Planning for a great retirement in Singapore can feel like navigating a financial maze, but it doesn’t have to be.
With the right guidance and tools, you can set yourself up for a comfortable and secure future.
As someone who has spent years diving deep into personal finance, I’ve gathered valuable insights that can help you on this journey.
In this post, you’ll learn:
- What retirement planning is all about
- Why it’s crucial to plan for retirement in Singapore
- How to determine your retirement needs and age
- Effective ways to invest for retirement
- Practical tips to ensure you’re financially ready for retirement
Did you know that without proper planning, your retirement savings might not last as long as you think?
Let’s make sure that doesn’t happen.
Keep reading to discover how you can take charge of your financial future and retire with peace of mind.
What is retirement planning?
Retirement planning is all about figuring out how you’ll support yourself financially once you stop working.
It’s not just about saving money; it’s about setting goals and making smart decisions to achieve them.
You need to consider various factors, like your current financial situation, future expenses, and how you’ll manage your investments.
To ensure financial security during retirement, you need to start saving and investing wisely.
This means setting aside money regularly and choosing the right investment options when you’re young.
Retirement planning isn’t a one-time task but an ongoing process.
You need to regularly review and adjust your plan to reflect changes in your life and financial situation.
Why is retirement planning important in Singapore?
Firstly, it ensures you have sufficient savings or passive income to fund your retirement lifestyle.
Living costs in Singapore are high, and without proper planning, you might struggle to maintain the standard of living you’re accustomed to.
By starting early and making informed decisions, you can build a solid financial foundation that supports you through your retirement years.
Being debt-free is another key aspect.
Carrying debt into retirement can be a significant burden, especially when you no longer have a regular income.
Paying off your debts before retiring ensures that your savings and investments are solely used to support your lifestyle and not to settle old liabilities.
This financial freedom allows you to enjoy your retirement without the constant worry of owing money.
Health insurance is also a vital component of retirement planning.
As you age, medical expenses tend to increase.
Having comprehensive health insurance ensures that these costs are covered, protecting your savings from being depleted by unexpected medical bills.
In Singapore, MediShield Life and Integrated Shield Plans can provide this necessary coverage, ensuring you receive the care you need without financial stress.
How Does CPF LIFE play a part in a Singaporean’s retirement planning?
CPF LIFE is a crucial component of retirement planning for Singaporeans, providing a reliable and steady income stream for life. Here’s how it supports your retirement:
Lifelong Monthly Payouts
CPF LIFE ensures that you receive monthly payouts for as long as you live, helping you cover your basic living expenses.
These payouts start when you reach your payout eligibility age, which is currently 65, providing financial stability throughout your retirement years.
Customisable Plans
CPF LIFE offers different plans to suit varying needs:
- Standard Plan: Provides higher monthly payouts with lower bequest amounts.
- Basic Plan: Offers lower monthly payouts but leaves more for your beneficiaries.
- Escalating Plan: Starts with lower payouts that increase by 2% each year to help combat inflation.
Security and Peace of Mind
CPF LIFE payouts are designed to be a secure and predictable source of income, reducing the financial uncertainties that can come with retirement.
This peace of mind allows you to focus on enjoying your retirement without worrying about running out of money.
Is CPF LIFE enough for my retirement?
CPF LIFE provides a reliable source of monthly income, but it may not be sufficient to cover all your retirement needs on its own.
CPF LIFE is designed to handle your basic living expenses, such as housing, food, and utilities.
However, the monthly payouts might not be enough to maintain your desired lifestyle, especially if you have higher living standards or additional financial commitments.
Healthcare expenses, which tend to increase with age, present another challenge.
While CPF LIFE can help with some costs, it might not fully cover significant medical expenses, long-term care, or specialised treatments.
It’s important to have additional health insurance or savings to cover these potential costs.
Additionally, if you plan to travel, engage in hobbies, or enjoy other leisure activities during retirement, CPF LIFE payouts alone may not be sufficient.
