8 MYTHS ABOUT RETIREMENT, Invest
RELYING ON CPF IS ENOUGH TO FUND MY RETIREMENT Mr Brandon Lam, Singapore head of DBS Bank’s financial planning Group, says the national annuity scheme CPF Life is aimed at providing only a basic standard of living for retirees.
Depending on how much you have in your CPF, the scheme you choose and your age cohort, you will get between $660 and $1,920 monthly, starting from age 65.
However, many CPF members do not even have enough put aside in the Basic Retirement Scheme (BRS), which means they will get less than $660 monthly when they turn 65. In fact, 42.6 per cent, or almost one in two CPF members who turned 55, were unable to set aside money in at least the BRS, according to the CPF Annual Report 2017.
“In addition, the CPF payout is fixed and inflation will erode the value of the payout over time. You will need to supplement (the CPF payout) with other income streams to support a comfortable retirement life, such as endowment insurance, dividends from stocks, unit trusts or rental income.
“Also, participate in other government schemes such as the Supplementary Retirement Scheme, which provides deferred tax benefits and helps you save in a disciplined manner towards your nest egg,” advises Mr Lam.
IT IS TOO EARLY TO START RETIREMENT PLANNING It is never too early or late to start planning for the future, whether you are in your 20s, 30s or 40s, says Ms Kwek-Perroy Li Choo, Manulife Singapore’s chief customer and chief transformation officer
You may feel quite comfortable with your present lifestyle, thinking it does not take a lot of money to live here. But when you are not drawing an income, things become vastly different. During your retirement years, you are likely to be living entirely on your savings and CPF retirement fund and they are, unfortunately, finite.
This is why proper financial planning requires a conservative estimate which takes into consideration contingency measures.
Studies have shown that most Singaporeans start planning for retirement only around the age of 38. Ms Kwek-Perroy says even within this age group, only two out of five Singaporeans are confident of meeting their retirement needs, which goes to show that early planning for a comfortable retirement is vital.
I SHOULD HAVE ENOUGH FOR RETIREMENT AS LONG AS I SAVE DILIGENTLY IN A SAVINGS ACCOUNT Simply squirrelling money away every month in your savings account is practical for daily transaction purposes. However, the value of your money will diminish, no thanks to inflation.
The only way to counter this, and build your future fund, is to make informed investment decisions that counter inflation, says Mr Tan Kuan Ho, head of product development at Manulife Singapore.
But not all investments are created equal. It is prudent to build a diversified portfolio that suits your needs and risk appetite, which may involve investing in lower-risk government bonds for steady income and equity investments for yield.
Mr Tan says: “You can also consider retirement plans like the Manulife RetireReady Plus or investment plans such as InvestReady and SmartWealth which offer regular income.
“RetireReady Plus provides a guaranteed monthly income that lasts a lifetime. It also protects you with additional income for loss of physical independence at any time during the selected income payout period.”
The plan offers a payout when the insured cannot perform two out of six activities of daily living, such as dressing and eating by himself.
YOU WILL NOT SPEND AS MUCH WHEN YOU RETIRE A DBS Bank survey shows only one in five people knows how much is needed for retirement. As a gauge, you are expected to maintain a monthly “income” of at least 70 per cent to 80 per cent of your pre-retirement income, says Mr Lam.
“To get a better sense of your retirement needs, make use of various retirement calculators, such as the one available on the CPF website, to help you better understand your retirement needs,” he advises.
Many people believe they can cut their expenditure significantly after they retire.
Here are four factors that Mr Lam suggests will result in higher retirement expenses:
• Looking after the family: Some believe they can depend on their children to support them in their golden years. However, with rising standards and costs of living, their children may face even more challenges and parents may actually need to chip in, especially when the children are just starting out in their careers. As doting parents or grandparents, this means additional expenditure.
• Quality and standard of living: Many people think it will be easy to downgrade to a more modest level of living. For example, instead of driving a car, they can take public transport or live in a smaller Housing Board flat. But it may be hard to adapt to a change in environment.
• More active lifestyle: When retired, one may wish to travel more. And with more free time on hand, it is natural to look for activities to occupy your time, which will increase costs.
• Rising healthcare costs: Healthcare costs will continue to be a concern in the future. The general inflation rate here is around 3 per cent, whereas healthcare inflation is at 15 per cent and likely to rise even further. Some may not realise that their health insurance premiums increase as they age.
DON’T WASTE MONEY ON PLANS WITH PROTECTION OR HEALTH BENEFITS Having a good protection plan is also part of smart retirement planning. According to the Global Burden of Disease Study 2015, Singaporeans typically spend an average of eight years out of a lifespan of 82 in ill health. That is about 10 per cent of our life.
Another Ministry of Health study shows that one in two healthy Singaporeans aged 65 could become severely disabled in their lifetime, and may need long-term care.
Being sick does not only cause us to suffer, it can put a huge burden on our family and care-givers as well, says Mr Tan.
RETIREMENT MEANS MOVING INVESTMENTS TO STABLE FUNDS Given the volatility in the stock market, it is not surprising that many people buy into the myth that investments should be moved into stable funds after retirement.
However, with longevity, we should adopt a longer investment horizon and not be too quick to shift the majority of our nest egg to low-yielding investments. Doing so can be just as dangerous as being overly aggressive.
As life expectancy extends, we risk running out of cash if our investments are not at least keeping up with the rate of inflation.
YOU WILL LIVE ONLY TO YOUR EARLY 80S, AND HEALTHILY Many people underestimate longevity. In fact, Singaporeans have the third-highest longevity rate in the world.
The average life expectancy for Singaporeans is 83.1 years now, but that is just the average. Many people are expected to live beyond 83, so do not plan to cover just the average life expectancy, Mr Lam says.
In fact, there were about 1,200 people who lived beyond 100 here last year.
Longevity and health are not necessarily mutual partners. Mr Lam notes that data has indicated that we face a decline in health, especially in the last decade of our lives.
This ranges from general decline in overall health (mobility, dexterity, mental acuity, and so on) to chronic conditions or episodes requiring acute care.
During this time, we will require medical intervention or other forms of care. For our own peace of mind, and in order to ensure we do not increase the burden on our loved ones, it pays to be financially prepared, adds Mr Lam.
I CAN WORK DURING MY GOLDEN YEARS The Manulife survey indicates that one in three respondents is expecting to work through retirement to make up for their retirement income shortfall.
But this may not be possible because it depends on the labour market, willingness and capacity of the firm to employ older workers, and the employees’ capability to pick up new skillsets, if required.
Do note that the CPF contribution rates will decrease for older workers beyond age 55.
BROUGHT TO YOU BY: