Why financial planning trumps high salaries for long-term financial security

For many Singaporeans, financial progress is measured by income. A higher salary, a promotion, or a better-paying role often feels like clear proof that life is moving forward.

Yet a recent report by the Ministry of Finance (MOF) suggests a more complicated reality.

The 9 February report, which was the first time that the Government has ever published a measure of wealth inequality here, showed that while incomes have generally risen and income inequality has moderated over time, wealth gaps in Singapore remain significantly wider and far more persistent, while social mobility had slowed.

This helps explain a common experience. Many households earn well, sometimes very well, yet still feel financially stretched, uncertain about retirement, or vulnerable to unexpected events.

What the MOF report actually shows us

The MOF report makes a clear distinction between income inequality and wealth inequality, two ideas that can be confused at times.

• Income differences refer to how much people earn each year, after taxes and transfers. In Singapore, these differences have narrowed over time due to wage growth and government support.
• Wealth differences refer to how much people own after accounting for debt. This includes property, CPF savings, investments, and cash, minus liabilities.

The report shows that wealth is distributed far more unevenly than income. This is because wealth accumulation can be shaped by:

• Long-term saving and investing
• Ownership of appreciating assets
• Exposure to financial shocks
• Intergenerational transfers

In simple terms, income can rise relatively quickly. Wealth builds slowly, unevenly, and can be set back easily.

Why higher income does not always mean long-term financial security

Earning more certainly helps, but it does not guarantee financial security. There are several reasons for this.

1. Income depends on continued ability to work

Most households rely heavily on earned income. Illness, disability, caregiving responsibilities, job loss, or industry disruption can interrupt income for months or even years.

When income stops, households without sufficient protection often have to:

• Use up emergency savings
• Sell investments earlier than planned
• Take on debt to cover everyday expenses

Even after income recovers, the long-term impact on savings and investments can persist for many years.

2. Financial progress depends on timing and consistency

Wealth grows over long periods through compounding. Early setbacks reduce the base on which future growth depends.

This explains why two households with similar lifetime earnings can end up in very different financial positions. The difference is often not effort or discipline, but when disruptions occur and how they are managed.

3. What you own matters as much as how much you earn

In Singapore, a large share of household wealth is tied up in:

• Owner-occupied homes
• CPF balances

These are important foundations, but they are also long-term and relatively illiquid. They are not always easy to draw on when:

• Medical bills arise mid-career
• Income stops temporarily
• Cash is needed without selling assets at a poor time

Households with high net worth on paper may still struggle with short-term financial pressure if their assets are not well balanced.

How these issues show up in real Singapore households

Example 1: a young professional household with rising income

Profile

• Dual-income couple in their early thirties
• Combined annual income of around SGD 180,000
• Owners of a four-room HDB flat
• Basic hospitalisation coverage, limited income protection

This is a typical example of a HENRY household. Income is strong and rising, but accumulated wealth and protection have not yet caught up.

What happens

One spouse experiences a serious illness requiring extended recovery. Household income drops sharply. Savings intended for investing are redirected to cover everyday expenses.

What this leads to

Despite strong income growth before the illness, progress towards long-term financial security stalls for several years.

What planning could have changed

• Income protection and critical illness coverage
• Adequate emergency savings
• Ability to keep long-term investments intact

Example 2: A mid-career family that appears financially stable

Profile

• Couple in their late forties
• Stable middle-to-upper-middle income
• Fully paid HDB flat
• Growing CPF balances and moderate investments

What happens

A child gains admission to an overseas university earlier than expected. Education costs are funded by selling investments and taking short-term loans.

What this leads to

Retirement plans are weakened despite years of disciplined saving.

What planning could have changed

• Earlier education funding strategies
• Clear separation of education and retirement funds

Example 3: A late-career high earner

Profile

• Individual in early fifties
• Significant income growth later in career
• Limited accumulated assets
• Heavy reliance on continued employment

What happens

Market volatility coincides with health concerns. Risk tolerance drops sharply.

What this leads to

Higher income arrives too late to fully offset lost compounding time.

What planning could have changed

• Earlier protection planning
• Gradual, long-term investing
• Realistic retirement income planning

Why protection planning keeps appearing in wealth outcomes

Although the Ministry of Finance report does not prescribe individual strategies, its findings align with a clear pattern.

Households that experience fewer financial shocks tend to:

• Preserve savings and investments
• Stay invested through downturns
• Make steadier long-term progress

Insurance does not create wealth directly, but it prevents wealth from being undone. This stabilising role is particularly important for high earners whose wealth is still being built.

Practical lessons you can apply

Look beyond income when measuring progress

Track assets and liabilities, not just salary growth.

Protect your ability to earn

The financial impact of losing income is highest before significant assets are built.

Build wealth steadily

Regular saving and investing over time is more reliable than sporadic contributions.

Avoid putting too much into one type of asset

Property and CPF are important, but over-concentration limits flexibility.

Review plans as life changes

Strong income today does not remove the need for planning tomorrow.

How financial planning affects families over generations

Wealth differences do not reset each generation. Families that plan early are better positioned to:

• Support education without undermining retirement
• Transfer assets smoothly
• Avoid passing financial stress to children

In this way, planning influences not just current comfort, but future opportunity.

Key takeaways

The MOF report offers a broad view of how wealth is distributed in Singapore. But at an individual level, the implication is straightforward.

Earning more helps, but long-term financial security depends on preparation, protection, and time.

In a society where wealth differences remain wide even as incomes rise, financial planning remains one of the most practical ways individuals can turn income into lasting financial security.

Written by: Great Eastern Lifepedia team