Money matters

Financial expert Vincent Tey replies: Plan for nest egg to last up to age 90


As Ms Lim's health is still good, Mr Tey suggests that she plans for her nest egg to last till at least age 90, five years longer than the average age for women.

He says: "As a huge portion of her retirement expenses is for travelling, enjoying good-quality food and driving a car, she could consider planning for higher retirement income for the first 20 years and tapering it down by 25 per cent from age 80 to 90.

"By then, most of her expenses are likely to comprise medical insurance premiums and alternative healthcare needs such as traditional Chinese medicine, physiotherapy and geriatric (care)."

Based on her desired retirement lifestyle, the estimated monthly expenses amount to $6,500 in today's dollars. As she wishes to live a reasonably above-average lifestyle, Mr Tey expects her annual lifestyle inflation to be at least 3 per cent, which works out to $8,000 per month in future dollars when she retires at 60.

As she is conservative, the fluctuation in her retirement income should be kept to a minimum and with a high level of certainty. Mr Tey recommends:

•A life guaranteed annuity with inflation-adjusted returns that starts paying her at 60. A single premium of $300,000 at her current age will provide monthly payouts of $1,300 from age 60.

•A limited pay annuity-like plan to provide her a higher level of income certainty during her first 20 retirement years from age 60 to 80. A single premium of $300,000 will pay about $2,600 monthly for 20 years from age 63 to 82.

•Combined with her annuities and CPF Life payments, these products will provide her with a monthly income of nearly $7,000. However, this is insufficient to cover her estimated monthly expenses of $8,000 in future dollars.

•Assuming she has ample cash savings when she hits 60, she could allocate half of her retirement resources into safe and conservative investments (such as Singapore Savings Bonds and investment-grade bonds) with annual returns of 2 to 3 per cent for the first 10 years between 60 and 70, to cater for additional discretionary expenses that are not covered by annuity payouts.

•Allocate the remaining half into a diversified moderate portfolio with annual returns of 5.5 to 6.5 per cent for additional discretionary expenses incurred from age 70 to 90.

•This means she will need another $1.46 million on top of her CPF Life and current annuity plans, of which $600,000 is used to buy the additional two annuity plans now and the balance $860,000 to be invested at 60.

•By doing so, at age 85 she would still have a lump sum of $250,000, in addition to her annuities and CPF Life payouts, to live on.

•Upgrade her Enhanced IncomeShield Basic plan to a private hospital ward class to give herself options to choose a higher level of care in the event of a medical crisis. "This is especially so during her younger years when a more aggressive approach to treatment may be preferred. She could consider downgrading it in her later years when the premium becomes too excessive for her," says Mr Tey.

•Enhance her basic Eldershield plan to mitigate the high cost of providing herself with good- quality, long-term severe disability nursing home care, up to a monthly payout of $2,000.

A version of this article appeared in the print edition of The Sunday Times on July 26, 2015, with the headline 'Plan for nest egg to last up to age 90 '. Subscribe