SINGAPORE, 7 July 2021 – AIA Singapore today unveiled that young families in Singapore have deprioritised planning for their retirement because they are spending at least 2.5 times more of their monthly expenses on their children’s needs rather than taking charge of their own retirement planning. Parents spend almost 20%1 of their income on their children but less than 7% on their own retirement planning. 70% also said they intend to either maintain or increase the amount of income allocated to their children’s expenses.
In two studies2 conducted among 1,000 and more members of the general population of Singapore in January 2021 and June 2021 respectively, the leading life insurer identified three factors driving these financial priorities among young families:
- A lack of financial understanding has led to the over-reliance on bank savings. For 92% of Singaporeans, bank deposits are the most popular savings instruments, while 21% supplement their bank savings with investment tools. Nearly 1 in 3 Singaporeans’ savings was negatively impacted in 2020. Singaporeans use at least 3 tools to manage their savings, with a median amount of between S$251-S$500 set aside monthly for retirement.
- Savings priorities tend to be more short term focusing on family needs and emergency spending instead of longer term goals like retirement. In terms of savings goals, emergency spending is the top priority (64%), followed by ensuring financial security for the family (56%). Among young families with kids, 76% intend to leave an inheritance for their children, but only half have started planning for it.
- The nest egg required to maintain a desired retirement lifestyle is increasingly expanding, but most are underestimating the amount needed. Singaporeans have one of the longest life expectancies in the world at 84.8 years3. On average, Singaporeans plan to retire at 60 years old, which will require at least 25 years of retirement income. Close to half of respondents want to maintain their current lifestyle after retirement, but more than two-thirds (66%) underestimate the actual retirement amount needed by S$967 per month. Among families with children, the underestimated amount is slightly higher at S$1,020 per month.
As a simple rule of thumb, monthly income is recommended to be spilt using 50/30/20 rule4. Allocate the first 50% of one’s take-home income pay on necessities such as housing, food, and transport. The remaining half should be split up between 20% for long-term savings and investments and with 30% for “wants” like hobbies and travel. However, research shows that Singaporeans are 13% below the target for their retirement planning.
Ms. Melita Teo, Chief Customer and Digital Officer, AIA Singapore, said, “Retirement planning is an essential part of securing our longer term financial security, not just for parents, but for the entire family, so everyone can look forward to a brighter future with peace of mind.”
“We recognise this is not an easy balancing act, especially amid growing financial insecurity as a result of COVID-19. Many also fear becoming a burden on their children later on in life. As part of AIA’s brand promise of enabling Singaporeans to live healthier, longer, better lives, we want to help people better manage their financial priorities when preparing for their golden years. We are committed to continuously innovating our suite of customisable solutions with the goal of ensuring that a golden retirement is within reach for Singaporeans, no matter the circumstances,” added Ms. Teo.
From pre-pandemic to endemic COVID-19: The shortfall between expectations and reality of retirement is widening
In March 2020, the AIA Retirement Quotient (RQ) survey5 showed that 54% of Singaporeans were 14-years short when it comes to adequately planning for their retirement, when compared to the national average life expectancy of 84.8 years old. While most Singaporeans have started planning for their retirement, 70% felt underprepared.
Today, retirement goals have taken a backseat. COVID-19 uncertainties further necessitated the shifting of savings allocation towards their children and shorter-term needs such as emergency funds instead of themselves.