is in his 50s, oversees the bank’s overall approach and strategies for managing the wealth of a broad spectrum of clients. He was previously head of investment sales and advisory for UOB and has worked in the bank for 15 years.

Q: I’m actively accumulating my retirement funds by saving and building up my CPF balances. How can I tell if I am on track for my retirement goals?

A: Time is your biggest ally in early retirement planning. The more time you allow for your savings to benefit from compounding, the more it has the potential to grow exponentially.

To evaluate your retirement plan, first consider what kind of lifestyle you would like to enjoy during retirement, then do the sums to see how much a month you would need to lead that lifestyle. 

Next, think about your ideal retirement age. You will need enough of a nest egg to last throughout your retirement years. Bear in mind that average life expectancy is increasing, and you would not want to outlive your retirement savings. 

Also consider inflation and the future cost of your desired lifestyle. Even though inflation in Singapore peaked last year and is slowly coming down, it is expected to stay above deposit interest rates for the rest of the year. We are unlikely to return to near-zero inflation rates anytime soon. 

As inflation erodes your purchasing power over time, relying on cash savings alone may not be the best way to build wealth for retirement. To meet your retirement goals, you may need to make your cash work harder for you by investing. 

Depending on your risk appetite, having a longer time horizon means you may be able to take on a degree of risk with your investments, as you have a longer window to recover from any market downturns.

Q: With the rising cost of living, can I put off buying an insurance policy for now? I would rather invest to keep up with inflation.

A: Life is unpredictable and insurance can help protect you when the unforeseen happens.

We advocate our Risk-First Approach as a structured way to plan for your wealth. Once you have taken care of your protection needs with low-risk savings accounts and insurance plans, you then have peace of mind to build your wealth by investing. 

Being sufficiently covered by insurance ensures that you and your family do not need to worry about your bills, or dip into your savings should anything unfortunate happen to you. Your insurance payout would allow you to maintain your current lifestyle instead of having to deal with unnecessary financial stress.

Buying insurance when you are young and in good health allows you to enjoy lower premium rates than buying it later in life. The rising cost of living also means healthcare costs are likely to increase down the road. Having an insurance policy can help you better handle medical bills should you be struck with an illness or accident.

There are also endowment savings plans that can help young adults to start saving early and in a disciplined manner, compounding potential returns and accumulating wealth over time to meet future goals like retirement – all while offering protection against unexpected events such as total and permanent disability.

It is best to speak to an adviser to determine your insurance coverage needs. Remember, your insurance journey does not stop with the purchase of a policy. Review your coverage at every significant life milestone, such as getting married or welcoming a child into your family, as your needs will evolve over time.

Q: What steps can I take to grow my retirement savings without sacrificing my current lifestyle? The rising cost of living is already affecting my daily spending, and there’s another GST hike rolling out next year.

A: Inflation makes it even more important that you keep investing. The rising cost of living means that you will have less purchasing power for the same amount of money in the future, so you should continue investing to grow your savings and keep pace with today’s elevated inflation rates. 

This means you might have to take a hard look at your income and expenses. If the rising cost of living is affecting your ability to balance your investments and spending, it could be time to think about your current lifestyle.

Prioritising needs over wants may be necessary for you to live within your means. If you want to continue with your lifestyle, consider building an additional stream of income with a part-time job or upgrading your skills for a higher-paying role.

To build a resilient investment portfolio to see you through to retirement, consider your risk appetite and diversify your portfolio instead of chasing the latest hot stocks. Invest regularly as even the most seasoned investors are not able to successfully time the market consistently. Most importantly, stick to your investment plan once you get started.

If building your retirement pot seems daunting, take a first step by speaking to a financial adviser to formulate a plan, and stay informed on topics such as wealth planning, investments and markets.

Rethink Your Wealth provides advice and insights from experts and answers to your money-related questions.

Please note that the views expressed in this article do not represent financial, investment or legal advice.

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