These activities require extra funds, so additional savings or investments will be necessary to support these aspects of your retirement.
Inflation is another factor to consider.
CPF LIFE’s Escalating Plan addresses inflation by increasing payouts by 2% annually.
However, general inflation and rising costs of living can still erode purchasing power over time.
Supplementing CPF LIFE with other investments can help maintain your financial stability.
I have a blog post that explains more about CPF LIFE in detail, I suggest having a read here.
Okay, before diving deeper, you need to understand what is the official retirement age in Singapore
In Singapore, the official retirement age is 63.
This means that employers are required to offer re-employment to eligible employees up to this age.
However, it’s important to note that the government has plans to gradually raise the retirement age to 65 by 2030.
And this will potentially increase in the future.
Re-employment opportunities extend beyond the official retirement age.
Currently, employers must offer re-employment to eligible employees up to the age of 68.
This re-employment age will also increase, reaching 70 by 2030.
The aim is to allow older workers who are willing and able to continue working to do so, contributing to their financial stability and the economy.
Why am I telling you this?
Understanding the official retirement age and the re-employment policies is crucial for your retirement planning.
It helps you estimate the duration of your working life, allowing you to better plan your savings, investments, and overall retirement strategy.
With the re-employment age extending, you have the option to work longer if you wish, providing more time to grow your retirement nest egg.
By staying informed about these changes, you can make more strategic decisions regarding your career and retirement planning, ensuring a more secure and comfortable future.
How much do you need to retire in Singapore?
Figuring out how much you’ll need for retirement can seem daunting, but there’s a simple formula to help you estimate it.
Here’s a straightforward way to calculate your retirement savings goal:
Monthly Retirement Needs x 12 months x Estimated Years of Retirement x Inflation Rate
How to determine my retirement needs?
Here’s a guide to help you determine how much you’ll need:
Step 1: Assess Daily Living Expenses
Start by calculating your daily living expenses.
This includes housing, utilities, groceries, transportation, and other necessities.
Step 2: Factor in Recreational Costs
Retirement is a time to enjoy life, so don’t forget to include recreational costs.
Think about hobbies, travel plans, dining out, and other leisure activities you plan to engage in during retirement.
Step 3: Estimate Healthcare Costs
Healthcare can be a significant expense in retirement.
Include costs for insurance premiums, routine medical check-ups, medications, and any potential long-term care needs.
In Singapore, the MediShield Life and Integrated Shield Plans can help cover these costs, but might not be enough, especially at old age.
Step 4: Prepare for Emergency Costs
Always set aside a portion of your budget for emergencies.
This could be unexpected medical expenses, home repairs, or any other unforeseen financial needs.
Using a budgeting tool like The Financial Toolkit can help you list out all of your expenses from Step 1 to 4 in detail:
Step 5: Factor in Remaining Debts
Factor in any remaining debts and remember to remove costs associated with dependents once they are financially independent.
Using a debt tracker, you can add in any remaining debts you have to the final amount:
This final amount can represent your minimum retirement needs (as you still need to pay off your debts).
Step 6: Include your CPF LIFE Payouts
Your CPF LIFE payouts play a crucial role in funding your retirement.
The current CPF LIFE rates provide monthly payouts based on the amount in your Retirement Account (RA).
Read more about CPF LIFE payouts here.
How to determine what age to retire in Singapore?
Not everyone will retire at the official retirement age, and your actual retirement age can vary based on your personal circumstances and financial readiness.
Here are 3 main ways to determine your actual retirement age:
1. Using the Official Retirement Age
The official retirement age in Singapore is 63, with plans to gradually raise it to 65 by 2030.
This can serve as a benchmark for your retirement planning.
If you plan to retire at the official age, you can use it to structure your financial goals and savings plans.
2. Selecting Your Retirement Age and Working Towards It
You can choose a specific retirement age, whether earlier or later than the official retirement age.
This approach involves setting a target age and creating a plan to reach your financial goals by that time.
