Saving for retirement can often be an anxiety-inducing topic. With 12.2% of Singapore’s labor force reported to be self-employed in 2023, the question about how to save for retirement as a freelancer could not be more relevant than it is now.
While the most obvious answer to the above question is to put money aside, there are many ways of doing it. You can simply decide to set aside a percentage of your monthly income, to invest it, or to put it in a savings account. Each option, however, largely depends on your income, retirement age, and current financial situation.
We look at a few different way you can optimise your retirement savings.
Set Up a Retirement Plan
In order to set up a retirement plan, you need to answer the following questions:
- How old are you now?
- When do you plan to retire?
- What is your monthly income?
- What are your monthly expenses?
- How much does your income vary month-to-month?
After answering these questions, you will get an idea as to how much you need to save. The current retirement age in Singapore is 63 years, and will increase to 64 years in 2026. While this may not affect your retirement age as a freelancer, for the sake of retirement planning we will use the official retirement age.
Retirement Savings Estimates
| Current Age | Years Until Retirement | Overall Spend in Retirement | Monthly Save Required |
|---|---|---|---|
| 25 Years Old | 38 years | S$271,200 | S$594.74 |
| 30 Years Old | 33 years | S$271,200 | S$684.85 |
| 35 Years Old | 28 years | S$271,200 | $807.14 |
| 40 Years Old | 23 years | S$271,200 | $982.61 |
The table above assumes individual monthly expenses in retirement to be S$1,130 per person (Singstat). Overall spend in retirement is also based on a life expectancy of 83 years. An additional factor we need to consider are healthcare expenses. All self-employed Singapore citizens and permanent residents need to make compulsory contributions to their Medisave Account if they are making more than S$6,000.
Medisave Contribution Rates
| Net Annual Trade Income | Below 35 Years Old | 35 to Below 45 Years Old | 45 to Below 50 Years Old | 50 Years Old and Above |
|---|---|---|---|---|
| S$6,000 – S$12,000 | 4.00% | 4.50% | 5.00% | 5.25% |
| S$12,001 – S$18,000 | 4.00% – 8.00% | 4.50% – 9.00% | 5.00% – 10.00% | 5.25% – 10.50% |
| S$18,001 and Above | 8% | 9% | 10% | 10.50% |
| Maximum | S$$6,528 | S$7,344) | S$8,160 | S$8,568 |
In addition to making compulsory contributions to your Medisave Account, you can choose to make voluntary contributions. The great benefit of voluntary contributions is that you can claim tax reliefs for those contributions to lower your overall tax expense.
Related: 5 Best Ways to Reduce Income Tax in Singapore (2024)
Set a Goal and Save
The simplest way to save for retirement is to calculate your monthly income and monthly expenses and decide on a realistic amount you can set aside for retirement monthly. This should typically be a certain percentage of your monthly income rather than a fixed amount given that as a freelancer your monthly income may not be consistent.
Calculate when you want to retire and how much you would spend on average monthly after you retire. This would greatly depend on the retirement lifestyle you would like to have. If you are planning see the world during your retirement, you would naturally have to save much more compared to if you plan to primarily spend your time at home.
It is also important to remember that there will be several expenses you will no longer have to worry about in retirement, such as your tax expense, your Medisave Account contributions, health insurance, children’s tuition costs, work-related expenses and possibly even life insurance premiums. That being said, this method of saving for retirement has many downsides: you are not earning interest on your savings to offset inflation and you’re not getting tax breaks on your savings.
CPF Contribution
Central Provident Fund is a social security savings plan providing Singaporeans with a plan for a secure retirement. While making contributions to your Medisave Account is mandatory, you can also make voluntary contributions to your CPF Ordinary Account (OA), Special Account (SA) and Medisave Account (MA).
Ordinary Account contributions can be used for housing, insurance, investment and education needs. Special Account can be used for retirement income and retirement-related investments. As previously mentioned, Medisave Account is intended to be used for hospitalisation expenses, approved outpatient medical care, and approved medical insurance. While typically CPF contributions are made both by the employer and the employee, as a freelancer, you are only required to contribute to your Medisave Account.
Making voluntary contributions to your CPF Special Account as a way to save for your retirement has many benefits. First, the interest you will receive is higher than the inflation rate. Current interest on SA contributions is 4.04% per annum, reviewed quarterly. Second, your contributions can be used to make investments in the future. Lastly, your investment is safe in comparison to other investments that would be pegged to indices that fluctuate with the markets. The interest rates for Medisave and Special Account are calculated based on the 12-month average 10-year yield of Singapore Government Securities plus 1%. Additionally, this investment is guaranteed by the Singapore government, which makes it safer than investments in the stock market.
Related: How to Invest Your CPF-OA (And What You Can Invest It In)
Make Use of Fixed Deposit & Savings Account
Two great options when it comes to saving for retirement are a fixed deposit or a savings account. A fixed deposit is a type of investment which typically gives you a higher interest rate than the base interest of a regular savings account. At the time of account opening, you agree to deposit money at a financial institution for a fixed time period and interest rate.
Unlike a savings account, you cannot withdraw a fixed deposit before the date of maturity. In return, however, you receive a higher interest rate on a fixed deposit than you would on compared to the base interest of savings acccounts. If you are looking for more flexibility regarding your investment, then a high-interest savings account might be the right choice for you.
Both fixed deposits and savings accounts are a low-risk investment with a guaranteed rate of return. One key feature of both investments that you need to consider is the interest rate offered on your deposit. In order to make sure you are not losing money, the interest rate on your deposit should not be lower than the current rate of inflation. In other words, in order to keep up with inflation, you should look for fixed deposits and savings accounts with rates that are on par with Singapore’s core inflation in 2023, which was 4.2% in 2023.
Related: Guide to the Best Cash Management Accounts in Singapore
Create A Regular Investing Plan
While high interest savings accounts and fixed deposits can form a great foundation to your retirement nest egg, the relatively low returns would mean that it would take a very long time, or a very large monthly contribution, for you to reach your retirement savings goals. As a freelancer, your income may be more sporadic than someone who is fully employed, making it difficult for you to budget a large sum to be put aside for retirement use.
The best way to work around this is to seek higher returns through investing. If you have a long time horizon, regularly dollar cost averaging into ETFs like the Straits Times Index which tracks the largest companies in Singapore or the S&P500 which tracks the largest companies in the US could be a great way for you to gain exposure to the market to earn some outsized returns. These returns, compounded over decades, could allow you to retire much more comfortably as compared to purely relying on savings accounts and fixed deposits to store your wealth. That being said, as higher returns come with higher risk, this should not be the bulk of your savings. The last thing you would want is for a market downturn to be the reason you are not able to retire.
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Final Verdict
While there are many ways to save for your retirement as a freelancer, the best path to take is some type of combination of the above-mentioned options. Ideally, you should set aside some money as an emergency fund into a high yield savings accounts and invest some portion of your income in a guaranteed fixed deposit account. These two vehicles would serve as a safe base for your savings with little to no risk of losing your money. Thereafter, additional money you can spare should be invested into the stock market so that you can make some outsized returns in the long run.
Read More:
- How to Plan Your Finances for Short, Medium and Long Term Goals
- Which High-Interest Savings Accounts Should You Open and Why
- Investing 101: A Basic Guide to Stocks
- 3 Things to Watch Out For When Investing in Emerging Markets
- 5 Best Dividend-Paying Stocks and REITs in Singapore
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