Most financial advice are really meant to sell their products. It is with this perspective that I am reviewing DBS’s myretirement plan.
Let’s start with the principles behind the myretirement plan:
- The earliest you can retire is at 50
- No mention of controling of cash spending
- No gurantee returns
Everything above is what is wrong with retirement planning today!
Early retirement is a mindset change
First, the mindset of being able to retire early is important. Myretirement plan doesn’t encourage such a mindset because it is to their benefit that you have a later retirement date. In this way, your cash will be in their bank for a longer time so that they can invest and earn more money for themselves.
In my world, you don’t simply rely on time to say when you can retire. That is in fact the most common mistake people make. You cannot set a retirement plan based on how much time you need to create the cashflow that is going to substain you. No. You make a plan by first determining when you like to retire and reallocate your efforts and resources to make it happen.
Early retirement is about not becoming a consumer
Second, early retirement requires you to exercise your frgual muscles. A lot of people will say that “I don’t want to retire in a poor state because I can’t enjoy anything!”. If that is what you are thinking, you need to read this post about why early retirement equals to not becoming a consumer. Don’t be brainwashed by advertisements into thinking that you need this or that to be happy.
Most of the time, real happiness and satisfaction in our lives are shaped by things that cannot be bought by money. Instead, we need time. Things such as
- being able to connect more frequently to friends and families
- being able to do work that matters such as charity work
- being able to help enjoy music, books and arts
- being able to explore the little things in life
- being able to start an online side business
require time, not money. A LV or channel bag can’t bring you these emotions. They are merely there to fatten the wallets of others.
So, frugal living is sort of stepping away from the consumer society. Consume less and enjoy more. That is what frugal living is all about.
Non guarantee returns
This is the part that pisses me off the most. Look at the chart below (it is taken from the DBS website):
According to the chart, a consumer will contribute SGD247,140 if he puts aside SGD1,029.75 every month into dbs’s myretirement plan for 20 years. After the 20 years, the guarantee return is only the read portion of the bar, which is around SGD295,597. A very cruel estimation puts the effective interest rate for the guaranteed portion to be only 1%. With an inflation rate of 3%, our money is effectively getting eroded just by putting them into this retirement plan.
This is when the financial advisors will say there is a high chance that the non guaranteed portion will make for a better return. However, I like to see evidence on the performance of these non guaranteed funds. The fact is any long term instrument such as this can say anything they want because by the time of maturity, most of these advisors will already move on to something else.
My non professional advice is this: take matters into your own hands.
Many people falls for this plan is because it is totally hands off. All they need is to save the money every month and they think they are covered. Very few will contemplate the possibility of the non guaranteed portion being zero, which to me, is a not a far off possibility.
I personally feel strongly that we should be more active in our early retirement investments. You will find that with a more active role, your returns can literally go through this 1% per year to 10% or even 30%. However, you must be willing to put in the time to manage it. Don’t trade off lazines with a bad deal that will cause you lots of problems when you retire.
My version of a retirement plan
Here is a summary of what I think is a much better retirement plan:
- Set a target age for your retirement, preferably between 40-50 and not beyond
- Reduce your spending to a level that is comfortable but not luxurious. Suggestions of SGD2000 per household is ideal. You can only do this if you mapped all the spending items and analyse which items really necessary and which are byproducts of good advertisements
- Look for investments that can return 4% or higher. See my article here on possible instruments that can give you 4% returns.
- Save aggressively to reach an amount that will give you SGD2000 or higher when invested in that instruments you have found earlier
- Plan out what you want to do after retirement. If you desire to start an online side business, this will make your retirement even better
Thanks for reading. I hope you got something out of this.