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Part 1: What is Retirement?

Retirement means many things to many people. If you make reference to Wikipedia, they describe “retirement” as:

Retirement is the point where a person stops employment completely. A person may also semi-retire and keep some sort of retirement job, out of choice rather than necessity. This usually happens upon reaching a determined age, when physical conditions don’t allow the person to work any more (by illness or accident), or even for personal choice (usually in the presence of an adequate pension or personal savings)…

Some see retirement as an age. “When I reach 55, 65, 67…”

Some see retirement as a place. “When I reach retirement…”

Some see retirement as an amount. “When I make enough to retire…”

So what, really, is retirement about? You can see from the above examples that retirement means many things to many people and is dependent on the circumstances that varies from person to person. Those who are on government pensions see retirement as an age when they qualify. If you are on the Central Provident Fund (CPF) system where your employer contributes along with deductions from your salary into your retirement account, then it is an amount as well as age as these two determines when and how much you can draw when you stop working. Those who are able to self-fund their retirement from personal savings and investment and who are truly financially free can retire when they hit their targets for having sufficient passive income purely from investments.

This is important because retirement is NOT THE SAME for everyone. Your subsequent decisions on how you are going to fund your retirement would vary based on what is your situation.

1. Retirement as an Age

This is the most common reference you use when talking about retirement. When you are in your teens, retirement is an alien concept and does not register on your conscious mind. When you are in your 20s and have just started working, retirement is when you see the older staff in your organisation being given a send-off (or not) when they hit 60, 62 or 67 as the case may be. When you hit your 30s and are coming to 40s, retirement becomes more serious as it’s likely your parents would have retired or semi-retired and you would have to juggle career, providing for your family and planning for your own retirement needs.

Age seems to be the predominant factor in deciding when we retire because firstly, many of us are on the CPF system where you can only withdraw some of your retirement savings after age 55. According to the CPF, you can withdraw your CPF monies if you have met the minimum sum requirement AND the Medisave minimum sum. These amounts will be $120,000 by 2013 (Currently $106,000 from 1 July 2008) for minimum sum AND $29,500 (currently $14,000 from 1 Jan 2008) by 1 Jan 2013 for Medisave minimum sum. Hence, you effectively have to have $149,500 (in 2013) being locked up by the CPF at age 55 unless you emigrate (leave Singapore or West Malaysia permanently) or are permanently incapacitated.

The other age is 62 (or 67 by 2013) as the draw-down age. That is the age which you can actually start getting monies from your own retirement funds. I will discuss more on this in part 2 on funding your retirement.

2. Retirement as Place (in your mind)

It is a place in our minds. Retirement conjures up images of sitting relaxed near a beach, watching the waves and taking in a tan while sipping your martini (shaken, not stirred). It is anything BUT your day-to-day grind in your workplace or office. It is about doing what you want with the time that you have without worrying about providing for day-to-day living expenses.

3. Retirement as an Amount

If you intend to self-fund your retirement outside of the CPF system, then you may be working towards retirement as an amount. The concept in theory is simple. Earn and save enough investible capital so that investment returns (%) x investible capital (amount) >= (more than or equal to) your living expenses. Then you are truly free. The beauty of this definition of retirement is that it is not time dependent. If you buy a lottery ticket and hit the $1 million dollar jackpot, then a 5-6% return gives you a cool $50,000 to $60,000 in passive income that is decent by most standards.

What is retirement to you?

For many of us, we realise that retirement is a bit of all of the above three concepts. We know it is about an age because we trade time (in working our jobs/careers/business) for the money we save in our retirement accounts to fund it. It is also an amount because the more you earn now and save and invest, the more you will have to retire on later.

My journey towards financial independence and to reach financial freedom makes me realise that retirement as an amount is a more powerful concept as it opens up your mind to the possibilities of earning more, saving more and investing more in order to accelerate the build-up of retirement income at an earlier age that the statutorily defined 55, 62 or 67. Given the dearth of company or state funded pension plans, the burden of providing on retirement in Singapore falls on the shoulders of you and I. We need to fund our retirements. As the oft-quoted saying goes, “There’s no free lunch”, especially in the Lion City.

Join me in Part 2 where I drill down to the nuts and bolts of getting at how you can fund your retirement.

Be well and prosper.

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