How to Solve Singaporeans’ Biggest Retirement Headache

In an article titled “Many S’poreans doubt they can retire before 60: Aviva Survey, local newswire Channel NewsAsia reported on one of, what I believe to be, Singaporeans’ biggest retirement headaches.

Channel NewsAsia was detailing the findings of a recent survey done by insurance firm Aviva. The survey found that there’s a big difference between the retirement income Singaporeans will have and the income they think they will need.

Based on Aviva’s findings, 56% of survey participants think they’ll need a monthly retirement income figure of between S$2,000 and S$6,000 if they were to maintain “an adequate standard of living.” Unfortunately, 48% of respondents said that their actual monthly retirement income would be less than S$2,000 based on their current financial plans for retirement.

Obstacles to investing for retirement

This, I believe, stems from a number of issues. The first is Singapore’s rising cost of living with housing being a big culprit. The table below would give a meaningful snapshot of what I’m talking about. If it costs more just to simply live, it’s only understandable that most would have trouble salting away money on a regular basis to invest for their retirement.

Median resale price for 4-room flat in Sengkang

Second quarter of 2007

Fourth quarter of 2013

% Change




Average monthly wage in Singapore

First quarter of 2007

Fourth quarter of 2013

 % Change




Source: Housing Development Board for house prices; Trading Economics for wage levels

The second issue though, has a greater element of personal control, and that’s Singaporeans’ general apathy towards long-term stock market investing and in particular, dividends. Consider the following quote from Chew Sutat, the head of sales of stock exchange operator Singapore Exchange: “Many investors in Singapore have a short-term trading mentality. They don’t think about dividends.”

The short-termism of investors in Singapore and indifference toward dividends makes investing for retirement an even tougher headache when coupled with a rising cost of living. Why?

A better way to approach retirement-investing

That’s because a short-term focus with regard to the stock market greatly reduces the odds of success for a stock market participant. In 2000, finance researches Brad Barber and Terry Odean published a paper titled “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance”. The conclusion of the paper should be rather obvious from the title, but in any case, a pertinent finding was that the most active traders had underperformed the market by 6.5% annually.

With a long-term focus, the odds of turning in a profit increases significantly the longer one holds onto their shares. That’s what has happened with the S&P500 (a broad stock market index in the USA) over the past 140 years since 1871 and it’s the same with the Straits Times Index (SGX: ^STI) over the past 26 years since 1988.

As for the apathy toward dividends, it would have caused many investors to miss out on a great force that can help generate valuable income during retirement: Yield-on-cost.

10 years ago at the start of 2004, a large and well-known conglomerate like Keppel Corporation (SGX: BN4) could be bought for S$2.77 a share. Investors with the patience to hold those shares till today would have seen Keppel Corporation pay out S$0.40 per share in dividends last year. That works out to a massive yield-on-cost of 14.4% (S$0.40 dividend by S$2.77) on the investors’ original investment.

Assuming the company could grow its profits by a compounded annual rate of just 5% per year over the next decade – that’s not an unreasonable assumption to make considering the company had grown its profits by a 16.5% per year on average between 2003 and 2013 – and assuming that its dividends will tag along, investors could be seeing a dividend of S$0.65 in 2023. The yield-on-cost would then become 23%.

Keppel Corporation is also hardly the only blue chip share that has been able to generate a large yield-on-cost for its investors over time. Other blue chips like Jardine Cycle & Carriage (SGX: C07) and SembCorp Marine (SGX: S51) have also seen big growth in their dividends over the past decade (due to profits that had grown at 17.4% and 21.6% per year on average between 2003 and 2013) that resulted in high double-digit yield-on-costs.

Jardine Cycle & Carriage

Sembcorp Marine

Price: 1 January 2004



Dividend: 2013






Source: S&P Capital IQ

When given enough time, shares in companies with good businesses can generate very pleasing yields-on-cost.

Foolish Bottom Line

In terms of saving and investing for retirement, a rising cost of living is a drain on our pay-cheques that’s certainly not within our control. But, whatever we do with what we can save can make a big difference.

The stock market is no panacea for a fabulously wealthy retirement. But if used wisely – i.e., investing with a long time horizon in addition to paying attention to dividends – the stock market can make things a lot easier in our retirement.

Do you have any thoughts on your own retirement? Do share them in the comments section below!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.