Daunted by the sheer figures in question or thinking it's still early days, many in Singapore procrastinate when it comes to retirement planning.
Given the high cost of living here and the risk of long-term inflation constantly chipping away at your spending power, you really cannot afford to delay planning for your golden years.
Like it or not, your future retirement needs to be looked into today. Here are some actionable plans that you can consider to build your retirement nest egg.
# 1 CPF Retirement sum topping up
For most Singaporeans and permanent residents (PRs), CPF LIFE payouts forms your basic monthly income during your retirement. The exact CPF LIFE payout you eventually receive is computed based on your CPF Retirement Account (RA) balance and the type of plan you choose to go on – Basic Plan, Standard Plan or Escalating Plan.
How much you have in your RA is dependent on your mandatory contributions to your CPF Special Account (SA) and Ordinary Account (OA) during your working years.
The bigger the amount you have in your RA, the greater your monthly CPF LIFE payouts will be.
One easy way to boost your retirement nest egg is to make voluntary contributions to your SA. The amount we contribute will go directly into our SA (or RA if we are aged 55 or above), earning us a risk-free interest of at least 4% per annum. In addition to this, we also enjoy a tax relief of up to $14,000 per year when we tap on the Retirement Sum Topping Up (RSTU) Scheme on contributions to our and our loved ones' CPF accounts.
The drawback is that CPF LIFE monthly payouts only start from age 65. If we intend to retire earlier, we can't count on our CPF LIFE payouts for our living expenses until you turn 65.
In addition, any voluntary top-ups you make into your CPF account today is also irreversible.
# 2 Singapore savings bonds
Issued by the Singapore government, the Singapore Savings Bonds (SSBs) offers a risk-free investment option to grow your retirement nest egg. What's more, it also provides superior liquidity, letting you withdraw your money if you really need it.
For instance, the April 2023 Sinapore Savings Bonds can pay out a coupon rate of close to 3.07% if you hold them over the entire 10-year holding period. If you intend to hold it over a one or two year period, the interest rates can fall to paltry 0.3% per annum.
# 3 Savings plans
Savings plans offered by financial institutions are another viable alternative to the SSBs.
Unlike the SSBs, most of these plans are typically less liquid requiring you to hold them for a fixed term to enjoy the promised interest returns. They are also shorter-term in nature, usually between 3 to 5 years terms.
In addition, many of these savings plans offered by insurers also include a small insurance component, providing you with basic added protection. Some also offer the option of deciding your own policy duration so you can choose a suitable plan based on when you may need to use your money.
# 4 Regular shares savings
Offered by several brokerage firms in Singapore, Regular Shares Savings (RSS) plans allow investors to start investing in counters on the Singapore Exchange (SGX) and overseas exchanges from as little as $100 a month.
RSS plans are ideal for new investors with limited knowledge, savings and confidence. However, for the strategy to pay off, you need to stay vested over a long time period.
Unlike the other options listed above, there is no guarantee you will receive a return or how much returns you will earn when you invest in an RSS plan. In fact, you are also taking on investment risk and may even suffer losses.
This is because you are essentially choosing stocks, real estate investment trusts (REITs) and Exchange Traded Funds (ETFs) to invest in and there is no way to predict if the counters you invest in today will do well in the future. What this means is that you must be prepared to take on a higher risk if you wish to build your retirement nest egg through RSS plans.
Over the long term, broadly diversified investments in the markets typically yield a better result than the fixed returns offered by the options listed above.
# 5 Retirement products
Retirement products offered by insurers can be a practical option if you are looking to build a multiple layers of retirement income to supplement your CPF LIFE monthly payouts.
AIA Retirement Saver (IV) provides a guaranteed stream of income for 15 or 20 years starting from your preferred retirement age. In addition, you may also enjoy potentially higher income via monthly dividends that increases yearly, depending on the performance of the participating fund. You may also receive a lump sum terminal dividend as an extra bonus for retirement fund, or a token for your family, upon claim, maturity or surrender of the policy.
You can choose the premium term that best fit your needs. You can pay a single premium if you have a lump sum to set aside; or you can spread your premiums over a longer period for regular and more affordable payments. AIA Platinum Retirement Elite is another plan focused on maximizing wealth creation for your retirement years. It is uniquely crafted and extended with the flexibility to adapt to your changing needs. Leveraging on the expertise of world-class asset managers and a sustainable long-term wealth strategy, we'll help you arrive at the retirement you deserve.
To boost your retirement nest egg, AIA will provide Power-Up Bonus units of 2.5% of your single premium or 12.5% of your annual premium, from the end of the 10th policy year and every five years thereafter. Unlike CPF LIFE which only starts providing payouts from age 65, AIA Retirement Saver (III) and AIA Platinum Retirement Elite gives you the flexibility to choose when you would like to start receiving your monthly income. This can be from as early as age 50 to as late as 75.
What is your definition of a meaningful retirement?
Retirement doesn't mean you stop living a meaningful life. Contrary to that, it should actually mean that you live your life to the fullest pursuing your passions and interests you may not have had the time or freedom while in the workforce.
To ensure this, you need the security of sufficient retirement income. This makes it imperative to plan well in advanced for this stage of your life. The tools listed above provides you options to grow your retirement nest egg even if you are risk averse or have limited investment knowledge.