Last weekend I hopped on a bus to Tiong Bahru. You might be wondering why. It is really quite simple. I wanted to go somewhere in Singapore that I have never been to before. I wanted to get out of my comfort zone. As it turned out, my new “zone” was actually quite comfortable. I even found a barber in one of the shopping malls that charged less than my regular haircutter. A quick Number 4 cost only $11. Before you ask, yes, I am frugal. I don’t believe in splashing out on something that will need doing again…
It is really quite simple. I wanted to go somewhere in Singapore that I have never been to before. I wanted to get out of my comfort zone.
As it turned out, my new “zone” was actually quite comfortable. I even found a barber in one of the shopping malls that charged less than my regular haircutter. A quick Number 4 cost only $11. Before you ask, yes, I am frugal. I don’t believe in splashing out on something that will need doing again in four weeks’ time.
Another tale from a cab driver
It is good to get out of our comfort zone once in a while. There is an exciting world out there just waiting for us to explore. But time and again we do the same things over and over again because it feels cosy and safe to do something that is familiar.
Just recently, a cab driver complained to me that many people in Singapore have to carry on working long after their 65th birthday. He asked me how it can be right for someone to continue working when they should, ideally, be enjoying their retirement.
If you have been a subscriber to our Take Stock Singapore newsletter, you will know that I love chatting with Singapore taxi drivers. They are my eyes and ears of the city.
To me the cab driver’s view about retirement was akin to waving a red rag in front of a bull. I had two choices: I could ignore his comment and talk about the weather or get drawn into a discussion about life expectancies.
Guess what? I chose the latter because who really cares about the weather.
Living to 100
The simple truth about life expectancy is that we are living longer. Thanks to healthier diets, better healthcare and continuing advances in medical science, we can expect to be around for longer.
In fact, Singapore already has the fourth-highest life expectancy rate in the world. We are beaten only by Monaco, Japan and Andorra, when it comes to the length of time that we can expect to spend on this planet.
In 1957, life expectancy in Singapore was 59 years for men and 63 years for women. By 1980, men could expect to live to 69, while women could live to 75.
Today, life expectancy has climbed to 80 years for men and 85 for women. Or put it another way, over the last six decades, life expectancy has increased by almost 20 years. If this rate of improvement should continue, centenarians could be as commonplace as septuagenarians and octogenarians are today, within own lifetime.
But here is the problem.
In days of old, when my taxi driver was a mere twinkle in his mother’s eye, most people would work for around 40 years and, typically, enjoy around 10 years of retirement. That delicate balance between work and retirement worked well.
In other words you worked and saved for 40 years, and your nest-egg could be enough to see you through your retirement.
Today, we tend to start our working lives later because we spend more time in full-time education. But we still expect to work for 40 years and we still expect to have saved enough to see us through 20 or 30 years of retirement.
The rules have changed
Those sums don’t quite add up. That is why we need to stay in work for longer. For some people, that could mean working into their seventies.
There is a solution to this thorny problem. But it requires some effort on our part. It could also mean stepping outside of our comfort zone.
It means making our money work harder rather than leaving it to idle as cash. Simply relying on, say, the interest we earn on our savings is unlikely to be enough.
Why is that?
If we salt away $100 every month in an account that pays 2.5% interest, we could end up with $82,000 after 40 years. But if we step outside of our comfort zone and invest the same amount in a basket of shares that grows at 8% a year, our investment could grow to over $350,000.
If we are prepared to step even further outside of our comfort zone and judiciously pick our own shares, we could do even better. By targeting shares that could return in excess of 12% a year, our retirement fund could grow to over $1 million. That is ten times more than leaving our savings as cash.
Do these market outperformers actually exist?
Yes they do.
Since the turn of the Millennium, around ten Straits Times Index companies have delivered annual total returns of around 12%. They include Genting Singapore (SGX: G13), Sembcorp Marine (SGX: S51) , Hongkong Land (SGX: H78) and Keppel Corporation (SGX: BN4). These are hardly, what we would call, obscure companies.
So, consider stepping out of your comfort zone today. It could be the most important step you take to improve your investing returns. Remember, retirement should never be about when you decide to stop work but at what income.
This article first appeared in Take Stock Singapore.
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