With a minimum retirement age of 62 and an average life expectancy of 82 in Singapore, most people have a good 20 years to enjoy the fruits of their labour if they start retirement planning early on.
However, most people put this off until its too late because they are paying for a new house, buying a new car, or saving for their children’s education.
The good news is that you can actually plan for all that and still plan for a comfortable retirement.
In this retirement planning guide, we want to show you how that can be done.
So let’s dive right in.
A. Understanding the Importance of Planning for Retirement Early
Why you should start planning for retirement early on boils down to two words:
The longer you give your money time to grow, the more you will have in the long run to lead a comfortable retirement or even retire earlier.
This graph below will show you the exact importance of compounding.
Even though Bill invests $100,000 more than Susan, he still ends with having $60,000 lesser than Susan at age 65!
Assuming they both earn the same returns on their investments, Susan is able to have $60,000 more because she started planning for retirement 10 years earlier.
Planning for retirement earlier give you money time to work harder for you, so if you are still in your twenties and planning for retirement, you have definitely got a good head start!
If you are a little late into the game, fret not, applying the retirement planning strategies covered in this guide is definitely a good start.
B. How To Make Use of Your CPF in Your Retirement Plan
On your 55th birthday, a Retirement Account will be created by CPF. Savings from your Ordinary Account and Special Account will be transferred to Retirement Account which will provide you with a lifetime monthly payout when you reach the official retirement age (which is currently 65).
There are two factors which will affect the amount of monthly payout that you receive.
- Retirement sum that is being set aside at age 55
- Type of CPF Life plan
The lifetime monthly payout amount ranges from $720 to $2,060 and this monthly payout should be taken into consideration when planning for your retirement.
To find out more about how much you can receive from CPF Life, you can refer to the CPF website for more resources and information.
C. Retirement Planning Strategies You Can Implement Immediately
Arguably, one the most important financial-planning decision you’ll ever make is deciding when can you retire, it can be hard to decide when you can make that crossover from accumulating assets to de-accumulating your assets to pay for your monthly expenses throughout retirement.
As you enter the de-cumulation phase, their biggest questions are:
- Have I built up sufficient retirement assests to retire?
- How should I be budgeting for and spending my retirement assets, so that I would have enough for the rest of my life?
Instead of leaving retirement drawdown to chance and risk outliving your assets due to lack of planning, having a proper retirement drawdown plan can help guide your spending during retirement. The benefits of such an exercise are powerful:
- You know with better clarity how much can you spend every month
- You stop losing sleep over wondering if their retirement assets are true enough
There are 4 common strategies which are well researched and commonly considered by financial planning professionals:
|Drawdown Strategy||Central Principle|
|1C. The 4% Strategy (Systematic Withdrawals)||You withdraw inflation-adjusted 4% each year. Under historically measured worst-case investment scenario, you should not run out of money for 30 years.|
|2C. The Bucket Strategy (Time Segmentation)||Divide your Retirement Assets into 3 buckets, based on when you plan to spend. You can then more appropriately allocate to the investment of appropriate risk-return characteristics to prolong your Retirement Assets to last until the later years of retirement.|
|3C. The Flooring Strategy (Essential vs. Discretionary)||Factor for and allocate for essential expenses with a perpetual income stream. Allocate the rest for discretionary spending, where level of spending, and therefore discretionary lifestyle, will be determined by investments outcome.|
|4C. Dividends-only Strategy||Dividends-only Strategy|
(Capital Preservation) You aim to preserve your Retirement Assets and live on the income your assets generate.
1C. The 4% Strategy (Systematic Withdrawals)
At the core, this strategy is about determining a % to withdraw from your Retirement Portfolio. 4% has been the typical rate endorsed by research based on numerous modelling based on historical data.
Research results have shown that this is a relatively fail-safe withdrawal rate to have your money last for 30 years.
