Why future-proofing is a lot more important than you think

Albert Einstein said, “I never think of the future; it comes soon enough.” It’s hard enough to know what tomorrow may bring, let alone how much money we’ll really need in 20 years. According to a 2022 study carried out by Interactive Investor, a UK online investment service, people tend to overestimate their likely retirement income by almost 30%. Life has also taught me that the future is constantly changing, depending on our circumstances and the challenges thrown our way. When I was 30, the future I had in my head was one where I would be able to retire at 50, have a sizable nest egg, be spritely enough to run a small cafe in an idyllic town and, of course, still possess the looks of a 35-year-old. 

Now that I’m in my 40s, I am all too aware that I’m never going to be able to retire at 50. Having gone through a job layoff and seeing my savings suffer from the unexpected loss of salary, I’ve taken an extremely defensive approach when it comes to “future-proofing”. This means, at any time, I should be able to tap into a large sum of money because “retirement” could be forced upon me whether I (or my CPF account) am ready for it or not.   

What is “Future-Proofing”? 

According to the results of Her World’s What Women Want survey, close to 66% of women polled cited “future-proofing” as their primary motivation to save. So, what is this “future” they are hoping their savings would protect them from? 

“Few could say they expected a global pandemic, the war between Russia and Ukraine, and the banking crisis in the US and Europe. In times of a recession when businesses are forced to cut costs and conduct retrenchment exercises, individuals and households can easily lose their livelihoods and sources of income in a matter of months.

While that is at the more extreme end of the spectrum, we must constantly adapt our saving, spending, and investing habits. We should plan for all the different types of needs we will have in our lives, these include accumulation needs, retirement needs, protection needs and savings goals,” says Braham Djidjelli, Chief Product Officer of Hugosave, a homegrown fintech that aims to help customers save and invest more confidently and sustainably. 

In short, it is foolhardy to save for the future “in general”. We must also set aside sums of money for unexpected situations, such as the death of a key breadwinner, in order to protect our retirement funds. 

Why Do We Need to Future-Proof Our Savings? 

Overwhelmingly, the majority of respondents of Her World’s survey said “CPF” (83.6%) and “Savings” (81.9%) would be their main sources of income post-retirement. But are these enough? 

Money in your CPF Ordinary Account earns an average of 2.5% per annum while your Special and Medisave Accounts earns an average of 4% per annum. At the time of writing this article, certain savings accounts at the banks are offering interest rates as high as 7.8%, subject to you meeting a number of criterias. But at their most basic, the interest rate of these savings accounts range from 0.05% - 1.5% per annum. 

If inflation remains in the vicinity of 5% - 7%, your money simply isn’t growing in pace with inflation. What this means is that over the years, your savings will be eroded and you’ll get less for your money. 

“It is important to also take active steps to combat rising inflation through proven stores of value, such as gold,” says Djidjelli. 

“As Ray Dalio famously said, ‘If you don’t own gold, you know neither history nor economics.’ The erosion of your cash holdings due to inflation is all just a function of the fiscal system since we left the Bretton Woods system in the 1970s and currency stopped being backed by gold. Money is now created by literally printing more of it with its value debased in the process. It’s like adding more water to your juice, eventually, it will taste of nothing!”

How To Future-Proof Your Savings 

The investor today has the luxury of choices when it comes to growing her money. We are no longer limited to just a savings account, our CPF savings, and investment-linked policies. Even investing in instruments such as gold and securities have been simplified through fintech apps like Hugosave, Revolut, Endowus, and more. 

For example, when a customer pays with their Hugosave debit card, the transaction is rounded up to the nearest dollar and the difference is saved in gold. “Clients can also buy gold starting from as low as S$0.01 through the Hugosave app, easily including physical gold in their savings strategy. By setting a monthly gold buy schedule, they can save in gold regularly and automatically,” says Djidjelli. 

The important thing here is to assess how you put your money to work. An independent financial advisor can help you model a few outcomes and advise on how best to allocate your funds for the most optimal results. 

“Investing is an important aspect of financial wellness,” Djidjelli assures, “keeping too much idle cash in the bank may not always be the most productive way to manage it as the bank’s interest rates will not be able to sufficiently protect the value of your savings. For those who are just beginning their investment journey or those with a low-risk appetite, just remember ‘Little, Often, and Early’ and get started with a simple portfolio!” 

Investing a little every month (often) and starting as early as possible means we are “averaging in” to our investments so we can hit the growth curves, reduce volatility, and benefit from the power of compounding. 

Parting Shot

Investing is certainly not the only way to future-proof your money. Good financial habits such as maintaining an emergency fund, paying off your credit card bills in full and cultivating additional streams of income are also important in building a more secure future for yourself. 

When it comes to money, the adage, “Fail to plan, plan to fail” rings loud and true. Take a good, hard look at your dependency rate (how much of your monthly paycheque do you spend before the next one comes in) and see how you can decrease it over time, even in the face of pay increments. The less of your paycheque you spend, the more you can set aside for the proverbial rainy day, and the less impact you will feel in the event you lose your job.  

Deborah Tan-Pink is Senior Vice President of Marketing & Communications at Sygnum Pte Ltd and the co-host of the podcast Good Girls Talk About Money. You can find her podcast on Apple Podcasts and Spotify.