Singapore’s official retirement age is 62. Living expenses such as food, transport, utilities, healthcare, and other basic needs, are estimated at S$1,379 a month. This estimate is according to Lee Kuan Yew School of Public Policy. So, if the average life expectancy is 82, you will need around S$330,960. Yet, this amount does not even include future inflation rates.
Planning early and wisely is necessary to retire at a certain age. Many financial planners say that 20 is a good age to start building retirement funds. But starting at a later period than 20 is still better than not starting at all.
Plus, the cost of expenses in Singapore increases as you age, including broad categories of products and services. This increase leads to additional costs spent on travel, dining, shopping, and uncovered medical expenses. So, the key is to plan your retirement goals as early as possible.
Factors That May Affect Your Retirement Budget
Figuring out how much you’ll need to retire in Singapore comfortably can be a worry. Some of your concerns could be:
- Affording basic living expenses
- Plans like marriage and having young children
- Unexpected taxes
- Your desired retirement lifestyle
- Health concerns as you age
So, as a crucial part of your planning stage, you also need to be financially on track.
Retirement involves complex risks as you will no longer have income flow. To secure a comfortable retirement, you will need to have an excellent financial retirement plan. This process will involve saving, investing, and getting insurance.
Not all of us live with identical lifestyles, spending habits, and values. Thus, how much is enough will significantly depend on an individual’s needs. While others may need millions, some would be content in living a simple and frugal life. So, it is really up to you to figure out how much you will need.
Here are a few factors that may affect your retirement budget or income:
Health issues and poor health may also deplete your savings accounts and income. So, check that your funds are enough to cover basic expenses plus medical and caregiving expenses.
Your financial need will ultimately depend on your retirement needs, how you spend, and your accustomed lifestyle. If you plan to delve into recreational activities, travel, or discover new hobbies, you should plan to save more and develop healthy financial habits early on to do so.
How To Retire Comfortably
No matter what current stage of life you are in, here are proven ways to provide a reliable retirement income stream.
1. Build Your Savings
One crucial part of retirement planning is building your savings. Bonds and fixed deposits will provide you guarantees in either capital, returns, or payouts. You may also automate monthly contributions and grow your money without thinking of it. Soon you will realize that starting early meaning putting away less money as you age due to the power of compounding interest.
2. Invest Wisely
Another form of a retirement income or nest egg is investments. And when it comes to investing, time is money.
Suitable investments would guarantee another stream of cash to use. You can continuously diversify your earnings. Save and invest in a side business or businesses that provide passive income. Another investment plan is to focus on long-term trading and investing in reliable stocks and assets at the same time.
3. Consider Getting an Insurance
As much as you hope that aging will not come with significant health concerns, this remains uncertain. There will always be a 50% chance that part of your retirement income will go to medical expenses. For this, you may purchase policies from the top and reliable private insurers to form part of your emergency funds.
Insurance will help you protect your money in times of unfortunate events such as sickness and death. Moreover, the cash value of insurance policies increases over the years and can also guarantee retirement income. SDIC protects up to specified limits most Insurance coverages.
Coping Up With The Threats of Inflation
Inflation is a significant factor in complicating your retirement portfolio strategy. Experts say that even moderate inflation can have a relative impact on your retirement funds. Over the next 20 years, you should expect that the rising cost of basic needs will erode the value of your funds.
Thus, to cope with inflation and maintain your purchasing power, you’ll need to increase your retirement income stream. Here are some things that you should keep in mind:
1. Assess your investment strategy.
Your money in the bank will continue to earn little interest over the years. Know when to think of a new strategy.
2. Calculate how much your retirement nest egg is.
If you want to weather inflation better, you need to protect and grow your money as early as possible.
3. Plan what investment strategy will need to change once you are near retirement age.
It could be a good thing to steer clear of investments with higher risks as you near retirement.
Getting The Most Out Of Your CPF Social Security
Singapore operates a contribution system for citizens and permanent residents. The Central Provident Fund (CPF) administers this system. For most Singaporeans, their CPF account is the foundation of their nest eggs. CPF offers ways to optimize these funds, which you can withdraw, either partially or in full, after turning 55.
The CPF Life scheme, in particular, is primarily designed to help its members save and guarantee retirement income.
Since 2013, members have become mandatory to invest their retirement account (RA) savings in life annuities. This scheme aims to provide an income stream from retirement to death.
Your CPF contribution amounts to a larger sum (37%) of your monthly salary at the early start of your career. Your employer shoulders 17% of this contribution.
