Should I save for retirement or spend on my children’s needs first?

When it comes to making important long-term financial decisions, one common dilemma is whether to prioritise our own retirement needs over our children’s needs. We want the best for our children, but it is also important to be realistic about our future needs. If you don’t invest and have no alternative source of income, your retirement savings will likely be your only source of income when you retire. Hence, setting aside money for your retirement needs should always come first.


You cannot borrow money for retirement

The cost of living is increasing hence you should anticipate the future cost of your basic needs. It can be a convenient solution to dip into your savings to cover your children’s immediate needs but, once you have depleted these savings, there’s no easy way to get a ‘top-up’. However, your children may have other options. For instance, if it’s necessary, they can even do part-time work to save up for some of their future needs.


Time is on your children’s side but not yours

Your children are younger and have more years ahead to save and plan for their various needs. If you are in your 40s, it becomes even more essential to start thinking about building up your retirement funds. In the event of unfortunate circumstances such as poor health, you may not have the ability to continue working. In the long run, this will affect your ability to save for your retirement funds. Hence, you should always try to plan for yourself first.


It could be more expensive for your children to take care of you if you haven’t planned for retirement

Without setting aside sufficient retirement funds, you could be doing yourself and your children a disservice. Although some parents may see the value in emptying their savings to provide a better standard of living for their children, they may unwittingly burden their children by not having sufficient retirement funds for themselves.


Your money works harder in the long run

By planning early for retirement, you would have more time to make the most of your savings with the various options available. One possible option would be to consider transferring savings from your Ordinary Account to your Special Account (if you are below 55 years old) or Retirement Account (if you are 55 years old and above) to earn higher interest.

For someone below 55 years old, your CPF Ordinary Account (OA) earns up to 3.5% per year and you enjoy up to 5% per year in your other CPF accounts. For those 55 and above, you earn an additional 1% extra interest per year on the first $30,000 of your combined CPF balances (with up to $20,000 from the OA).

Let’s assume you are aged 25 and transfer $20,000 from your OA to SA. Based on current OA and SA interest rates of 2.5% and 4% per year respectively, you could earn $22,917 more in interest by the time you turn 55 as compared to leaving your savings in your OA. This shows how you can earn a higher interest by maximising your savings! You can transfer an amount up to the current Full Retirement Sum to your SA.

For those 55 and above, you can transfer savings up to the current Enhanced Retirement Sum (ERS) to your Retirement Account (RA). As transfers are not reversible, do plan your finances before initiating this option.