Nuances in actual implementation
The 4% method can come with variations:
- Assume Retirement Savings of $750,000, a withdrawal rate of 4% and inflation at 2%
- Withdraw $30,000 in the first year, $30,600 in year 2, $31,212 in year 3, etc
Strength of this strategy
Ease of implementation
Weakness of this strategy
Invite the question: is 4% indeed fail-safe? Or should you withdraw at a higher or lower rate?
Some critics argue the 4% rate is too high. They point to forward-looking Monte Carlo analysis and say things could get worse if future returns can’t live up to historical returns; pointing to the low-interest-rate environment (that will seemingly never come to an end).
Others argue that 4% is too low. They argue that you can choose 5% or even 6% if you are willing to curtail spending when markets decline. They point to research that says that 4% will leave you with all of your money when you die, 96% of the time. And in many instances, you will die with more than you started with.
2C. The Bucket Strategy (Time-Based Segmentation)
This strategy involves thinking of and setting up your Retirement Portfolio into distinct buckets:
Bucket 1: Savings/investments with lowest-risk instruments for the near-term expenses;
Bucket 2: Somewhat higher-return investments for the mid-term (therefore higher volatility);
Bucket 3: The highest growth asset-allocation (therefore highest volatility) for the long-term
Monthly income is drawn from Bucket 1, and Bucket 2 will replenish Bucket 1, and Bucket 3 will replenish Bucket 2.
Nuances in actual implementation
- Duration of each bucket. E.g.:
- Bucket 1: 5 years (i.e.: first half of Retirement)
- Bucket 2: next 10 years (i.e.: first half of Retirement)
- Bucket 3: beyond first 15 years (i.e.: second half of Retirement)
- Emptying of the buckets: Some plan to empty bucket 1, then move on to bucket 2, then 3. Whereas some plan to not empty one bucket before they start the next one. The long-term bucket flows constantly to the mid-term bucket, which flows constantly to the short-term bucket.
- The number of buckets: some plan for more than 3 buckets to micro-simulate the many phases of retirement.
Strength of this strategy
Many clients find this intuitive and feel more confident to deal with the double whammy of inflation and longevity.
Weakness of this strategy
Compared to the 4% Strategy, this will require more oversight and management of the implementation
Like the 4% Strategy, the uncertainty of investment returns may leave you in a position of spending too little while still running the risk of running out of funds.
3C. The Flooring Strategy (Essential vs. Discretionary spending)
This strategy involves setting a floor for your retirement expenses. It is also called an “essential vs. discretionary” approach because you will classify your retirement expenses as essential or discretionary:
- Essential expenses: food, housing, utilities, other monthly bills and regular activities
- Discretionary expenses: travel, additional hobbies, and other unanticipated expenses
Low-risk investments or guaranteed income (such as CPF LIFE, Retirement Plans) are used to fund essential expenses and a mix of medium- and high-risk investments are selected to fund discretionary expenses.
Income is drawn from the respective pools to cover respective expenses. Also, by annualizing a portion of the portfolio to pay for everyday expenses, you can secure a perpetual fixed income for the necessities, regardless of longevity.
This is a strategy with a high level of customisation since this is expense driven and is determined by retirement lifestyle.
To use this strategy, you can project how much will your essential expenses be. Then work backwards to determine the percentage of retirement assets to set aside for a perpetual income stream that pays for food, housing, utilities and other essential monthly bills.
Strength of this strategy
Many clients also find this intuitive and helps them budget better
Clients can better visualise how does CPF LIFE fit into their Retirement Plan
Unlike the prior strategies, you don’t run the risk of running out of money at the end of retirement
Weakness of this strategy
What percentage to annuitize? You do run the risk of underspending and living at a reduced lifestyle and running short on liquidity if you annuitize a too much of your retirement assets
Are you willing to forfeit some money if you die younger than expected?
How will you handle inflation in your “flooring”?
Some say that you can do better by investing your retirement assets instead of locking up a portion into an annuity?
4C. The Interest-only Strategy (Dividend Strategy)
Some people set out to pursue the straightforward strategy of leaving their retirement assets untouched and use only dividends or interest to provide their retirement income.
A derivation of this strategy is to buy a rental property and live on the rental income.
