Saving for retirement remains one of the top concerns for Singaporeans. According to a recent Manulife survey, nearly 67% of Singaporeans view retirement savings as their number one personal finance goal – higher than anywhere else in the region (average 49%).
Despite being highly important, only 35% have a clear plan on how to meet their retirement goals. Additionally, it was found that as many as 8 in 10 Singaporeans underestimate the amount of retirement savings they require.
Part of the challenge stems from not knowing how much one needs to retire in Singapore. While estimating your retirement needs can be complicated, you can make the process a little easier by bearing the following tips in mind.
A quick shortcut to estimating how much you need to retire in Singapore is to take some average figures as a benchmark. For this, one useful data set is the Minimum Income Standards for Households series of reports, published annually by the Lee Kuan Yew School of Public Policy, and the Nanyang Technological University of Singapore. The 2021 edition of the report found that an average family of four (two adults, a pre-teen, and a teenager) needs a household income of S$6,426 a month to maintain a basic standard of living. Meanwhile, a two-member household (one adult with a toddler) needs S$3,218 a month.
From these figures, we can estimate that a single adult would require around S$1,800 to S$2,000 per month for a minimum standard of living. Next, we apply the rule of thumb that in retirement, your expenses would be lowered by around 30% (assuming that certain key expenses, such as housing, have been paid up) and we arrive at a final figure of between S$1,260 and S$1,400 per month.
This is, of course, a very rough estimate, but it works as a starting point from which you can gauge your retirement budget. Besides your daily expenses, remember to include outstanding financial obligations, such as cash loans or unsecured loans.
Once you have an idea of the retirement budget you want, the next step is to determine where it is coming from. There are several sources you can tap into for this.
All Singaporeans receive monthly payouts for life, which form the basis of their retirement income.
Under the CPF Life national annuity scheme, you can choose to start receiving your payouts from age 65 or 70, and the amount you receive each month depends on how much you managed to save up in your CPF account, as well as whether you choose a level payout or one that steps up over time.
Some insurance plans offer steady payouts that you can use as part of your retirement income. The most common examples are retirement plans (aka annuities), but other types such as investment-linked policies (ILPs), endowments, or whole life insurance can also fulfil the same purpose.
Note that insurance plans often require a long time commitment, and come with several restrictions. Consult a qualified financial adviser to understand how such plans work and determine which type of insurance plan you should get.
Another potential source of retirement income is the returns from your investment portfolio. Upon retiring, you can start drawing down your investment account to help fund your expenses.
Instead of withdrawing your entire investment at one go, aim to withdraw a small amount over regular intervals, such as monthly or yearly. This will allow the rest of your funds to remain invested in the market and continue to generate returns. It is also advisable to switch to less volatile instruments such as bonds and cash investments to reduce your risk.
Note that in investing, the earlier you start, the better your outcome tends to be. However, do not be tempted to apply for a loan just so you can invest. If the returns from your investment are lower than the interest on your loan, you will end up with a loss. This is highly likely as unsecured loans have interest rates that are higher than typical market returns.
The cash savings in your bank account can also form a part of your retirement income, especially if you have a significant amount saved up. Depending on your circumstances, you may withdraw your savings as needed, or at regular intervals.
One downside of keeping a large amount of cash in the bank is the loss of spending power over time due to inflation. To counter this, try to choose multiplier accounts with higher interest, or consider using short-term fixed deposits to stay ahead of inflation.
Another significant expense in retirement is health and medical care, so it’s important to ensure you have the means to afford it.
A large part of your medical care budget would be your Medishield Life policy, which provides a basic level of care for all Singaporeans.
Note that Medishield Life doesn’t offer 100% coverage, which means you will have to pay a portion of your medical bills in cash. However, an Integrated Shield Plan will reduce the portion of the hospital bill you have to pay.
There are several Integrated Shield Plans available on the market, with varying levels of benefits and scope of coverage. Check with your financial adviser to choose a suitable plan, and don’t be afraid to switch to a less costly (but with corresponding fewer benefits) to keep your Integrated Shield Plan premiums manageable.
If you have any outstanding debt, you should make a plan to clear them as soon as you can – before retirement, at the latest. This will help you avoid stretching your retirement income too thin due to debt repayments.
To be clear, we are talking about unproductive debt, such as credit card balances. These types of debt do not produce any benefits, and the high interest they carry can jeopardise your retirement if not managed properly.
Lowering the interest on your debt is key to paying off your debt quickly. One tactic that can help you achieve this is to apply for a loan with a lower interest rate from a reputable provider like Synergy Credit, a leading provider of fast cash loans with low interest rates and flexible terms. By obtaining such a loan, you can use the funds to pay off high-interest debt, effectively reducing your overall debt burden. This approach not only helps you save money on interest payments but also makes it easier to get out of debt faster.
With Synergy Credit, you can have your loan approved in 20 minutes or less, ensuring a hassle-free process. Don’t hesitate to speak with our friendly loan consultants today to take control of your financial situation.