How to Plan for a Great Retirement in Singapore - Here's What You Need to Consider

Planning for retirement is never easy or straightforward. There are many things we need to consider, including some that may be outside of our control. However, not planning is not a solution.

At the heart of retirement planning is a simple concept – to put aside money that you have today, so you can use it when you are no longer earning an income through employment.

It’s no easy feat to do this. You need the determination to not spend money you have today on the things you really want; you need to put this money away in a safe place, that also preserves or increases your spending power decades into the future; you need to build safety nets so you avoid tapping into this reserve during times of need; and you need this money to last your entire lifetime.

By starting your retirement planning journey as early as possible, regardless of your age, you give yourself the best chance to succeed. To nudge you on, here are some important things you should consider.

1. How long do you have till retirement?

You should not only start worrying about retirement when you are in your 50s. Retirement planning should start as early as possible, and most preferable if you can start from your first pay check!

The longer you have, the less stressed you will be – you only need to put aside a smaller sum each month to ride out market ups and downs in the long-run. Beat out the long-term inflation rate of 1.9% between 1984 to 2016, and you have sufficient time to properly implement your plan.

At the same time, if you are older when you start planning for retirement, it’s not the end of the world – you just need to be realistic with what you can achieve, and not take unnecessarily risky bets in your investments to “catch up” on lost time.

How long you have till your retirement can also be entirely up to you. While the statutory retirement age is 62(and set to be increased to 65), if you are able to financially cope without a regular salary, you could even choose to go into FIRE – Financial Independence, Retire Early – a growing lifestyle trend many are chasing.

2. What will you do in retirement?

For a more fulfilling retirement, you have to imagine what life might be during your golden years.

It’s easy to say you want to idle away at the coffeeshop with other retirees, travel the world, start working on a business idea you have or indulge in a hobby you’ve always want to.

Only you would have the answers to a personal question like what a fulfilling retirement looks like. Further, your idea of what is fulfilling may not even be in sync with your spouse, let alone strangers. Make sure you discuss your retirement plans with your significant other. Without talking to each other about it, you may individually be working towards separate retirement dreams, which may require different levels of financial preparation to achieve.

3. Where are you going to live?

It should not come as a surprise that you may find yourself becoming an empty nester one day, as your children leave home to start their own families. As your property will likely be one of the most valuable assets you own, it would make sense to monetise it to enjoy the fruits of your labour during your retirement.

Rightsizing to a smaller home or renting out spare bedrooms can give you supplementary income during your retirement. However, you need to be comfortable about being able to live with strangers in your home.

You can also consider renting out your property in the future to live with your adult children, or getting them to contribute to household expenses if they are living in your home. The extra cashflow will make you less reliant on any one source of your retirement income.

4. Lifetime monthly payouts from CPF Life

No retirement planning discussion in Singapore is complete without taking into consideration CPF LIFE – Singapore’s life annuity scheme providing you with a monthly payout for as long as you live once you turn 65.

As you contribute to your CPF during your working years, the important thing to understand is that your CPF LIFE monthly payouts are meant to provide a basic income in your retirement. If you want to afford more, you need to save more in your CPF or plan for other supplementary sources of income in your retirement.

As a gauge, anyone who saved the Full Retirement Sum (or what was known as the Minimum Sum) of $123,000 in 2010, when they were 55 years old, and are hoping to start making CPF LIFE withdrawals this year, when they turn 65, will be able to make CPF LIFE withdrawals of approximately between $800 to $900.

A retired couple receiving $1,800 in CPF LIFE payouts between them each month will only be able to afford a basic retirement today. This sum is also below the Minimum Income Standards (MIS) that an elderly couple in Singapore needs today – $2,351.

To beef up your CPF LIFE payouts when you eventually retire, you can increase your CPF savings by embarking on the Retirement Sum Topping Up (RSTU) Scheme, which also provides a dollar-for-dollar tax relief, up to $7,000 a year and an additional $7,000 a year, for RSTU made to your and your loved ones’ CPF accounts respectively.

5. Don’t forget your safety nets as you try to build your retirement nest egg

CPF LIFE provides a safety net for your retirement in Singapore, for as long as you live. Don’t forget to build other safety nets you will need in your retirement as well.

Healthcare in Singapore can be costly, and you also have to consider how to upkeep daily living expenses if you are not able to work while seeking treatment or recovering from a medical condition.

With comprehensive health insurance, you will be able to protect your retirement savings and investments in an unforeseen event. Adequate life insurance should also be considered to protect your spouse’s future retirement plans, as well as the daily living expenses of your dependents in the present.

You should also consider affordability of the policies you continue to have to service after you retire. Where possible, you can opt for limited pay terms for life insurance policies, where you have the flexibility to choose to pay over a shorter period compared to the coverage term. This can be helpful to reduce your expenses in your retirement, by forking out more for the policy while you are earning a salary.

6. Building supplementary sources of income

To continue spending on some luxuries in your retirement, you may want to look into building other sources of supplementary retirement income.

Some methods covered above includes downsizing or renting out your home as well as contributing more to your CPF account. These can provide you with a healthy buffer for a comfortable retirement.

Another way to grow your savings is to take on more risks in the markets by investing your funds for the long-term. This way, you get to ride out short-term market volatility and let your funds compound till you retire.

You can also consider purchasing a retirement insurance product, which can provide certain amounts of retirement income. These are also referred to as annuities. The main purpose of such policies is to provide you a consistent stream of income starting from your preferred retirement age, on top of your CPF LIFE payouts. You can choose payment terms and payout periods based on your financial needs to supplement your lifestyle and expenses during your golden years.

These options also allow you greater flexibility in your retirement plans compared to CPF LIFE, where you can only start receiving your monthly payouts after turning 65.

7. Minimise debt, especially as you near retirement

Debt is not necessarily a bad thing. In fact, debt can help at certain life milestones, such as through an education loan, home loan or renovation loan.

What you should be more attentive to is high-interest debt, which is a bad thing regardless of which point in your career you are in.

As you near your retirement age, you should also work toward winding down the  majority of your debt obligations. You don’t want to continue stressing over large debts, even if they are on low interest rates, when you no longer earn an income.

Don’t neglect planning for a long retirement

Singaporeans already have one of the longest life expectancy today, living to a ripe old age of 84.8 years. As life expectancy continues to increase in the future, you should also plan for a longer retirement than today’s standard. At the same time, as you age and live through medical breakthroughs, healthcare treatments could continue to spiral, so don’t forget to plan for adequate healthcare in your golden years as well.

Having a great retirement is also about ensuring you do not run out of funds midway through retirement. Getting back into the workforce can be challenging, both from a skillset point of view and being physically able to.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.