After working for about four decades, you want to pursue your interests and passion when you eventually transit into retirement. By starting early and including your partner in a shared retirement plan, you will put yourself in the best position to succeed.
With the high cost of living, it's natural for Singaporeans to worry about the adequacy of their retirement plan, and whether their income during retirement is going to be enough. To ensure you remain on track, here are five retirement planning questions everyone needs to ask.
1. Will I have enough money to last my entire retirement?
One of the biggest changes to how you manage your money is when you move from your wealth accumulation phase (i.e. your working years) to your withdrawal phase (i.e. your retirement years).
While there are rules of thumb you can abide by, only you will be able to determine exactly how much money you need during your retirement. For a start, your base retirement income stream can be CPF LIFE, Singapore's life annuity scheme which provides a monthly payout for as long as you live. As this will only afford you a basic retirement income level, you need to build supplementary retirement income streams if you want to continue leading a higher quality of life in your golden years.
While estimating how much you need, you should account for the lifestyle you will be living. For instance, if you want to travel the world during retirement, you will likely need more money.
As a gauge for how much this will be, statistics from Singapore's Household Expenditure Survey states that the average monthly expenditure, per person, in households comprising solely of non-working persons aged 65 and over was $1,150 in 2017.
2. How should i drawdown my assets to ensure they last?
After CPF Life, any remaining amount you need can come from supplemental retirement income streams. For investment properties and rental income, you may not have to worry about drawdown as they are typically recurring. However, how much rental income you receive may fluctuate depending on economic conditions.
You can also rely on retirement plans providing regular payouts to supplement CPF LIFE. Such plans typically allow you greater flexibility in staying invested even during your drawdown phase, as well as starting your drawdown from an earlier age.
With AIA Platinum Retirement Elite, you can choose to start your desired monthly retirement income from age 50 to 85, as well as combat inflation with a choice to increase yearly payouts between 0% and 5%.
AIA Platinum Retirement Elite allows you to invest cash or Supplementary Retirement Scheme (SRS) funds in three portfolios depending you're your risk appetite, managed by leading global asset managers BlackRock, Wellington Management and Baillie Gifford, that have close to US$9 trillion in combined assets under management.
If you wish to drawdown from a personal investment portfolio of stocks and bonds, you can use a common rule of thumb that advocates you to withdraw about 4% of the portfolio amount each year.
At the same time, you do not need to liquidate your entire investment portfolio once you retire either. As you may enjoy a relatively long retirement, with those aged 65 today expected to live another 21 years, part of your retirement funds can still be ploughed in lower-risk investments to continue growing.
While planning your drawdown, ensure you also keep your emergency savings fund as well as build another pot of cash buffer to cushion against sequence risk – the risk of a market crash just when you are about to start withdrawing from your investments. Instead of liquidating your investments when prices are heavily depressed, you can tap into this cash buffer first.
3. Can I afford healthcare costs in retirement?
With medical inflation far outpacing the core inflation rate in Singapore, affordable healthcare is another important consideration for retirement planning.
According to the Mercer Marsh Benefits 2019 Medical Trends Around the World survey, medical inflation in Singapore was 10% in the year before.
Singapore provides a basic health insurance plan which helps to pay for large hospital bills and selected costly outpatient treatments through MediShield Life. Premiums are kept affordable and subsidies are available for those who need them. These premiums can also be fully paid by MediSave.
Those with greater means can choose to have private integrated shield plans with more extensive coverage for higher class wards in public hospitals and private hospitals.
For AIA HealthShield Gold Max, there is flexibility in choosing the extent of private coverage you desire for different coverage levels and premiums. A portion of the premiums can also be paid with your MediSave.
Furthermore, you can also tap on your CPF MediSave savings to pay for diverse medical care and hospitalisation expenses at all public healthcare institutions, and approved private hospitals and medical institutions, up to the MediSave Withdrawal Limits.
While healthcare may be costly, you should purchase policies that you will be able to service for the long-term even when you are no longer working.
4. I still have large debts, can i retire?
There is no rule against retiring while you still have debts, such as your home loan or other personal loans. However, it can become stressful having to fork out a large recurring payment each month when you are no longer working.
As opposed to other lifestyle expenditures, where you can cut down in case of a financial shock, debts have to paid down each month regardless of your financial circumstances.
Even if it is good debt, such as for your home, the burden of having to fork out for it each month can weigh you down.
Instead, it could be financially prudent to pay off all your debts before considering retirement. Even if the interest rate is low, the peace of mind that you get knowing that you don't owe the bank any money is good to have during retirement.
Apart from continuing to work, right-sizing to a smaller home can unlock a chunk of cash to pay off any debts you may have and also put into CPF LIFE, or other investments to boost your retirement income streams.
5. How do I leave behind enough for my loved ones?
In your retirement, you will typically not have anyone depending on you for their daily living requirements. What you may want to consider is how you want to distribute your assets once you are gone.
Drafting a will is a simple first step to putting in place an estate plan. At the same time, you should make a CPF Nomination, which covers your remaining CPF savings. This will minimise unnecessary discussions between family members over how your belongings and assets should be split between them.
You may also choose to purchase a whole life policy to transfer your legacy to the next generation. This also protects your loved ones' livelihoods in the interim, if you pass on unexpectedly, and potentially offers superior outcomes for your beneficiaries.
Start your retirement planning journey early
There's no time like now to start planning for your retirement. The earlier you start, the less worry you will have, as you leverage on your long investment horizon to compound your investments across decades and to ride out short-term market volatility.
After answering these five questions about your retirement plan, you may still have more questions. If you need help with clarifications, contact an AIA Financial Services Consultant to guide you in implementing your plans and securing your retirement today.