Strength of this strategy
No need to worry about outliving retirement assets
Meet objective of leaving a legacy
Weakness of this strategy
Obviously, a massive amount of retirement assets must be accumulated. In fact, only a small percentage of people will be able to afford to use this strategy.
Fluctuating monthly income, since income is dependent on interest rates, bond coupon rates, dividends rate, rental rate
D. Use These Retirement Planning Tools To Make Your Planning Easier
1D. Retirement Planning Calculators
The Aviva retirement calculator looks at your lifestyle to determine how much you will require during your retirement. It analyses different aspects of your desired retirement lifestyle like transport, food, clothing and travel to determine the monthly income that you will require to support that lifestyle.
The costs are adapted from the SingStat’s Household Expenditure Survey and the inflation rate is also obtained from the MAS’ Goods & Services Inflation Calculator so the calculated amounts are extremely relevant if you plan to retire in Singapore.
One of the most details and comprehensive retirement calculators in our list, the CPF retirement calculator factors in key data points like your expenses, housing loan, anticipated salary increment and CPF investments to determine your retirement nest egg.
This calculator requires the largest amount of input but also provides the best estimates for your retirement planning because it takes all your assets and liabilities into account. If you are serious about your retirement planning, this is the calculator for you.
This retirement calculator is a little more complex because it lets you control the finer details like the inflation rate or investment returns of your assets and requires more user input. But this granularity of data also allows you to get better estimates for your retirement planning.
One of the big benefits of this retirement calculator is that it also helps you to estimate how much you should save monthly to attain your desired retirement lifestyle.
The retirement calculator from Standard Chartered take into consideration your current savings, as well as on-going savings, and tabulates if you will comfortably meet your Retirement Target or will face a shortfall.
The plus point for this retirement calculator is that also takes into account the cash in your CPF to plan for your retirement income. This is especially important because most people tend to forget about their CPF savings when planning for their retirement.
Many of these online calculators are easy to use and are a great starting point for retirement planning. While you are using them, you should also consider the underlying assumptions which the calculator makes. After all, the assumptions will determine the results and you should consider if these assumptions are close to your realities.
Some of the assumptions you can make are:
- Inflation Rate: Has been 2% over past 20 years. Though medical inflation is much higher at 10%.
- Your individual rate of returns: What is your rate of return on your savings and investment pre-retirement and post-retirement?
- Increasing longevity: Average lifespan is now 83 years old, and is set to go up. Assuming no change in your target retirement age, increasing longevity will mean a longer in retirement, i.e.: a longer period of not working for an income
If you find the retirement calculators tough to use, you can also contact your own financial adviser and ask them to help you with it or simply contact us.
2D. Retirement Workshops
The CPF Board hosts a whole range of workshops that help to educate the public on utilising their CPF for retirement. If terms like CPF Life, Retirement Sum Scheme and Medishield Life sound very foreign to you, you will definitely benefit greatly from their weekend or lunchtime retirement workshops.
MoneySENSE is a national financial education program in Singapore. Launched in 2003, the programme aims to enable Singaporeans to become more self-reliant in their financial affairs. On top of the in-depth financial guides that they provided, MoneySENSE also regularly conducts workshops and seminars on retirement as well as other finance related topics.
Specialising in estate planning and retirement planning, Spire Group has around $20 million of assets under advisory and has worked with numerous Singaporeans in their quest for understanding and preparing for their retirement. Regular workshops and seminars are conducted to help clients prepare the golden years of their life. Check out the events section to see when is the next retirement planning workshop
E. Comparing and Picking The Most Suitable Retirement Plan
Lately, insurance companies have respectively launched Retirement Plans, which is a policy which pays you a stream of income during your retirement.
(Note: when we say Retirement Plan here, we mean the product, and not the overall strategic blueprint you develop for your retirement)
Here, we discuss the various Retirement Plans available in the market.