For example, if you aim to retire at 55, you’ll need to accelerate your savings and investment efforts to ensure you have enough funds to support your retirement lifestyle.
3. Projecting Your Retirement Age Based on Your Current Financial Position
Another method is to project your retirement age based on your current financial position.
Assess your current savings, investments, and expected future income.
From here, you can project your finances and estimate when you’ll have sufficient funds to retire comfortably.
Determining Retirement Duration
Once you’ve determined your retirement age, use Singapore’s average life expectancy to estimate the number of years you’ll spend in retirement.
As of recent data, the average life expectancy in Singapore is around 83 years.
However, planning for a few extra years can provide a cushion for longevity risk.
Let’s say you’ve projected that you can retire comfortably at age 60.
Here’s a simple calculation to estimate your retirement duration:
- Retirement Age: 60
- Average Life Expectancy: 83
So, you should plan for at least 23 years of retirement, possibly more to be on the safe side.
By considering these factors, you can determine a realistic and achievable retirement age that aligns with your financial situation and personal goals.
This proactive approach ensures you can enjoy your retirement years without financial stress.
But that’s not it yet…
There’s still the rising cost of living to consider, AKA inflation.
What is Singapore’s inflation rate?
Singapore’s headline inflation rate between 2003 to 2023 has averaged 2.08%.
When planning for retirement, you can use this rate or opt for a higher assumption, typically around 3%, to ensure a more conservative and prudent calculation.
Based on the inflation rate and the other factors we’ve discussed, you can determine how much you’ll need to retire comfortably.
Or use The Financial Toolkit…
The Financial Toolkit is Dollar Bureau’s tool that helps you with these calculations, taking into consideration everything you’ve read here so far – inflation, your estimated retirement years, your projected retirement age, your current monthly needs, your future monthly needs (as affected by inflation), and more!
Here’s a screenshot of our retirement fund calculator:
The greyed-out fields are automatically populated based on other aspects of your life, while the ones in white are what you can change.
For instance, Andy wants to retire at 60 and he is currently 37 years old.
If he were to retire today, he needs $3,000/month.
Assuming a 2.50% inflation rate, this amount becomes $5,293.83 in 23 years.
Since Andy uses Singapore’s average life expectancy to determine how much he needs for retirement, he needs these payouts to last for another 20 years.
With no liabilities left, Andy needs about $1.6 million to retire comfortably, based on his lifestyle.
This may seem like a lot, but it considers the 23 years he has left before he retires and the 20 years of retirement – something that many financial advisors don’t factor in.
Make sure you have enough insurance coverage
One of the most significant expenses you’ll face during retirement is healthcare costs.
As you age, medical expenses tend to increase, and the last thing you want in your golden years is to worry about finances.
Ensuring you have adequate insurance coverage is essential to protect your retirement savings.
Health Insurance
Health insurance is a critical component of your retirement plan.
In Singapore, you can rely on MediShield Life, which provides basic health insurance coverage for all Singaporeans and Permanent Residents.
However, to cover higher costs not included in MediShield Life, consider Integrated Shield Plans (IPs) that offer additional coverage, such as private hospital stays and specialist treatments.
CareShield Life Supplements
CareShield Life is a long-term care insurance scheme providing payouts if you become severely disabled and need assistance with daily activities.
To enhance this coverage, you can purchase supplements that offer higher payouts and more comprehensive protection.
These supplements ensure that you have sufficient funds to cover long-term care costs without depleting your retirement savings.
Early Critical Illness (ECI) and Critical Illness (CI) Plans
ECI and CI plans provide lump sum payouts upon diagnosis of critical illnesses like cancer, heart attack, or stroke.
These plans are crucial as they offer financial support during treatment and recovery, reducing the burden on your retirement funds.
Given that the likelihood of critical illness increases with age, having ECI/CI plans in place is a prudent step to safeguard your financial well-being.
Imagine you have planned well for your retirement and have a nest egg of $1,000,000.
Without adequate insurance coverage, a single major health crisis could significantly impact your savings.
