Anyone can appreciate a vacation. A sweet respite from the mundane social constructs of life – to perhaps spend a week in a LGBTQ+ affirming place where we can be free to be ourselves without fearing judgment. No work. No burden. A total heaven on Earth.
Likewise, being on retirement should be like going on a vacation. You dream about it, have specific expectations of it, and look forward to it. More importantly, retirement is a momentous milestone to reap the rewards of a person’s lifetime’s hard work.
Understanding the importance of having a fulfilling retirement is significant for LGBTQ+ individuals. As U.S. studies have shown, elderly LGBTQ+ Americans are prone to poorer physical and mental health in old age compared to heterosexual individuals. Although there are no equivalent statistics for Singapore, judging from how the vast majority of Singaporeans acknowledge that the LGBTQ+ community still faces discrimination today (2019 Blackbox Research Survey) and how there is a lack of elderly LGBTQ+ representation in Singapore, it is unclear what an LGBTQ+ retirement resembles.
There is huge incentive in caring and planning for your ideal retirement – to be mentally and physically healthy while keeping it financially sustainable.
The Thought Process
Questions. The path to seeking answers begins when there are questions to be answered. Here are four helpful questions to ask when finding your ideal retirement.
Question 1 – When do I retire? The subject of ‘when’ does not need to be age specific. ‘When’ can also be event specific such as, “I will retire when I have paid off all my mortgage loans.” However, the event must be able to fit into a time frame and not be arbitrary (eg. “When I strike the lottery”). Like a vacation, your money cannot run out during your retirement. Knowing when you will retire gives you an idea of how long your retirement might be and how much money you need to prepare.
Question 2 – Where do I want to retire? When thinking about ‘where’ to retire, it can refer to countries and/or types of property to retire in. Will I be happy to retire here in Singapore? Do I want to retire in a country that has LGBTQ+ rights? Should I downgrade my property when I retire? Do I check myself into a nursing home? Who will I be living with? If you are retiring overseas, you will need to take into consideration the rate of inflation and cost of living in that country that you have in mind. Also, depending on the size of your property, you will have to budget for things like housing maintenance for the occasional wear and tear. Having a better understanding of where you want to retire is the foundation to building an ideal retirement.
Question 3 – What kind of lifestyle do I want when I retire? To determine the lifestyle at retirement depends on your definition of retirement. To some, retirement may mean financial independence from work but not actually quitting and stopping work entirely. Work in turn becomes a source of purpose and a pastime. On the other hand, it is also perfectly okay to retire and not have to work for a penny ever again. Regardless, the importance lies in having a purpose in the activities you do and spending time and money on matters that bring you joy.
Question 4 – Who do I depend on? We may or may not have a life partner in old age. Either way, as LGBTQ+ individuals, our rights are not well protected by the laws of Singapore. It is therefore important to look into matters that protect us in times of vulnerability. Instruments like the Lasting Power of Attorney (LPA) and Advanced Medical Directive (AMD) are crucial in retirement. Some individuals may even set up a living trust where a professional entity is appointed as the Trustee while also assuming the role of the Donee in one’s LPA. Such professional arrangements ensure that your welfare and financial needs can be professionally taken care of (LPA) in a financially sustainable way (living trust) even if you do not have a loved one to rely on in old age.
The Numbers Process
Once you have figured out the answers to these four questions, you can start working on the numbers and saving towards your ideal retirement. Like every vacation, you need to budget and know what to spend on.
In retirement, there are two typical ways to calculate how much money is needed. For the income method, it functions on the general rule of thumb that a person can sustain their current standard of living in retirement if they have 50% to 70% of their last drawn annual income. This might work better if you are already close to your ideal retirement age. If you are still a couple of decades away from retirement, it may be difficult to estimate your income earning potential.
Another method, the ‘expense method’, may better suit individuals who are further away from retirement. Knowing the answers to the four questions listed gives an idea of what you need and want to spend on in retirement, as well as when and how long you will need to support this spending.
I have broken down the calculation factors alphabetically in the following:
A) Expense – How much you need and want to spend each year in retirement.
B) Retirement Age – The age you retire determines how many years you are away from your retirement.
C) Retirement Period – The duration you will spend in retirement based on Singapore’s mortality statistics.
D) Inflation – Your retirement expense should include inflation. Since inflation has been consistently under 2% for the past five years, we can be safe and buffer inflation at 2%¹.
E) Investment Rate of Return – This is based on an individual’s average rate of return from all their investments.
For example, a 45-year-old male plans to retire at age 60 with an annual expense of $30,000 (today’s value). The sum required at the age of retirement is $1,081,589.92.
(A) = $30,000
(B) = 15 years (60-45)
(C) = 21.4 years (81.4-60)
(D) = 2%
(E) = 4% (assumed)
The calculation workings are as follows:
Step 1 – Yearly Amount Needed at Retirement in Future Value
(1+D)^B x $30,000 = 1.02^15 x $30,000
= $40,376.05
Step 2 – Lumpsum Required at Retirement
We can find the answer by keying this formula in an excel cell “=FV(1.96%,21.4,-40376.05,0,1)”, where:
i = {[(1+E)/(1+D)]-1}x100 = 1.96%
n = C = 21.4
PMT = Answer from Step 1 in negative = -40,376.05
Type = Beginning = 1
FV = Answer = $1,081,589.92
Conclusion
Having found your purpose in retirement and the magic number you require at retirement age, the next step is getting there. There are many tools one can use to sustain wealth in retirement – every tool will have its pros and cons while serving specific purposes in your retirement.
Ultimately, keep in mind that your ideal retirement should be viewed as a dream vacation. The tools are a means to an end. What truly matters is that you begin with the end in mind so you may revel in the joy of the experience of getting there.
Footnote(s)
¹ It is worth noting that Singapore uses Consumer Price Index to measure consumer price inflation. Although inflation has been consistently below 2% in the past five years, it does not reflect the unique spending pattern of an individual. For instance, the experience of a smoker and a non-smoker will be different because the latter will not be affected when the price of cigarettes changes.
Disclaimer
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The Author
Find out more about Jie Bin here. Leave a comment in the comment section if you would like to get in touch with her.
