Retirement: How to Get Your Pot of Gold at the End of the Rainbow

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Having enough to live out your sunset years in comfort is what everyone wants for their retirement! But, in the world’s most expensive city (Singapore has retained this title for three years running, according to the Worldwide Cost of Living Report 2016 by the Economist Intelligence Unit), what would it take for that to happen?

1. Start now

It doesn’t matter what age you are; the best time to start planning for your retirement is now. Starting early gives you a great head start, and secures you in the event of unforeseen circumstances such as retrenchment, serious illness, disability or even death.

2. Figure out how much you need

This will depend on the following:

  • When do you expect to retire?
  • What is your approximate life expectancy?
  • What kind of lifestyle are you seeking?
  • What are your current financial commitments?
  • What is the amount of debt you still need to pay off?

The figure varies but estimates range between S$800,000 for a man earning an income of S$3,500 aspiring to an average lifestyle to S$1.38 million based on a Friends Provident International poll in 2015. To have a more customised estimate, you can use the CPF Retirement Calculator.

3. Look at what you can count on

As a citizen or PR, you’ll always have your CPF. For now, when you turn 55, you can draw from your CPF provided you keep a minimum sum of S$161,000 (the amount is adjusted annually, taking into account inflation). You can retain less if you pledge your property. This amount is known as your Retirement Account.

When you hit 65, you get a monthly payout from this sum for about 20 years. You can choose from three levels of retirement sums in your Retirement Account – Basic, Full and Enhanced – which have different conditions and different amounts of monthly payouts.

Then, there’s the CPF Life Scheme which you can buy. It pays you a monthly income as long as you live, provided you have S$40,000 in your Retirement Account at 55 or S$60,000 at 65. Other pots of gold you can count on are your investments and insurance which will vary depending on how savvy you have been.

Another pot is selling off your assets. In Singapore, our biggest asset is really our home. You can downgrade to a smaller flat. In the current market, a five-room flat in Tampines can fetch a conservative S$500,000. A studio apartment in the same area starts at S$86,000. Assuming that your home has been paid in full, that’s an over S$400,000 windfall.

With your children out of the house (hopefully!), renting out a room or two is another option.

4. Plan for the unexpected

Even as you plan for what you want when you retire, you also need to plan for some of the unexpected:

Increased cost of living

Core inflation rate in Singapore has been averaging 1.42% between 2009 and 2016. Projections put the country’s inflation rate at 2.8% in 2020.

Longer life expectancy

Singapore has one of the highest life expectancies in the world and it keeps going up. In 1990, life expectancy here was 75.3. In 2015, it was 83.1 years. You will probably live even longer than that.

Medical costs

Living longer doesn’t mean living healthier. Even if you don’t need medical care, your parents, who might still be around when you hit your 60s, may need it.

For an idea of hospital bill costs, the Ministry of Health (MOH) publishes the rates on their website. Bear in mind, though, that healthcare costs increased 176% between 1981 and 2011.

If you’re a citizen or PR, hospital bills are already subsidised. You can also count on Medisave (national medical savings scheme), MediShield Life (basic health insurance) and Medifund (extra help for the needy).

Set aside a retirement fund

Create a separate savings account for retirement and make sure you don’t dip into it until you’re ready to retire. How much you need to save will depend on how much you estimate you’ll need for your retirement minus whatever other assets you can count on in your old age: CPF, insurance policies, investments and sale of assets.

You can open a Supplementary Retirement Scheme (SRS) account with DBS, UOB and OCBC. Not only do they provide tax benefits to encourage you to save for your retirement, each bank also has different options for you to invest the money in.

Once you have a substantial amount in your savings (S$25,000 and more), consider long-term saving schemes like fixed deposits. These have better interest rates. Some insurers also offer retirement savings plans which give regular payouts over 10 to 30 years.

Research shows that those who plan for their retirement do better. Admittedly, with so much to consider and with so many unknown factors, planning isn’t so simple. So, if you’re baffled, get professional help. Financial advisors can customise a plan specifically suited to your situation and needs.

Get started now to secure your pot of gold at the end of the rainbow!

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