Using compound interest as part of retirement planning strategy

Is it really a challenge to retire in Singapore?
Judging by the results gathered from many surveys by the various financial institutions & insurance companies, it certainly seems so.

Regardless of whether such surveys are relevant or not, there are indeed factors that are contributing towards the difficulty to 'truly' retire in Singapore.

• Aging population
• Rate of increment of income vs expenses
• Inflation
• Raising costs of living

Everyone wants to enjoy the years of retirement - having the financial capacity and health to enjoy the golden years.
However, not everyone wants to plan for retirement. Why is it so?

1. Too young to start: A young working adult who had just entered the work-force will feel retirement is almost 'light years' away. And over the course of the various life stages, there will be distractions from many other 'priorities' such as marriage, family planning ,upgrading of house, buying a car, travel.
2. Too expensive to start: When an insurance agent or a financial adviser highlights the amount of money required to maintain the desired lifestyle during retirement, that amount of money is usually "unrealistically" high, ranging from few hundred thousands to millions of dollars. And to achieve that, the amount of money to commit now towards that is high as well. Since it is not an urgent need or priority, it becomes "expensive".
3. Too old to start: By the time when most of other priorities in life has been addressed and accomplished, it is almost towards the later life stages, and most likely into the 50s or so. Left with 10 years or more (assuming intended retirement age is 65) to plan for retirement, the commitment required is now very much higher than it would have been if the planning started earlier, and thus, "too old" to plan.

In truth, retirement planning does not have take a step back because of all these.
In fact, the earlier we start, the easier it is (oh I am sure this has been said many times before but it is true).
Why so?
Let's explore a simple strategy called "compound interest".

THE MAGIC OF COMPOUND INTEREST.

Here's an example of how compound interest works.
Assuming you have $10,000 set aside to let it grow for the next year 3 years, and you were able to find an instrument that returned 6% per year.

Year 1
Principle amount of $10,000 with a 6% return will give you $600.
You will end the year with $10,600.

Year 2
Principle amount is now $10,600 and with a 6% return, it will give you $636.
You will end the year with $11,236.

Year 3
Principle amount is now $11,236 and with a 6% return, it will give you $674.16.
You will end the year with $11,910.16.

The longer the instrument is held on to (provided it continues paying 6% p.a.), the higher the compounding effect.
In fact, if you hold for 10 years, your initial capital will have snowballed to $17,908.48! That's almost double your money!

Using the same example, if your instrument lets you grow you money at 6% p.a. and you need to reach $1 million nest egg in 30 years time, you will need to set aside $1,022 a month for the next 30 years. Obviously, not every one has the means to set aside that sum of money on a monthly basis. Which is why you need to engage a good and trusted financial adviser to help you plan accordingly to your budget & risk tolerance.

The KEY thing is you don't need to save $1 million to get $1 million!
You just need to learn how to let your money works harder for you.
Putting savings in your bank savings is definitely not going to help. Engage a competent and experience financial adviser to work alongside you & design a blueprint that allows you to understand clearly what you want to achieve and how to achieve.