For instance, according to Manulife, the cost of treating a critical illness is $32,000, potentially draining a substantial portion of your retirement funds.
By having comprehensive ECI/CI plans, you can ensure that your medical expenses are covered, allowing you to focus on recovery rather than financial stress.
The Financial Toolkit can calculate accurately how much ECI/CI coverage you need too!
As you can see, Andy has a shortfall of $46,653.48 and $3,304.19 in CI & ECI coverage respectively.
This sums to about $50,000 in shortfall, which he has to use from his retirement funds should he be diagnosed with any critical illnesses.
Having sufficient insurance coverage acts as a financial safety net, preserving your retirement savings for other essential expenses and leisure activities.
Next step, saving up for your retirement!
Now that you know how much you need and how long you have until retirement, it’s time to start budgeting.
Here’s how you can effectively save up for your retirement:
Identify Your Income and Expenses
Begin by identifying all your income sources and outgoing expenses.
Create a detailed budgeting sheet to track your finances.
On top of tracking your expenses, The Financial Toolkit can track your incoming income too!
Reduce Expenses and Increase Income
To boost your savings, find ways to reduce your expenses or increase your income, or ideally, both.
Here are some strategies:
- Review Insurance Policies: If you’re paying more than the average for insurance coverage, consider talking to an Independent Financial Advisor (IFA).
They can help you compare policies and find one with the lowest premium that still offers sufficient coverage.
This adjustment can free up extra funds for your retirement savings.
- Cut Unnecessary Spending: Look for areas where you can cut back on expenses.
This could be as simple as dining out less frequently, cancelling unused subscriptions, or finding more affordable alternatives for everyday items.
- Increase Your Income: Explore opportunities to increase your income, such as taking on freelance work, starting a side business, or investing in your skills to get a higher-paying job.
Adjust Your Budget
Use popular budgeting techniques or tailor a budget that works best for you.
Various budgeting methods, such as the 50/30/20 rule, where 50% of your income goes to necessities, 30% to discretionary spending, and 20% to savings and investments, can help you adjust your expenditures accordingly.
Looking at Andy’s cashflow, his budgeting meets the 50/30/20 technique:
But there are ways he could still reduce his expenses, such as reducing his insurance premiums if he goes for an insurance review.
3 ways to invest for retirement
While saving is crucial, it’s often slow.
To accelerate your retirement fund growth, invest your money.
Here are several effective ways to invest for your retirement:
1. Regular Savings Plans (RSPs)
Regular Savings Plans (RSPs) are a great way to build your investment portfolio over time.
With RSPs, you contribute a fixed amount of money regularly, usually monthly, to your chosen investments.
This disciplined approach takes advantage of dollar-cost averaging, reducing the impact of market volatility.
It’s an excellent option for those who want to start investing with smaller amounts and gradually build their wealth.
2. Robo-Advisors
Robo-advisors offer an automated and hassle-free way to invest for retirement.
They use advanced algorithms to manage your investment portfolio, ensuring it aligns with your financial goals, risk appetite, and time horizon.
Robo-advisors are cost-effective and suitable for those who prefer a hands-off approach to investing.
We recommend Syfe’s robo advisor because:
- Low Fees: Syfe offers competitive fees compared to traditional investment options.
- Personalised Portfolios: Customises portfolios based on your financial goals and risk tolerance.
- Convenience: Automated rebalancing and portfolio management save you time and effort.
Check them out here: Syfe.com
3. Professional Advice
Seeking professional advice is highly recommended, especially if you’re unsure about your investment choices or need a comprehensive financial plan.
Financial advisors can help you:
- Ensure you’re on the right path to meet your retirement goals.
- Customise an investment portfolio based on your time horizon, risk appetite, and financial goals.
- Reduce insurance premiums by finding the best policies for your needs.
Our network of trusted IFAs can provide you with personalised financial advice and investment strategies.
They are well-equipped to help you:
- Plan your investments effectively.
- Optimise your insurance coverage and premiums.
