Does planning earlier for retirement really make a difference?

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Absolutely. Here’s how you can put away less and still reap a lot more. Mathematical evidence from Manulife Singapore on why putting a little away earlier is way better than saving more later.

Brandan Chen

Financial Planner

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A recent study by Manulife shows that most Singaporeans start planning for retirement only around age 38. Perhaps as a consequence of this, only two out of five Singaporeans are confident about meeting their retirement needs.

In truth, 38 is a late age in which to start retirement planning.

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Consider the retirement fund of someone who starts saving at 38, versus someone who starts saving at 25. Assuming they both put away S$500 a month with a plan to retire at the age of 61 (the most desired retirement age in Singapore, as indicated from the same Manulife Singapore study), with a plan that grows their money at a projected rate of 4.75 per cent per annum (typical rate of return for many insurance plans).

The 25 year old, after building a retirement fund for 36 years, will have saved around S$602,114 by retirement. The 38 year old on the other hand would have amassed just S$260,134. This is a difference of over S$340,000 — almost sufficient to buy another three-room flat today.

This difference is due to the power of compounding interest, which Albert Einstein famously called "the most powerful force in the universe". Consider how quickly S$1,000 grows over 10 years, at a compounding rate of five per cent per annum, without even adding additional funds.

real table with 10 year hub planning

Notice that the interest earned increases each time. This is because it builds on (compounds) the previous end value.

There is also another reason to start planning for retirement early: if you’re ambitious, you may aspire to retire before the age of 61. Say you’re 25, and are disciplined enough to set aside a large part of your earnings. You manage to save S$1,500 a month for retirement, at a projected 4.75 per cent returns, over 30 years. By the time you reach 55, you could potentially have a little over S$1 million. This is sufficient to provide you with around S$80 per day, until the age of 90. You could, in effect, retire at 55 instead of working till 65.

We know it can be challenging to start saving for retirement early. If you are not earning as much at the start of your career, even setting aside S$500 a month can be a challenge. The point is even a small amount saved over time can make a big difference — as long as you start early.


This advertisement has not been reviewed by the Monetary Authority of Singapore. The information in this article does not necessarily reflect the views of Manulife (Singapore) Pte. Ltd. All stated information, including external links, are general information and does not constitute or form any recommendation of insurance plan. Certain information in this article may be taken from external sources, which we consider reliable. We do not represent that this information is accurate or complete and should not be relied upon as such.

This article is for your information only and does not consider your specific investment objectives, financial situation or needs. We recommend that you seek advice from a Manulife Financial Consultant before making a commitment to purchase a policy.