A Retirement Plan is basically an Endowment Plan. You save via a policy while benefitting from higher yield than saving with a savings account. There are benefits to consider such a plan in your overall Retirement Portfolio:
- Higher yield than bank deposits
- Instil discipline to save
- Capital guaranteed
- Complement CPF LIFE to guarantee a minimum of income
- Has the potential to pay you an income for life
Since such a plan is basically an Endowment Savings Plan, you would expect the expected annual yield to be the key consideration when it comes to choosing the “best” plan. In practice, however, it is not that straight-forward.
An ideal plan should best fit your circumstance and retirement plan. There are other practical considerations, which probably matter more than yield. Yield aside, you should also focus on other factors because it is practical to do so.
Factors To Consider
- Premium Term: 1-time / 8 years / 10 years / 15 years / 20 years?
- Mode of funding: Cash / SRS?
- Pay-outs Period: 10 years / 15 years / 20 years / lifetime?
- Depending on your Retirement Drawdown Strategy, you should find certain Pay-outs Period of greater value.
- For example, you are likely to value a plan with lifetime pay-outs, if your planning objective is to enhance CPF Life to create a lifetime annuity for your Essential expenses.
- Non-guaranteed Pay-outs:
- To receive the non-guaranteed bonuses over Pay-out Period OR only at maturity?
- Some plans disburse the non-guaranteed pay-outs as one lump-sum at maturity, while some plans disburse non-guaranteed pay-outs as part the regular payouts.
- Pay-outs Structure: Annual or monthly? Level OR Escalating?
- Additional Features:
- For those with insufficient long-term care coverage will value plans which disburse additional pay-outs, in event of severe disability during retirement
- For those who opt for long premium term will likely find Premium Waiver feature useful in case of disability or major illness while needing to stay committed to the long saving tenure
|Retirement Plan||Aviva MyRetirement Choice||AXA Retire Happy Plus||Manulife RetireReady||Manulife RetireReady|
|Premium term & funds||15 years (Cash)||15 years (Cash)||20 years (Cash)||Single (SRS)|
|Non-guaranteed payouts (at 3.25% projection)||$950/month||$7,900/year||$1,020/month||$3,310/year|
|Non-guaranteed payouts (at 4.75% projection)||$1,330/month||$14,230/year||$1,690/month||$4,970/year|
|Death coverage||105% of payouts paid||105% of payouts paid||105% of payouts paid||101% of payouts paid|
F. Best Retirement Planning Blogs
One of the oldest financial blogs in our list, Investment Moats was set up by Kyith Ng in 2005 and has a wealth of information about retirement planning. From explaining the Dynamic Retirement Withdrawal methods to planning for a cash buffer, his retirement planning methods will definitely help you to plan better for your future.
Focusing on sound investment knowledge, financial literacy and intelligent money habits, The Fifth Person aims to help Singaporeans help themselves by equipping them with the right knowledge. Although they are more well known for their investment advice, the website also has a significant amount of articles on retirement planning concepts and methods.
With more than 10 years of experience in the financial services industry, you can be sure that Ivan knows what he is talking about. From using REITs to generate retirement income to talking about SRS, the retirement planning concepts from SG Money Matters will open your mind to the more unconventional ways of retirement planning.
Heartlandboy.com is a personal finance blog that is suitable for people hungry for financial knowledge and independence. With a desire to retire by 40, Heartland Boy reads vicariously to educate himself on financial literacy and shares his knowledge and findings online as a way to contribute back to the community.
Women have different milestones and needs from men and thus can benefit from more unique and tailored financial advice. That is what The New Savy aims to provide. 41% of women are intimidated by finance and do not invest, The New Savy wants to change that by providing retirement advice that is fast, fun and easy to understand.
SingSaver.com.sg is dedicated to helping Singaporeans find the right credit cards, personal loans, and other financial products with easy-to-use self-serve comparison tools. At the same time, it also provides detailed retirement guides to help you make sound financial decisions.
While this personal finance app helps you to track your day to day expenses, their retirement planning blog help you to take a longer perspective on financial planning. Covering a wide range of topics like growing your retirement nest egg to discussing the myths about retirement, they also provide a few other resources like a retirement checklist that you should definitely checkout.