Financial Independence - Managing Retirement's Uncertainties

Financial independence – Managing Retirement Uncertainties

Average lifeexpectancy in Singapore

One of the biggest fears people face is running out of money during their old age. Research shows that people are living longer in most developed countries1, and it is no different in Singapore, where the average life expectancy is 79.9 years for men and 84.5 years for women1. The elderly in Singapore have the CPF LIFE scheme, but that is only enough to provide a basic standard of living.

Many Singaporeans also struggle to meet even half of the prevailing CPF Minimum Sum – the amount calculated to provide a basic standard of living in Singapore. Furthermore, many divert a large portion of their CPF savings to mortgage repayments.


Fortunately, many Singaporeans have realised that they need to be more pro-active with retirement planning, and not solely rely on their CPF. Many have begun planning and setting aside additional funds for this.

So how can we preserve the value of our retirement savings and ensure that unforeseen events do not wipe out our financial independence, while having a fulfilling retirement along the way?


In this article, we look at potential unforeseen events and the methods of managing them. Uncertainty management should definitely be part of a retirement plan, and this should include:
  1. Guaranteed income regardless of how long you live
  2. The ability to protect your savings and retirement goals
  3. The ability of your spouse to have a secured retirement even when you are no longer around
  4. The assurance and peace of mind knowing that the worst cannot destroy your dreams and goals


SCENARIO 1: You live very long

Potential Uncertainties

Your savings are depleted and you are too old to work

Who can you depend on?


Loss of dignity
Emotional and financial stress
Will you become a burden to your loved ones?


Consider adding an annuity plan to your retirement portfolio to provide a lifetime of income even when your savings run out

SCENARIO 2: You lose your job

Potential Uncertainties

Economic slowdown, retrenchment, etc

Without income, you cannot continue funding your retirement plan


You may not be able to meet your desired retirement income level

You may be forced to withdraw your retirement funds prematurely to meet your spending needs


Create a contingency plan - either accept a lower income at retirement, or delay your retirement, or continue working in semi-retired manner

Set aside emergency funds to provide for 3 to 6 months of expenses so you can find another job and avoid being emotionally and financially stressed

SCENARIO 3: You invest too conservatively

Potential Uncertainties

Retirement portfolio cannot beat inflation

Purchasing power at retirement could be affected, compromising your retirement expectations


You end up not having enough money due to the loss of purchasing power


Do not put all your money in deposits

Structure a portfolio to hedge inflation, according to your risk appetite

Diversify part of your portfolio into endowment policies - these provide a form of guaranteed maturity value at retirement

SCENARIO 4: You invest too aggressively

Potential Uncertainties

Unforeseen macroeconomic events wipe out a big portion of your retirement portfolio.


You may not have the time horizon necessary to recoup the losses, and end up with unfunded retirement needs


Structure a portfolio using portfolio allocation principles

Diversify your portfolio between guaranteed and leveraged instruments, endowment and investment instruments, and direct and collective investments

SCENARIO 5: Property market crashed when you retire

Potential Uncertainties

You planned to downgrade your property to generate retirement income, but the property market crashed and you are stuck.


Your entire retirement plan is jeopardised; how are you going to fund your retirement?


Do not rely on just one asset class; diversify using portfolio principles

SCENARIO 6: You are hospitalised

Potential Uncertainties

You don't survive - what happens to your loved ones?


How do you intend to pass on your cumulative wealth to them?


Ensure you have the following thought out:

  • Write a proper Will with consideration of key personnel (e.g. guardian, trustee, etc)

You survive but are left mentally incapacitated

Who decides how you want to be treated?

Cost of treatment and burden on loved ones?

You survive but cannot work

How long will you be down?

Do your loved ones depend on your income?

Can you go on without income?

Will your retirement savings be depleted and expose you to liquidity risk?


Loved ones may argue over how best to treat you, if you did not specify the level of care beforehand. They may then be stressed out emotionally and financially.

Loved ones may be affected (e.g. children's education and living expenses), you may be forced to liquidate your retirement savings too soon, resulting in liquidity risk

How would you rather your medical bills be paid? You own savings or other people's money?


Ensure you have the following thought out:

  • Advanced Medical Directive
  • Living will
  • Hospitalisation insurance to meet your desired level of healthcare standard
  • Consider Critical Illness and Disability Income insurance to provide for the temporary loss of income while you recuperate
  • Hospitalisation insurance to meet your desired level of healthcare standard
  • Set aside emergency funds to provide for 3 to 6 months of expenses

You survive and go back to work; Are you prepared for this event? If not, what do you need to do to ensure you won't leave it to chance?


Your loved ones will be very worried, and you might have spent some of your savings on medical treatment. How do you ensure that it does not repeat?


Call your Wealth Planning Managers for a complete review.

"Being better prepared for handling any unforeseen scenarios that might arise during your retirement will ensure that you stay financially independent throughout your golden years."

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Source: DBS Asian Insights Office - December 20141