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Want to retire well? Here's a plan for your retirement needs and wishes
Make sure your retirement plan takes into account various inflation scenarios, so you can retire the way you want to
Think about setting aside more funds for the first 15 to 20 years of retirement, when you may incur higher expenses due to travelling and pursuing hobbies.
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Genevieve Chan, Content STudio
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Mr Melvin Lee, 30, has been working full-time for only five years but he is already planning to retire – at 55.
“I don’t intend to stop working completely, but I want to be financially independent so I don’t have to work for – or worry about – money,” says Mr Lee, who is a senior copywriter.
The official retirement age in Singapore is 63. This will be progressively raised to 65 by 2030.
So how does Mr Lee plan on retiring a decade earlier?
For a start, he saves a lot. He sets aside 40 per cent of his four-figure monthly salary, which is then split into savings and investments.
He tries to spend as little as he can. Mr Lee sticks closely to his budget every month, and limits eating out at restaurants to twice a month.
Still, Mr Lee, who is single and lives in a condominium with his parents, is worried that he’s not doing enough to retire comfortably at 55.
“The high inflation we’ve seen this year has been a wake-up call for me,” he says. “Now I’m worried about the cost of living: Is it going to continue rising like this? What about my future commitments like housing? How will I be able to afford retiring?”
Singapore’s core inflation – which excludes accommodation and private transport – was steadily inching towards a 14-year high in September, at 5.3 per cent, before dipping for the first time to 5.1 per cent in October.
Inflation has peaked, says Mr Irvin Seah, senior economist, DBS Bank, but this does not mark the end of high inflation.
While inflation may continue to ease this month, a one percentage point hike in the Goods and Services Tax (GST) next month (from 7 per cent to 8 per cent) will offset the entire trajectory of inflation for 2023, adds Mr Seah.
The MAS expects core inflation to stay elevated in the next few quarters, before slowing more discernibly in the second half of 2023.
Funding your needs
Amid rising inflation rates, compounded by factors such as rising healthcare costs and longevity, the ability to retire well is a foremost concern for most, says Ms Lorna Tan, head of Financial Planning Literacy, DBS Bank.
“With a slowing economy, it has become challenging to achieve the robust returns on investment that we enjoyed in the past. The elevated inflation rates are also eating into the purchasing power of our savings.”
She adds: “This means that we may have to work longer, save more, and make our money work harder to fund our desired retirement lifestyle.”
The key lies in an early start to retirement planning, Ms Tan says. “This will offer clarity on how to plug the gaps by working our money harder, as part of our financial journey for a sustainable future.”
You can also make use of the DBS Retirement Calculator to work out the amount you need for retirement based on your lifestyle selections in four steps. It projects your current savings and investments up to retirement age to assess if that’s enough to meet your required basic spend, plus other retirement needs.
A good retirement plan should include a roof over your head, healthcare and cash flows for your golden years, says Ms Tan. It takes inflation into account, and makes good use of time to reap the benefits of compounding.
Compounding is the process in which an asset’s earnings, such as interest, are reinvested or kept invested to generate additional gains over time.
For most Singaporeans, the foundation of their retirement plan would be CPF. “It is prudent to optimise CPF schemes so that they can receive higher monthly payouts for life, such as through topping up their CPF savings and leveraging the attractive interest rates.”
How else can we prepare for retirement? Ms Tan’s answer: Invest and be insured.
“To mitigate longevity and inflation concerns, plan and build other income streams by adopting a long-term investment plan. The earlier we start investing, the longer the time horizon is for our investments to compound and grow.”
You should also review your insurance coverage and set up an estate plan, especially if you have dependants. Common tools for estate planning include a will, CPF nomination, insurance nomination and a Lasting Power of Attorney.
“Be adequately insured, so your family can carry on with their lifestyle even if you are no longer around, or suffer from permanent disability, or become critically ill,” advises Ms Tan.
By the numbers
- 63
Official retirement age in Singapore. This will be progressively raised to 65 by 2030
- 5.1%
Singapore’s core inflation – which excludes accommodation and private transport – in October 2022
- Up to 4.5%
Core inflation could average between 3.5 per cent to 4.5 per cent next year after factoring in the GST increase, says the MAS
Budgeting for your wants
To have a sustainable retirement fund, consider building multiple income streams that include guaranteed and non-guaranteed flows.
Life insurance products that offer both investment returns and protection can also come in handy. DBS’ Ms Tan gives examples:
Endowment insurance: These plans, which range from two to 30 years, provide protection coverage while growing your money in the insurer’s participating fund.
Once the plan matures, you will receive a guaranteed payout plus bonuses, if any. Bonuses are not guaranteed and depend on the investment returns of the participating fund. There are also endowment plans that provide regular payouts for a predefined period.
Ms Tan recommends structuring a “pseudo-annuity” ladder through a series of endowment policies that mature at different times, such as in five-yearly intervals.
“The cash flows from maturing endowment policies can then supplement your CPF Life payouts so you can achieve desired retirement goals like travelling while you are still physically mobile.”
Whole-life insurance offering income, or retirement income insurance plans: These plans offer monthly or yearly payouts based on your expected retirement needs and lifestyle.
They are particularly useful during the first 15 to 20 years of retirement, says Ms Tan, when you may incur higher expenses due to travelling or pursuing hobbies. They can also come in handy if you wish to retire before your CPF Life payouts start at age 65.
Some retirement income plans provide flexibility to help customers better manage unforeseen changes in life. For example, you may be able to top up your premium any time after the first year, up until five years before your selected retirement age. You can update their income payout period, retirement income rate and/or defer retirement age during the policy term.
Investment-linked policies (ILPs): ILPs provide insurance coverage while you invest in the unit trusts you want. The ILP’s performance will depend on your choice of the underlying unit trusts and their value when you surrender your policy.
While there are no guaranteed returns and you bear the full investment risk, there is potential to make higher returns than other life insurance policies if the funds do well. This also depends on the value of the funds when you choose to end your policy and redeem your investments.
Your investment units will also pay for your insurance coverage, so you can increase your coverage by selling investment units. You can adjust the balance between the investment and insurance elements in your plan to achieve your preferred outcome.
“However, as the cost of insurance rises with age, you are encouraged to monitor and reduce your insurance coverage over time, if you wish to maintain your investment component,” says Ms Tan.
This is the last of a seven-part series titled "Win the race against inflation" in partnership with
