Millennial Money: Am I too young to plan for retirement in my 20s?

Gabriel Choo
·Contributor
·4-min read
retirement plan written in notebook on white table
How young is too young to start thinking about retirement? (PHOTO: Getty Creative)

SINGAPORE — How young is too young to start thinking about retirement? Saving for retirement is something we have been told to worry about again and again. 

When young people think about retirement their biggest concern tends to be “running out of money.” The good news is that starting to plan early makes a big difference.

This is part of a series where Yahoo Finance Singapore will share about the whys and hows of investing. In this installment, we speak to some young people and financial experts who share their thoughts on retirement planning.

Uncertainty in a COVID-19 world

The first question that probably comes to mind is: Are young people able to plan for their future financially?

OCBC’s Financial Wellness Survey 2020 found that only 57 per cent of millennials (people under 40) have retirement plans compared to the national average of 63 per cent.

Singaporean youths don’t have a good understanding of their overall financial situation and of their projected financial needs when they retire, according to Tan Siew Lee, OCBC Bank’s Head of Wealth Management Singapore.

With the COVID-19 pandemic thrown into the equation, it is especially difficult when there are multiple goals in life competing for one’s financial attention, added Tan.

According to OCBC’s Financial Impact Survey for COVID-19, only 30 per cent of millennials can sustain themselves for more than six months if they were to lose their job now. Another worrying trend is that only 18 per cent of them have enough savings to cover only up to one month of expenses.

But financial experts warn that saving is the most basic step for any financial endeavour, retirement planning included. And if retirement still seems too distant to plan for, young adults can start by setting aside some capital with a time horizon of 10 years.

“Once you have become accustomed to saving for the future, this long-term capital can then be treated as capital for your retirement nest egg,” suggested Asheesh Chanda, CEO of Kristal.AI, a digital-first private wealth platform in Singapore.

Currently, only 23 per cent of those in their twenties with a retirement plan have set aside more money for use during this time of uncertainty.

Having a goal

Chanda advised that retirement planning can be done through various ways such as investments, savings or endowment plans, and that it is ‘never too early to start’.

“The advantage that youths have is time; they can take more risks as they have fewer commitments and a longer career path, which means it is easier for them to rebuild their capital if they lose their investments or they do not pay off,” added Chanda.

The key is to get started. The earlier you begin planning and subsequently investing, the more time your investment has to benefit from compound investing, which will net higher returns in the long run.

“Building a habit of saving and managing your finances at a young age is bound to be an advantage,” Chanda concluded.

Another important factor is for one to have a goal in mind and understand their risk appetite before making a decision. Some might prefer keeping the money in the bank while others might prefer to potentially "grow their money" by investing in stocks.

“It's always good to aim high but start small to get a sense of what is your comfort level. Ultimately, it's up to one's risk appetite to ensure that one doesn't bite off more than they can chew,” advised Eng Thiam Choon, CEO of Tiger Brokers Singapore.

“I think planning for retirement early is important as it helps you better prepare for the future. It cultivates a good habit, and prevents you from worrying more in the future,” said Cheryl Pek, a full-time social media creative.

The 22-year-old, who plans to retire when she is 60, has been setting aside a portion of her salary for her savings every month since working full time.

Unrealistic mindset

However, it is a common mindset for youths to think that retirement may be a long way off, and it might feel even longer for those who've just embarked on their working years.

National University of Singapore student Kang Choon Kiat is one such youth.

“I feel like retirement is a bit of a far-fetched goal, it is more realistic to think about short terms goals like saving up for a house or a car,” said Kang, 24, who added that there is also CPF for retirement and that you will feel more motivated to save up for nearer goals.

Similarly, final year NUS undergraduate Isaac Hong, 25, said: “Youths should start planning for their careers, but perhaps not their retirement just yet, simply because most of us haven't started earning income from work and so it's hard to forecast ahead.”

Hong plans to retire by 65 although he added that it depends on his family situation and passion for his job in future too.

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