Towards the later part of your employment, your savings will form a strong foundation of your retirement fund, inclusive of healthcare. Then, as you near your retirement age, around 56 to 65 years old, CPF will reduce your contribution to 16.5%. Your employer covers 9% of this contribution.
It is crucial for Singapore’s CPF social security system to prepare its working force for old age and retirement. Now, it has evolved into a multi-faceted strategy that assists in the ever-changing needs of its members. It helps achieve homeownership, healthcare, financial protection, and even assets enhancement objectives.
Other objectives of CPF that could help protect your retirement savings and funds:
1. Home Ownership
Having your own home or investment property is a must before retiring. Property investments could also mean additional income for future use as they can build assets or generate passive income.
2. Financial Protection
For this objective, CPF offers two insurance schemes:
- Dependent’s Protection Scheme. This protection could hedge the risk of income loss due to death or permanent disability of the family’s breadwinner.
- Home Protection Scheme. This scheme prevents the dependent’s family members from losing their homes. In death or permanent disability, the CPF Board will pay off the insured member’s outstanding home loan balance.
Healthcare could be one of the most significant expenses for retiree households. The CPF supports its member through the 3-M framework featuring the following:
- MediSave – This feature would cover medical expenses, including inpatient and outpatient treatments. You could also use these funds to pay for MediShield premiums. Further, you could transfer your excess savings to your RA for this healthcare account.
- MediShield – This opt-in feature would cover costly healthcare expenses.
- MediFund – CPF created this feature for low-income members who could not enroll in the MediSave and MediShield frameworks.
4. Retirement Adequacy
As mentioned earlier, the CPF Life scheme has become mandatory for members. Two plans offered are:
- Life Standard Plan. This plan offers higher monthly CPF life payouts ranging from S$1,100 – S$1,210 to its beneficiaries. However, it provides a lower bequest or endowment of S$38,000 to S$177,000.
- Life Basic Plan – This plan offers a lower monthly payout ranging from S$1,008 – S$1,112 to its beneficiaries. However, it provides a higher bequest or endowment of S$67,000 to S$212,000.
5. Asset Enhancement
This feature, called the CPF Investment Scheme, helps members grow their pension assets through investments. These investment schemes cover savings in the Ordinary Account (OA), which earns at least 2.5% annually, or the Special Account (SA), which accumulates at least 4%. In the OA scheme, members can invest their money in:
- Fixed Deposits
- Bonds (Governments Bills And Corporate)
- Property Funds
In the SA investment scheme, members are discouraged from investing their CPF savings in high-risk products like property bonds, corporate bonds, shares, gold, and the like. Read more on How to use CPF to invest.
Generally, the CPF is successful in helping meet its members’ retirement plans and objectives. Plus, the CPF basic retirement sum is made known to members ahead of time to help them plan better. Another great thing about Singapore’s CPF accounts is their tax-free monthly payouts.
Your CPF savings or full retirement sum are excellent ways to secure your retirement goals. Still, though it guarantees income after retirement, it does not fully guarantee to meet your expenses as a unique individual adequately. Plus, you can not discount the effects of inflation over the coming years.
Thus, it is still best to grow your money in various safe ways to achieve your optimum retirement savings goal, more so if you plan to retire earlier.
If you want an estimate of how much you’ll need to save in your CPF contributions, you may use their savings calculator.
Retirement Readiness FAQs
1. Do I need a financial adviser?
Financial advisors come in helpful as they will help you understand blind spots in your plans. Ensure accurate personal data to acquire a precise estimate of your future needs.
2. How much money will I get from my CPF Life?
The specific amount will depend on your RA savings and CPF Life plan account. If you want a higher payout, you can save more in your RA and choose the CPF Life Standard Plan instead of the CPF Life Basic Plan.
3. How far will my S$1M last through my retirement?
As mentioned in this post, each retiree has their unique needs, so that it will depend on your monthly budget. For a frugal person who spends $2,750 a month, it could last for up to 30 years plus. For one who spends around S4,500 a month, it could last for at least 18 years. But for those who want to live with quite a luxury at S$5,600 a month, it could only last around 15 years.
Perhaps, it will take years to master the financial skills of retirement planning. But, with commitment and consistency, you will surely achieve your retirement goals. Otherwise, you are bound to live a frugal life instead of realizing your retirement dreams.
- We recommend you seek advice from financial advisors and start saving in your early 20’s.
- Set realistic targets by mapping out your plans, both present, and future, to prioritize your goals.
- As early as now, it is best to think of ways to improve your health and live healthy throughout your non-working years.
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