- Achieve your financial goals with tailored solutions.
By consulting with our partners, you get the advantage of expert guidance, which can lead to better financial decisions and outcomes.
It’s like hitting two birds with one stone – you get both investment and insurance advice from the same professional.
7 tips to prepare you for a great retirement in Singapore
Planning for a great retirement requires careful preparation and informed decisions. Here are some essential tips to help you get started:
1. Start Early
The earlier you start planning for your retirement, the better.
Time is your greatest ally when it comes to growing your savings and investments.
By starting early, you can take advantage of compound interest, which significantly boosts your retirement fund over the long term.
Even small contributions can grow substantially over time if you start early.
2. Understand Yourself
Knowing your financial goals, risk tolerance, and retirement aspirations is crucial.
Consider what kind of lifestyle you want in retirement and how much you’ll need to sustain it.
Understanding yourself helps in setting realistic goals and choosing suitable investment options.
3. Consider How Much You Have to Invest
Evaluate your current financial situation to determine how much you can afford to invest regularly.
Look at your income, expenses, and any existing debts.
Setting a budget for your investments ensures that you can steadily build your retirement fund without compromising your current financial stability.
4. Understand the Products You’re Investing In
It’s essential to have a good understanding of the financial products you’re investing in.
Different investments come with varying levels of risk and potential returns.
Educate yourself about the options available, such as stocks, bonds, mutual funds, and real estate.
Knowing the pros and cons of each helps you make informed decisions.
5. Put Your Nest Egg into Different Baskets
Diversification is key to managing risk in your investment portfolio.
By spreading your investments across various asset classes, you reduce the impact of any single investment’s poor performance on your overall portfolio.
A well-diversified portfolio balances risk and reward, helping you achieve your retirement goals more securely.
6. Balance Out the Highs and Lows
Investments can be volatile, with values fluctuating over time.
It’s important to balance out the highs and lows by regularly reviewing and rebalancing your portfolio.
This ensures that your asset allocation remains aligned with your risk tolerance and financial goals.
Staying disciplined during market ups and downs helps maintain a steady growth trajectory.
7. Get Professional Financial Assistance
Professional financial advisors can provide valuable guidance and insights tailored to your specific needs.
They can help you create a comprehensive retirement plan, optimise your investment portfolio, and manage risks effectively.
Our partners are well-equipped to assist you in achieving your retirement goals.
Frequently Asked Questions
When is the best time to start retirement planning in Singapore?
The best time to start retirement planning is as early as possible.
Starting early allows you to take advantage of compound interest, which can significantly grow your savings over time.
Even if you can only save a small amount initially, beginning early gives you a head start and more time to build your retirement fund.
The earlier you start, the less financial pressure you’ll face later on, ensuring a more comfortable and secure retirement.
How much does it cost to retire in Singapore?
The cost to retire in Singapore depends on your lifestyle and financial needs.
To estimate, consider your monthly retirement expenses, such as daily living costs, recreational activities, healthcare, and emergencies.
Multiply your monthly expenses by 12 to get your annual expenses, then multiply by the number of years you expect to be in retirement.
Don’t forget to factor in inflation.
Conclusion
Planning for a great retirement in Singapore doesn’t have to be overwhelming.
We’ve covered the essentials: starting early, understanding your financial needs and goals, evaluating how much you can invest, knowing your investment products, diversifying your portfolio, balancing out market highs and lows, and getting professional financial assistance.
Remember, the earlier you start, the better off you’ll be.
Understanding yourself and your goals will help you make informed decisions.
Don’t put all your eggs in one basket – diversify your investments to manage risk effectively.
And, of course, professional advice can go a long way in securing your financial future.
If you’re feeling a bit confused or unsure about where to start, don’t worry — you’re not alone.
Our financial advisor partners are here to help.
Feel free to reach out and get a free consultation to ensure you’re on the right path to a comfortable and secure retirement.
After all, the best retirement plan is one that’s tailored to your unique needs and goals.
