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Planning for retirement income: Where will it come from?

2021 dot 9 min read
Retirement Planning Wealth Accumulation
Where will your retirement income come from?
For many of you in the workforce today, your salary likely accounts for the bulk of the monthly income you need to pay for daily living expenses each month. Once you retire, and your monthly pay cheque disappears, you need to find alternative income sources to continue paying for your daily living expenses each month.
 
If you do not work on building your retirement income streams from an early age, it may become increasingly stressful to plan for it when you are older. Ultimately, your ability to retire on your terms may hinge on how successful you are in creating sustainable retirement income streams to replace your employment income.
 
To kickstart this exercise, you can tap on these six diversified retirement income streams in your golden years and start building them today.

1. CPF LIFE

CPF LIFE, Singapore's annuity scheme providing a lifelong monthly payout, forms the base retirement income for many retirees in Singapore.
 
After contributing to your CPF accounts for about three decades, your Special Account and Ordinary Account balances are transferred to your Retirement Account at age 55 – in preparation for providing CPF LIFE payouts from age 65 onwards.
 
Today, the Full Retirement Sum (FRS) that you need to set aside in your Retirement Account is $181,000. This is estimated to provide a monthly income of between $1,390 and $1,490 on the default Standard Plan.
 
The CPF LIFE scheme offers some flexibility in that you can choose to save the Basic Retirement Sum (BRS) of $90,500 or up to the Enhanced Retirement Plan (ERS) of $271,500, or any amount in between, in your Retirement Account. Once you reach age 65, you can opt for the Standard Plan, or the Escalating Plan or Basic Plan.
 
A monthly income of $1,390 to $1,490 will provide for basic retirement expenses. To continue living at a higher standard without your monthly employment salary, you can consider topping up your CPF accounts via the Retirement Sum Topping Up (RSTU) scheme.

2. Properties

One of the biggest expenses and most significant stores of wealth for many in Singapore is their home. Once you retire, you can choose to right-size your home by tapping on the Silver Housing Bonus.
 
You can also choose to right-size your lease period, by selling a portion of your remaining lease back to HDB through the Lease Buyback Scheme.
 
Another way you can monetise your property is through rentals. You can either rent out spare bedrooms that you have in your home or earn income through investment properties you own.

3. Investment portfolio

Those who have ploughed their money into the financial markets can build an income stream either by liquidating a small part of their portfolio each year, or receive dividend income from stocks and REITs, and coupon payments from bonds.
 
Another important consideration when building an income stream comprising of equity and bonds is understanding your risk appetite. Avoid chasing riskier investments just because you are lured by the potential returns or dividends and coupons on offer. Remember that higher returns come with higher risk that you must be willing to take.
 
As you grow older, your ability to take on risk may diminish as well. You have a shorter runway to requiring your funds and may not be able to ride out market crashes to enjoy the upside. This is why you may want to consider shifting more assets into safer investments such as bonds or even topping up your CPF accounts as you age.

4. Continuing work

Either through choice or a need, you can continue being a contributing member of Singapore's economy with a full-time or part-time job. The Statutory retirement age and the re-employment age will be increased to 65 years and 70 years respectively, by about 2030. This signifies the need to continue upskilling and working longer than we may have initially expected to when we first joined the workforce.
 
Even though you may want to work longer, you should also plan for other income streams for your retirement needs, while income from work can primarily fund a more comfortable lifestyle. This is because when you retire is not always in your hands, and can happen either through retrenchment or ill-health.
 
The right job also promotes a healthier lifestyle by keeping your mind and body active. You may also dedicate your time to worthy charitable or community causes if you do not need the extra income.

5. Retirement plans

You can strengthen your retirement strategy by relying on an income stream provided by retirement plans you have invested in. By putting aside a regular sum of money or a lump sum during your working years, you can gradually build up the value of your retirement plan to pay you a regular income after you leave the workforce.
 
AIA Platinum Retirement Elite empowers you to customise your desired monthly retirement income and adjust it along the way in line with your growing needs and ability.
 
With increasing life expectancy in Singapore, the number of years you live in retirement may also rise. On AIA Platinum Retirement Elite, you can choose to stay invested to continue growing your portfolio during your retirement years, which may span about 20 years.
 
Inflation is another issue that retirees have to tackle. The government has tried to address it with CPF LIFE offering an Escalating Plan, which provides an annual increase of 2% for its monthly payouts. Similarly, you have the option to choose a 0% to 5% step-up in your payouts on AIA Platinum Retirement Elite.
 
You also enjoy guaranteed assurance and protection for your loved ones with a lump sum payout equivalent to 105% of the policy value in the event of death and terminal illness. To enhance your payout while your retirement plan is in the midst of gaining value in its initial years, there is also an additional accidental death benefit within the first five policy years.

6. Family support

While no one wants to burden their retirement on their children or other family members, it is another avenue to sustain yourself in retirement if you do not have the means to.
 
Just as you dedicated yourself to bringing them up, feeding them, clothing them and educating them, they will similarly want to be there for you. At the same time, you have to understand if they cannot contribute to your full needs, especially as they may have other financial commitments as well, such as a family of their own.
 
Another way to provide for your retirement is to put aside any inheritance from your parents or relatives you may have received towards boosting your retirement income – through any of the above methods.

Plan your retirement income sources early

It can be human nature to procrastinate, especially planning for your retirement income early in your career, as you may have more pressing financial concerns and think that it can wait being decades away.
 
The longer you kick this proverbial can down the road, the harder it will be to build your retirement income streams.
 
Get in touch with your trusted AIA Consultant or contact us for more information!

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