Singapore is fortunate to have one the longest average life expectancy in the world, with its people expected to live to a ripe old age of 83.5 years. Numerous studies also suggest that this figure will likely rise in the coming decade.
Besides you living longer than previous generations, your parents will also be living longer than the generation before them. While this is a blessing, it also comes with certain pitfalls to navigate.
Speaking to your parents about their retirement plans
It can be easy to advise someone to speak to their parents about their retirement plans. In reality, this needs to be done with tact as your good intentions may come across as wanting to know the extent of your financial windfall once they are gone.
Having kept this aspect of their lives private, your parents may be guarded against sharing their financial situation as they do not want you to worry about potential money problems they might have.
You should gather your siblings and parents so that no one is excluded, and everyone understands the situation. Your intentions also need to be clearly stated upfront – that you want to be involved in optimising their retirement plan rather than taking control. You should also stick to the topic at hand by asking constructive questions instead of sounding like you are accusing them or shaming them for making sub-optimal financial decisions in the past.
Remember this session is to improve their current situation and foster solidarity between family members.
Aligning your expectations
Regardless of the current situation your parents are in, getting everyone on the same page will lead to alignment in what needs to be done as early as possible.
What you assume your parents will do in their golden years and how they will fund their lifestyle can be very different from what they have in mind. By discussing this with your parents, you can avoid unnecessary misunderstandings.
You may think that you have to contribute to your parents' retirement as their finances dwindle without any employment income, but they may have stashed a tidy sum to draw on for their retirement. Or your parents may think that you will supplement their income during their retirement, but you may not be in a position to do so under your current circumstances.
Any decisions made need to have the buy-in of all your siblings as well because there is a shared responsibility. This can be tricky to navigate, especially as the means to contribute may be different for each sibling.
Enhancing your parents' retirement plans
For your parents' golden years to be fruitful, they should ideally already have a sound retirement plan in place by the time you speak to them.
At the base level, CPF LIFE will provide a lifelong monthly payout for your parents' daily living expenses. As this sum only covers basic expenses, they may still require additional funds to supplement their retirement income.
You can ask them about their current CPF Special Account or Retirement Account balances and calculate how much they will likely receive during retirement. If they do not have immediate cash flow requirements, but may have a shortfall during their retirement, contributing to their CPF account today is a good option to boost their future retirement income.
Make their savings work harder to earn a return through investing in stocks, bonds and funds or by making more CPF contributions. When reviewing a retirement plan, it is important they do not take excessive risks in the market as they near their retirement age and may not have enough time to ride out a downturn.
Your parents can also choose to beef up their retirement security with retirement plans, such as AIA Retirement Saver (IV) – choosing when to start receiving retirement income, how long they wish to receive their preferred retirement income and how long they want to pay premiums for. AIA Retirement Saver (III) also provides a capital guarantee on every dollar your parents contribute at their selected retirement age, that will go towards a guaranteed retirement income over their choice of 15 or 20 years. Your parents can also protect this retirement nest egg by purchasing a Critical Protector Waiver of Premium or Early Critical Protector Waiver of Premium rider to take care of all future premiums if they are diagnosed with any of the 42 major stage or 103 multi-stage critical illnesses respectively.
When the time comes, they can also choose to rightsize their existing property, rent out spare rooms or live with one of their children while renting out their property to free up more cash to spend in their retirement. They should not forget to pare down their debt before they retire, as having heavy debt obligations can create unnecessary stress.
By speaking to them early, you will be able to buy your parents crucial runway to fix an inadequate retirement plan or to maximise areas that can be improved on. Even if they are set, charting this out can also be useful exercise to visualise the necessary steps to take and prepare themselves as they approach retirement.
Adjusting lifestyle choices
After reviewing their monthly expenses and retirement plan, you may realise that the current lifestyle your parents live may be unsustainable in their retirement. While it may not feel like it is your place to tell them how to spend their money, this can be the difference between a comfortable retirement or one where they face drastic lifestyle changes or even shortfalls once their nest eggs run out.
By making certain sacrifices in their standard of living today, they may be able to smoothen out their quality of life for their entire lives.
Being adequately insured
Shifting focus to growing their retirement nest egg by freeing up premiums they are paying on their life insurance or health insurance may be something your parents are also considering.
While these may be acceptable actions to take under the right circumstances, it should not be done without having a plan. Your parents purchased these policies with a goal in mind, and if these reasons still hold true, then there's no reason why they should be giving up their insurance policies.
Conversely, after reviewing their plan, you could jointly decide whether or not they are over-insured. By reducing policy premiums to an affordable level, they can continue to sustain the same coverage throughout their retirement.
Starting the conversation
There are many benefits to starting a conversation about such an important topic – which not just affects your parents, but may have spill-over effects on your personal financial plans.
If it is too difficult to initiate this discussion or if you are unsure how to optimise their retirement plans, bringing in a trusted financial advisor can help. This person will be qualified to give your parents good advice and may have encountered how different families plan their finances, and to share various scenarios or spot potential gaps that have been overlooked.
If you don't have a financial advisor, you can always contact an AIA Financial Services Consultant to help you with your financial, insurance and retirement planning questions.