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Singapore’s Gen Zs and millennials, aged 25 to 44, are falling behind their older counterparts in building their nest egg for their later years, a new report finds.
They are the least invested among all pre-retirement age groups, allocating just 15% to 17% of their salaries to investments, as they increasingly shoulder heavier liabilities.
Also, over half of investments are allocated to fixed income investments, which generate lower returns that may not be sufficient to help grow and future-proof one’s wealth, DBS says in the sixth installment of its Financial Wellness report, which analyzed data of about two million retail customers of DBS and Post Office Savings Bank ( POSB ) as of June 2024.
Among pre-retirement age groups, those aged 35 to 44 are the most stretched, as their debts slightly outweigh their liquid assets, mainly due to home, car and credit card loans.
Balancing the demands of raising children, supporting ageing parents, and advancing their careers often compels this segment to prioritize short-term financial needs over long-term retirement planning, according to the report. However, their younger age grants them a longer investment time horizon, providing a strong foundation to work towards and achieve their retirement goals.
The report recommends a retirement nest egg between S$550,000 and S$1.3 million ( US$406,270-US$960,400 ) as an appropriate target to meet, which can consist of one’s liquid assets, Central Provident Fund ( CPF ) savings and other income sources.
This projection range assumes a 20-year drawdown from age 65 and an annual inflation rate of 2.5%. The lower end should support individuals with more conservative needs, while the upper end is recommended for those with more aspirational wants.
Invest more in equities
A 25-year-old with this retirement goal will need to invest between S$360 and S$850 per month, assuming an annual return of 5%. However, if one is unable to invest so much or would like to reach their retirement goals earlier, DBS suggests a portfolio with more equities.
Historically, equities have averaged 10% annual returns over the past 15 years, which could help one achieve the same goal with less capital or accelerate their progress. While equities are more volatile, consistent investing over a longer time horizon can mitigate this risk, the report says.
Younger individuals can do more given a high proportion of their investments tend to be in fixed income. Those aged 25 to 44 currently allocate 15-17% of their monthly salaries to investments, but over half goes to fixed income ( like T-bills and Singapore savings bonds ), whose returns may not be sustainable.
Given their longer time horizon, younger investors can consider allocating a larger portion to other asset classes ( such as equities ) for potentially higher returns.
For an individual to meet their retirement goals, DBS recommends the following:
Says Derek Tan, head of regional property research at DBS Group Research: “Across generations, the question of whether S$1 million is enough for retirement remains a hot topic. Our study has revealed that early financial planning for a well-structured nest egg can enable individuals to navigate immediate financial priorities while preparing for a fulfilling retirement. However, seniors will need to address the dual challenge of managing rising healthcare costs while ensuring their wealth continues to support a comfortable lifestyle in their golden years.”
Healthcare expenses
While median expenses among retirees aged 65 and older are 62% lower than those for pre-retirees aged 55 to 64, with liabilities at a mere 3% of liquid assets, they are particularly vulnerable to healthcare inflation.
According to the 2023 Household Expenditure Survey, healthcare accounted for 11% of monthly expenses for households with non-working persons aged 65 and above, which is significantly higher than the 6.7% average for all resident households.
“In addition to diversifying one’s investment portfolio, Singapore’s high home ownership rate – with property comprising nearly half of household wealth – offers seniors a significant advantage to boost their liquidity upon retirement. Notably, 99.7% of our retired customers have fully paid off their mortgages by age 65, underscoring the potential to unlock home equity as an additional retirement income source to secure a more comfortable retirement,” Tan adds.
