What retirement planning has taught me

Long-time readers would know the reason why I set up this blog twelve years ago. It was to create a platform to share experiences and exchange ideas with fellow property investors. Gradually, I got many emails from people telling me the stories of their regrettable property purchase. Then I started writing about tricks and traps of this not-so-transparent real estate industry. Today, Singapore has a rapidly aging population. So occasionally I would receive property questions from readers about their retirement planning.

5 groups of people asking for property advice

After I started my one-to-one property consultation service last March, five main groups of people would ask for my help:

1. Young couples who are getting married and buying their matrimonial home

Their combined salaries are usually above the income ceilings of first-hand BTOs and ECs. They want to know the private housing options that are within their budget, including property types, location and projects.

2. Couples who just sold or are planning to sell their HDB flats

They plan to upgrade to a private residential property, move to a new home for their children’s education or for other family needs. Most of them have a specific district and some developments in mind. They want to hear my comments to pick the best area, condominium, block, unit or floorplan.

3. Singles who are buying their bachelor pad for the first time

They are looking for more personal space and privacy under the pandemic. They want to check their affordability and the feasibility to own their dream home.

4. People who need advice on property investment

They are likely to be aspiring landlords who want to own good properties that can create passive income. They will ask me to evaluate the investment value of a particular property.

5. The middle-aged who are preparing for retirement

They are looking for housing options to downsize, right-size, or find a home for their golden years. They need advice on retirement planning and legacy planning. There are questions on passing down their home to their children or buying properties for the next generation.

In 20 years, over half a million citizens will be over 65

For 1 to 4, I have personally gone through these stages in some ways. I can readily share my experiences, evaluate options and give my suggestions or recommendations. But the fifth group of clients is somewhat unexpected.

I have stopped working for money since 2018 (Read “The journey to financial freedom: My personal story”). I used to think that retirement is still early for me. But time flies. Lately, more friends are crossing the age of 50. Retirement planning is getting very close to heart. Our conversations often surround the topics of early retirement, retirement fund, empty nest stage, housing after retirement, etc.

Since last year, I started reading up on retirement books focusing on retirement planning and legacy planning. It is interesting to know various perspectives from different parties, including the banks, insurance companies, financial planners, lawyers, CPF Board, retirement gurus and fellow retirees.

According to Population in Brief, as of June 2021, 17.6 percent (or 219.7k) of Singapore’s citizen population is 65 and above. This age group climbs 4.76 percent from a year ago. At the rate it is growing, 20 years from now, we will have 46.7 percent citizens who are 65 and above. Even if our citizen population doesn’t change, with 65-year-old as the retirement age, we will have a whopping 583,000 citizens who are retirees by 2042. The Little Red Dot really has a very serious problem of aging population.

If I were to continue my property consultation service for the next 20 years, I could perceive by then at least over two-thirds of enquiries will be from clients aged 50 and above. And in every session, I will be going through slides on retirement funds, retirement income sources, home rightsizing, reverse mortgage, legacy planning, etc.

Why retirement planning becomes a property decision

You may ask: For retirement planning, why don’t people go to a banker or a financial adviser? Believe me. I asked the same question when I encountered my first of such request.

You know what the client replied?

“If I talk to the bankers, I will end up buying more investment products. If I talk to the financial advisers, I will end up buying more investment products and insurance policies. If I talk to the property agents, they will tell me to sell my current home, buy a unit from a newly launched project, and rent in between (so they can earn three commissions from the three property transactions).”

Okay, I got it. They approach me because I have nothing to sell. They don’t have to buy anything except to pay for an hourly charge. That sounds a much better deal.

It is probably the same reason why people came for my seminars and workshops. There is no marketing or hard selling of any property project or investment product at the event. Above all, there is no worry that someone will call them to follow-up the following Monday. They can bet I won’t call to sell my book just for $30.

Of course, there is a more important reason why this group of clients look for me. Singapore is a property-obsessed country. Many people have a lion share of their wealth tied up with properties. So be it retirement planning or legacy planning, many decisions they need to make are related to their homes and investment properties.

What I learned from these consultation sessions

There are a few interesting observations from my property consultation sessions, particularly with the middle-aged on retirement planning:

1. Financial literacy has nothing to do with age

Think people will be wiser with money when they age? Not necessarily.

There are people in their late 20s or 30s who share with me how they keep improving their saving and investing plans to grow their net worth. On the other hand, I have met clients in their 50s who still have substantial outstanding home loans and bad debts. Yet they plan to take their chance in a new property investment.

