Is retiring a millionaire in Singapore wishful thinking or within reach? Many of us doubt the possibility of retiring comfortably in Singapore given the high cost of living here. According to the The Straits Times, about four in five of the elderly relied on adult children as their income source as of 2011, a dependence that may be increasingly unsustainable given the demographic trends. Even though the future cohorts of seniors will have more resources to retire on due to improvements in education and income over the years, retirement planning still stems from one’s discipline to be able to save and plan for the future.

On #YourMoney, Michelle Martin spoke to Kuan Lili, Independent Director of CapitaLand China Retail Trust, who shared how smart investments and early budget planning can help one retire with millions in the bank.

Michelle Martin: Where do we start if we want to retire with a million [dollars] in the bank?

Lili: Start by looking at your current financial position, then think about where you want to be in your retirement years. Do you want to be able to take a holiday whenever you feel like it? Do you want to be able to buy a nice bicycle for your grandchildren? Thinking about what you want to have in your retirement years, [that] should be your starting point.

[Next], come up with your own personal budget - list down all your monthly income and expenses. Review your budget and identify areas where you can save and/or invest. As a rule [of thumb], you should try and differentiate between your needs and wants. Then, take action on the areas [where you can save] which you have identified.

Michelle: So it starts with awareness, and knowing the difference between your needs and wants. And you can’t get away with saving [money], so you have to start early if you want to retire a millionaire?

Lili: Yes. The earlier you start, the [more] time you have for the money to work for you. Basically, if you’re young - say you’re 30 now - you have 30 years to make your money work for you.

Michelle: Can you help us to understand the Rule of 72 and how it is going to help us on this road to becoming millionaires when we retire?

Lili: The rule of 72 is a really quick way for you to calculate how long it takes to double your money. So suppose you have $1,000 and you put that in a fixed deposit, earning an interest of 2% per annum. Basically, you divide 72 by the annual rate of return from an investment. So in this particular case, you take 72/2 = 36 years. So, it will take you 36 years to grow your $1,000 deposit to $2,000.

So let’s compare that to taking the same $2,000 and choosing an investment that gives you a higher return - a real estate investment trust that pays 7.2% per annum. So you take 72/7.2 = 10 years. So it takes 10 years to gain an additional $2,000.

The rule of 72 can also be used to calculate how long it takes for you to lose your money. For instance you have $2,000 and the inflation rate is 4%. 72/4=18 years. So in 18 years time, your $2,000 is only one thousand sobering numbers.

Michelle: Do you think long-term investment is a guaranteed way to have a million in the bank?

Lili: Yes. Actually, a lot of people say you should just buy and hold but I’m not sure that’s actually sound advice especially when market cycles are getting shorter and more volatile all the time. For example, look at what happened to Hyflux. You take your eyes off the ball because you buy and hold and before you know it, the company is in trouble. So I would say there’s no getting away from constantly reviewing your investments. There are no excuses, you can get news everywhere now.

Listen: Long-Term Investing 101

Michelle: There is so much "noise" out there, [providing] conflicting information. How can we cut through it?

Lili: Generally if you want to shortcut the process of reading 100 articles daily, subscribe to fairly reputable site(s) and read the news from there. If you open a broker account [with any brokerage], they'll send you reports that summarises all the analysts' thoughts on companies that they cover. Of course if you can subscribe to more than one, [you get] different perspectives. So, any brokerages that you open will send you reports or you can also just go to websites to read it for free.

Michelle: Are there pitfalls one can encounter in this quest to retire with $1,000,000 in the bank?

Lili: There are certainly pitfalls and you have to be on top of it. One of the most common mistakes is buying an investment and forgetting about it. Before you know it, the value is gone. So I would say if you’re going to invest, set a loss limit, like a price target. If it falls 10% (depending on your risk tolerance) below what you paid for, don’t get sentimental and just get rid of it.

Michelle: A lot of people want to be lazy investors. [Nowadays, people let] robo investors do all the work. What do you think about just leaving it to the algorithm?

Lili: I think the problem with algorithms is that the rules are preset. When certain market conditions present themselves, [the robo investors will] just sell all because they pretty much have the same rules. So it could have a cascading effect. Before totally relying on robo investors, you need to check how good is the person setting the rules and whether they have a good track record.

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This interview was broadcasted on MONEY FM 89.3 on 5 July 2019.