5 tips to a future-proof retirement
Preparing for retirement is akin to embarking on one of life’s most important journeys. The goal may be far into the future, and there may be unknown threats and potential dangers along the way. Sometimes, information on the journey and how to reach your destination may not always be accurate - the future is unpredictable.
Thus, good retirement planning is important and it takes ownership and personal responsibility. Instead of depending on others to provide the comfortable retirement we dream of attaining, early planning and working towards retirement expectations increases the likelihood of achieving it. Let us look at how:
Invest in an annuity
Our CPF LIFE scheme is a good example. CPF savings from your CPF Savings Account (CPFSA) and CPF Ordinary Account (CPFOA) will be transferred into your CPF Retirement Account (CPFRA), which will be used to fund the CPF LIFE scheme.
Depending on the CPF LIFE scheme you have opted for (Basic or Standard), you will begin receiving payouts at age 75 or 90. The payout is sufficient to provide a basic standard of living, but it cannot be inflation indexed. This means that the amount of CPF LIFE payout (e.g. $1,300) received if you turn 65 today may be worth much less after 20 years, due to the effects of inflation.
To future proof your retirement with sufficient savings, you may wish to structure a “pseudo-annuity” ladder, either through the Supplementary Retirement Scheme (SRS), or a series of endowment policies which mature at different times. The cash flow from SRS withdrawals and maturing policies will supplement your CPF LIFE payout, ensuring an adequate amount to live at your desired level of comfort.
Compared to savings, investments can help achieve your financial goals in a shorter period of time. When deciding to embark on investing for your retirement, consider key factors such as your risk profile, objective and time horizon.
Restart your career
Average life expectancy in Singapore is around 85 years, and increasing. But statutory retirement age is still 62 years. Supposing you retire at 62 and live to 85, there are 23 years in between. These may be spent idly, or productively. Education does not have an expiry date - continue to upgrade your skills or learn new ones. This will help you stay mentally active and busy. It also offers opportunities for social interaction.
Buy adequate hospitalisation and long-term care insurance
It is difficult to quantify future medical expenses because its cost is always changing. You will have to be prepared to spend more on healthcare after retirement as compared to the present. Furthermore, the cost of professional elder caregiving and nursing services are very high and could easily take a significant portion of your retirement savings.
Fortunately, these uncertainties can be managed with adequate hospitalisation and long-term care insurance. Schemes such as MediShield Life and ElderShield can provide a basic standard of care, and if you would like to be covered more adequately or receive a higher degree of comfort, you should consider applying for such plans while you are still young and healthy.
Delay social security payments
Delaying payout from CPF LIFE, or the SRS if you are saving extra on a voluntary basis, actually increases your CPF payouts.
Suppose you start receiving your CPF payouts at the age of 65. If you delay it for a year, your payments will increase slightly to reflect the adjustments to a shorter drawdown period and compounding interest. If you delay the payments by 10 years, you will receive even more. Hence, you can combine your pseudo-annuity structure with the CPF LIFE scheme, and let your CPF accumulate value while drawing the maturity proceeds on your pseudo-annuity first. The current life expectancy for males and females in Singapore is 80.5 years and 84.9 years respectively. So it is clear that delaying your CPF LIFE or SRS payout can have real future benefits.
We believe in making retirement planning simple and easy to understand for all our clients, and we hope these five tips further your quest to future proof your own retirement. Please feel free to speak to one of our Relationship Managers for further advice and information tools you may need to structure a good retirement plan.