Investing according to your changing life stages

By Navin Sregantan

If you’ve only got a minute:

• With life stage investing, your portfolio mix changes in accordance with your changing needs while giving you the ability to plan and achieve your desired retirement.
• Your desired lifestyle, monthly payouts and retirement age must be considered before determining how much you need for retirement.
• Starting at S$1,000, digiPortfolio’s Retirement Portfolio accounts for the number of years to your pre-determined retirement age in deciding the appropriate mix of equities and bonds for your portfolio.

Most of us are familiar with the role investing plays in a comprehensive retirement plan.

The explanation is simple. If we leave our hard-earned savings uninvested, the value of this nest egg will erode over time, which can adversely impact our future financial security.

Another equally important but less talked about point when it comes to investing and retirement, is that the composition of our portfolio should not be static.

Just as our individual needs and wants change over time, the mix of our investment portfolios should also change to reflect our changing circumstances, responsibilities, and future needs for our resources.

This is also known as life stage investing, where the focus is on having a portfolio mix that changes in line with each life stage. More importantly, such an investment approach would boost your ability to attain your aspirations in life.

Before covering this concept, it helps to have a short refresher on why, especially as residents of Singapore, it is important to invest for retirement.

Why invest for retirement?

With a life expectancy of 82 years for men and 86 years for women, Singaporeans are among the longest living people, globally. In other words, to retire early, you’ll likely need a larger nest egg to supplement your longer years in unemployment.

While most are aware of the need for early retirement planning, they usually start after nearer-term needs are met, or after certain life stages (e.g. after sending children to university). This will be too late for many.

In fact, a study by the SMU Centre for Research on Successful Ageing in October 2023 found that just 34% Singaporeans aged 53 to 73 rate their retirement preparedness as good, while another 27% do not have a retirement plan.

Some even skip retirement planning entirely, thinking that savings in Central Provident Fund (CPF) accounts as well as the annuity CPF Life payouts from the age of 65 will be sufficient to cover their living expenses. While national retirement schemes like CPF play a central role in helping to defray the cost of retirement, it is designed to primarily cover your basic expenses.

In addition, factors such as desired lifestyle, monthly payouts, as well as when you want to retire must be considered before determining how much you need for retirement.

A person’s ideal retirement differs from another so it will be prudent to discern your retirement “wants” and “needs” when planning.

Life stage investing

Retirement is more likely to be a joyful milestone the earlier you make plans for it. While retirement planning can sound complex, it helps to compartmentalise it.

Your life can be broadly understood by thinking of it in 3 phases –

1. The accumulation phase (when you create and build wealth)
2. The transition phase (when you require funds for fulfilling your goals)
3. The decumulation phase (during retirement when you use your accumulated wealth for regular income).

Is there an ideal portfolio mix?

With life stage investing, our investment risk tolerance changes according to our life stages.

When we’re young, getting back on our feet is relatively easier with time on our side than when we’re older. As we level up in life, a more conservative portfolio allocation must be employed to preserve whatever wealth that we have accumulated.

In earlier stages of your life, your risk appetite can be higher as you have a longer timeframe to retirement and the investment amounts at risk would be relatively lower as compared to the later stages. In addition, you will have considerable time to recover from any market downturn and ride out the market volatility, should there be any.

As you move towards retirement, your invested amount will be approaching or at the peak. Therefore, the potential possible losses that can happen with any market downturn would also be relatively greater.

Hence, to preserve your wealth, it is important for you to de-risk your portfolio by focusing on stability over growth (i.e. having a focus on bonds over equities) to conserve your wealth as you approach retirement.

This way, you can capture opportunities to preserve and build your wealth, ensuring that over time, the value of your hard-earned savings isn’t eroded by inflation.

Are there investment products that take care of this?

Do-it-yourself investment options like unit trusts and exchange-traded funds (ETFs) offering diversified exposure to equity or fixed income sectors are readily available.

The key to life stage investing however, is about finding the right mix – or “asset allocation” – at the right time in your life. Besides the commitment to research on the different investment options, having the technical know-how to balance the trade-off between risk and reward at different milestones is critical.

For the majority, there is also the option of professionally run solutions to handle the heavy lifting of research, analysis, and asset allocation.

Life stage investment solutions which were previously limited to cohorts – for example, pooling of investors who are to retire in 2035 – is a thing of the past. With technology, it allows for greater flexibility for the investor with options to:

• Invest in smaller tickets progressively rather than a single lump sum;
• Top up or withdraw with no lock-in commitment; and
• Adjust expected retirement age/year, should circumstances change.

Retirement Portfolio

digiPortfolio’s Retirement Portfolio is an example of a professionally managed solution that provides such flexibility to investors. Managed by the DBS investment team in collaboration with J.P. Morgan Asset Management, this solution seeks to tap upon the technological prowess and investment expertise of 2 firms synonymous with retirement planning in their respective markets.

Starting at S$1,000, the Retirement Portfolio accounts for the number of years to your pre-determined retirement age in deciding the appropriate mix of equities and bonds for your portfolio.

As you grow older, the portfolio will gradually ‘glide’ from more risk assets to more stability. This is fully automated so there is no need to make any transactions on your own. You will be able to keep abreast of the portfolio holdings and transactions on DBS digibank.

Management of your investments does not stop when you reach your retirement age. The DBS investment team continues to manage the portfolio to ensure it remains updated to the latest investment views. This is to ensure that your portfolio remains invested even as you start withdrawing from the portfolio for your retirement income needs.

Furthermore, there are no lock ins or commitments as you go through the different life stages, giving you flexibility.

Find out more about: Retirement digiPortfolio

Retirement income insurance plans

In Singapore, some insurance plans are closely associated with retirement planning. This is typically due to the coverage of protection and income needs in a single solution.

Retirement income insurance plans for instance, are targeted to provide a source of income after you have stopped working. These plans (also known as annuity plans) provide regular payouts on a monthly or annual basis, for a specified period or for as long as you live. You can choose the payout amount you will like to receive upon retirement, your premium payment terms, and when you plan to retire. Some provide the flexibility to change your payout date and amount, even after the policy has started.

Such plans typically come with an investment component where your premiums are channelled into a participating fund which pays out both a guaranteed sum and a non-guaranteed sum, with the latter determined by the fund’s performance.

Varying from plan to plan, this may come with certain premium amounts and early withdrawal penalties.

In Summary

Just as our needs change over time, the composition of our investment portfolios should change over time to reflect our changing circumstances, responsibilities, and future needs for our funds.

On top of that, it is important to have a comprehensive view of your financial health during retirement and identify any potential gaps early so that they can be addressed.

With the Retirement Portfolio, you get access to a professionally managed solution that provides flexibility for your changing needs and wants, while staying focused on achieving your desired retirement.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

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