Personal financial management doesn’t improve with age. Rather, it depends on when and whether we have picked up the right financial concepts in our lifetime. These include understanding of good money habits, knowledge of good versus bad debts, and skills in investing or growing wealth. Learning all these early is better than late.

In a lifetime, you must make a wrong financial decision, lose your hard-earned money and have your heart broken at least once. Then you can learn to be smarter. The earlier you fail, the better. Making elementary mistakes is best reserved for the young. It is too late and too painful to fail when you are no longer young.

– Vina Ip, Behind The Scenes of The Property Market

2. Financial literacy has nothing to do with IQ

Last month, Finnish World IQ Test website Wiqtcom Inc. released their latest results for 2022. The top 10 countries that ranked highest in average IQ are (from the country with the highest score) Taiwan, Japan, Hungary, South Korea, Iran, Hong Kong, Serbia, Italy, Vietnam and Finland. Singapore came in 25th. The average IQ score of Singaporeans is 105.23. We are not very far from the Taiwanese who scored an average of 113.37.

We may be smart in many ways. Or at least we believe we are. But being smart and being smart with money are two totally different things.

I have met consultation clients who sound highly intelligent and quick-witted. But when I went further to understand their financial situation, I was stunned by their misconceptions and mistakes they have made with money.

A study by university researcher Jay Zagorsky showed that there is no relationship between IQ scores and wealth. In other words, people don’t get rich because they are intelligent.

Smart people do earn more and have higher income. But they are not any better when it comes to saving, keeping money or growing wealth. Surprisingly, those with the highest IQ scores are more likely to get into financial difficulties, including missing payments, defaulting loans and declaring bankruptcy. While people of average or below average intelligence do just fine financially when compared with the highly intelligent.

3. Financial literacy has nothing to do with education, career or income level

Think high-income earners, professionals or PMETs make better financial and property decisions? No, they are not. In fact, many top earners are too focused in their profession or business that they don’t know better than the man in the street.

During the consultation sessions, I was surprised to find clients working in the financial industry who are not so smart for decisions on their mortgage, home purchase and property investment. Sometimes, people don’t practice what they preach.

Similarly, I have seen executives in the real estate industry who made lousy property investment themselves. These industry experts have their blind spots too. The fact is: people who are good and experienced in their work doesn’t mean they are able to make good decisions for themselves.

Many homebuyers assume that all agents know everything about real estate, not knowing that they can give advice based on biased views or personal preferences. They may be property agents, but they are not savvy investors. They may have worked in the industry for decades, but they may not necessarily know where, what, and when to buy. The result is the blind leading the blind.

Buying in the industry where one works is often not a sound investment strategy. Industry insiders often lack the objectivity to see through the eyes of an outsider. They are easily carried away by their management’s brainwashing optimism. They may not know what they are buying into because they are too exposed to the market. It is difficult for them to take a neutral stand, and they end up buying the wrong thing. I have seen senior executives in property firms who bought the wrong properties even after many years of working in the industry.

– Vina Ip, Behind The Scenes of The Property Market

Retirement planning is far more than savings and housing

If you think retirement planning is about whether you have enough money to retire, you are only scratching the surface of the subject. You are on the same level of the government that wants you to save enough for retirement. Or you are just thinking alongside the financial institutions which try to sell you their products and policies.

I am not saying money is not important for retirement planning. Compared with other countries, Singaporeans are lucky that we have CPF and elderly support schemes. Retirement fund is not so much about insufficiency, but how much you think is enough.

I found that nearly all books and materials about retirement from the US and Singapore cover topics concerning money – debts, savings, investing, protection, legacy planning, etc. Conversely, books from Japan, Taiwan and Hong Kong are far more comprehensive in retirement topics to ensure not only the financial well-being, but the mental well-being of the retirees too.

Think of those affected by the pandemic. The number and impact of those affected psychologically are far bigger than those affected financially. The latter are supported by various Covid-19 relief measures. In contrast, the former are hidden and unquantifiable.

Retirement is like career. A well-paid job doesn’t promise you happiness and job satisfaction. Retirement is like housing. An expensive home doesn’t guarantee that it is enjoyable and suitable for your stay during old age.

Loss of regular income in retirement is one thing. You will also face loss of routine, identity and social connection. Plan for how you will live this new chapter of life. Then your new arrangement for housing, leisure and social activities will fall nicely into place.

Let me know whether retirement planning is relevant to you before we explore more about this subject in my future posts.

If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.

My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.