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What to consider when planning for retirement in Singapore

05 Nov 2021

Planning for Retirement in Singapore | VI
(c) Sadie Xiao

“The only person who will take care of the older you is the younger you.” 

No better statement justifies why planning for retirement should be on your priority list.

We’ll all retire someday, and to do so comfortably, we ought to plan for it. Relying on just our CPF payout when we turn 65 might not just be enough, considering we live in one of the world’s most expensive cities.

So why is it a prerequisite to plan for your retirement in Singapore?

Why do you need to plan for retirement?

We hope you don’t need convincing to start planning for your retirement as a Singaporean. But if you need another nudge, we’ll give you reasons why retirement planning is crucial.

First, you have to take into account the impact of inflation. Sure you’ll get money from your CPF but is that amount enough for your needs? It could be worth something today, but by the time you retire, the value of that amount will be greatly reduced due to inflation. An annual four per cent decrease in the value of your money is never good news – and it’s not a joke.

Second, your body won’t be in the same condition it is in today. Unfortunate as it is, retirement also equates to higher susceptibility to illnesses. You can’t afford to use your CPF payout or your savings to pay hospital bills. You can’t keep asking your children to support you, too, as they shouldn’t be your retirement plan.

“I won’t be retiring soon” isn’t a smart excuse to procrastinate about your retirement planning in Singapore. Remember, when you plan, you become more prepared and more confident. 

So stop holding off planning for your retirement. Start by looking at a few things to consider when planning for your retirement in Singapore.

How much do you need to retire?

Retirement in Singapore is at 62 years old per the Ministry of Manpower’s guidelines, although it’ll change to 65 years old by 2030. However, retirement must not be a question of what age but at what income, which explains why you’ll hear many announce their plans to enjoy early retirement – and for good reason.

Planning for your retirement should start with assessing how much money you need to support your lifestyle when you finally retire. Consider your monthly expenses for when you’re in your golden years and remember to include the rate of inflation in your calculation. And as retirement is an age when we aim to see the world and follow our passion, don’t forget to put a budget for that as well.

We’re sorry to tell you that your expenses when you’re older won’t go down. In fact, you might need more than what you need today. Plus, the cost of products and services, be it necessities, medical services, and luxury goods, will just go higher.

We’re not saying you should give up the dream of retiring comfortably in Singapore. We’re highlighting how essential it is to plan for the future.

Is CPF enough for your retirement?

We might have been repeating this, but we wish to inculcate that you cannot just rely on your CPF to retire comfortably in Singapore.

It’s true that CPF is the foundation of your retirement sum. The CPF Ordinary Account (OA) gives you 2.5% per year, whereas the CPF Special Account (SA) gives you 4%. When you retire at 62 or 65, you’ll get a $700 to $2000 monthly payout. Now we ask you: Can that range cover what you need for retirement?

Whatever your answer to the question is, we’ll go ahead and present you with some options if you want to have another source of income to add to your nest egg.

How can you get passive income for retirement?

The good news is you can use your CPF to invest in a variety of investment options and ultimately add to your passive income. In 2020, more than 500,000 CPF Investment Account members used their CPF money to invest. You can also follow this strategy, but please don’t touch your CPF to invest if you don’t have any knowledge about investing, be it in stocks, ETFs, REITs, or bonds.

Another option is to explore investing in Singapore Savings Bonds (SSBs). This is especially for investors with low risk tolerance. SSBs are issued by the Singaporean government, hence, would give you more assurance on the legitimacy of this investment vehicle. Bonds are also liquid so you can always withdraw your money when you need it. However, SSBs have low returns, so that’s something you should take note of as well.

The more popular option to get passive income for your retirement in Singapore is to invest in stocks or shares. Fortunately, you have a wide range of options should you decide to take this route. You can learn to invest by yourself or you can have a trusted fund manager to invest your money for you.

Before you explore the second option, do give yourself a chance to learn about stock investing first. 

If you’re interested, join us for a free two-hour introductory masterclass on how you can invest in stocks and get passive income.


DISCLAIMER

No income guarantee or promises of any type are being made in this article. Know that your results will vary due to circumstances that are outside of our control. All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The reader, thus, agrees that the author and the company are not responsible for the success or failure of readers’ investment and business decisions relating to any information provided herewith.