“60 is the new 40.” You can view this quote with a positive or pessimistic lens. On an encouraging note, Singaporeans are enjoying healthier and longer lives – data published by the Department of Statistics Singapore puts the life expectancy of Singaporeans, in 2015, at 82.7 years.
However, that means you will have to stretch your savings and investments to support your expenditure for a longer period after retirement. Needless to say, retirement planning is essential, yet many people lack the knowledge or motivation to do so.
First, you should set realistic and achievable retirement goals. The sooner you get to it, the better. “Wanting to live comfortably and go on the occasional holiday” is an admirable, but very vague goal. Ask yourself specific questions, like the age you want to retire at, whether you want to completely stop working or get part-time work, and the kind of lifestyle you have in mind. Remember to factor in obligations such as housing loans or insurance payments, as they are recurring expenses that eat into your retirement funds.
Next, put a price tag on those objectives. Get an estimate of monthly expenses for your desired lifestyle. The usual suspects include food, transport, utilities, and entertainment, but it will be prudent to set aside some emergency funds.
Across a period of 20 years, which is the average retirement period, this means your nest egg and purchasing power has eroded by 23% due to inflation alone.
One category that is expected to rise in significance during your retirement years is healthcare expenses, like periodic checkups, treatment for chronic diseases, and premiums for medical insurance.
You should also account for the big I – inflation. The Monetary Authority of Singapore (MAS) Core Inflation Measure reveals that the Consumer Price Index (CPI), an important benchmark of inflation rates, has increased by 1.3% in February 2017, compared to February 2016.
Across a period of 20 years, which is the average retirement period, this means your nest egg and purchasing power has eroded by 23% due to inflation alone. Clearly, your investments have to match or outgrow inflation to maintain the same lifestyle in years to come.
The third step is to determine the type of retirement income most suited to your retirement needs. Some prefer a lump sum payout from matured investments, but Singaporeans typically lean towards a steady income stream. Most working Singaporeans have CPF Life for that. It is an annuity plan that gives monthly payouts from your CPF Retirement Account upon the eligible age.
Ideally, however, you should supplement that with your personal savings and a retirement insurance plan. These plans commit you to pay premiums over a certain period. In return, they generate interest and guarantee you a constant income supply upon the designated retirement age. Consider the premium payment period, income growth rate, retirement age, payout duration, and income nature (fixed or variable) among other factors when deciding on a plan.
Finally, conduct research or consult your financial advisers to learn more about ways to preserve and grow your retirement nest egg. Besides retirement insurance plans, popular strategies include property investment, dividend bearing equities, government bonds, and income funds. While you pick an investment scheme, look out for the sum required, the investment time horizon, the extent of asset class diversification and risks involved.
At YTA, our advisers want to help you plan for your retirement effectively. We will assess your financial health, educate you on the pros and cons of various investment schemes, evaluate your risk appetite, and recommend you a personalised solution. Complete the form on the ‘Contact Us’ page and we will reach out to you soon.