If I only have $300 per month and I am 50 what is the best way to save for retirement at 65? - Seedly
 

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AMA Christopher Tan

Asked by Anonymous

Asked on 22 Jan 2019

If I only have $300 per month and I am 50 what is the best way to save for retirement at 65?

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Hi Anonymous, sorry for the late reply.

Thanks for your question. Honestly, it will be difficult for me to answer this question without the full extent of your current situation and what you hope to achieve.

You have 15 years to retirement, which is a pretty long time to invest into the equities market. I am going to assume a few things:

  1. You have at least 6 months of emergency fund in cash - you can either put this into high interest bank accounts such as DBS Multiplier, UOB One or OCBC 360. Alternatively, put it in SSBs

  2. You are sufficiently insured. If you are unsure, you can go to www.moneyowl.com.sg to use the tools to check

  3. Your CPF SA has reached FRS - Currently $176K. If you have not, you can consider topping it up. It gives you at least 4% p.a. interest at almost no risk. Your CPF-SA will be transferred to your RA at age 55 and at age 65, pays you a lifelong stream of income per month. This can form the foundation of your retirement income.

If all the above is done and you still have $300 per month to invest for 15 years, I would suggest that you put it in a portfolio of bonds/equities. Perhaps a 60% equities and 40% bonds portfolio using low cost instruments such as ETFs or Dimensional Funds. Low cost means that the management fees of these instruments are below 0.5% p.a.. At 60/40, you should be able to expect a 5.5% p.a. return for the next 15 years. If you invest $300 p.m., after 15 years, the pot should grow to about $80,000. This $80,000 at age 65 will give you extra income over and above your CPF LIFE. So your CPF LIFE gives you your basic income but reliable income stream. The $80,000 gives you a bit more.

Hope this helps.

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Christopher Tan
Christopher Tan

26 Jan 2019

Hi Yang Teng, thanks for your comment. Very good thoughts. I think that 5.5% p.a. is a reasonable estimate over the next 10 years or so. Let us take reference from a low risk (near risk-free) instrument such as SGS. The average yield of a 10Y SGS is about 2.3%-2.5% p.a. As such, it is not unreasonable to expect a portfolio of corporate bonds and equities to give an additional 2.5% to 3% p.a. Of course, you are right to say that returns can change over the long run and nobody can really predict. As such, financial planning is an ongoing process whereby individuals must continue to tweak their plans in their lifetime. You are right to highlight that medical expenditures can be high as one gets older. That is why I have mentioned that it is important to be sufficiently insured before investing. Being sufficiently insured gives you the ability to take volatility risk.
Lok Yang Teng
Lok Yang Teng

26 Jan 2019

Thanks for your insights!
Lok Yang Teng
Lok Yang Teng
Level 8. Wizard
Updated on 26 Jan 2019

I see the objective as capital preservation rather than capital appreciation since you have started of late. As such, personally I would refrain from high risk investment vehicles such as stocks. Maybe Exchange Traded Funds (ETFs) over the course of 10-15 years to provide some returns. If you have spare cash, you can consider principal guaranteed bonds.

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