4 important retirement planning tools available to you

The current retirement age in Singapore is 62 years. With the average life expectancy here, of about 83 years, Singaporeans can expect to live close to 21 years, or more than one quarter of our lives, in retirement.

If we assume that majority of Singaporeans start working after completing a tertiary education, at close to 21 years or even 23 if you have to complete National Service, this means you might spend approximately 40 years in the workforce.

Apart from having to fund your daily living expenses, you have to save up for many things including your home, vacations, gadgets, possible further education, your children’s education and more. Of course, you also have to plan for your retirement – leaving you with four decades to accumulate a retirement nest egg that probably needs to last close to two decades.

Falling short may put the burden of paying for your living expenses on your children and grandchildren – which may put them under financial stress.

With this in mind, it makes sense to start planning for your retirement as soon as possible to give you the best chance of retiring comfortably. Fortunately, retirement planning isn’t as challenging as some may make it out to be and there already exists several retirement planning schemes that we’re already automatically part of in Singapore.

Your CPF Special Account (SA) is meant for your old age and investment in retirement-related financial products. Throughout your working life, you will contribute a portion of your monthly salary into this account – helping to gradually build one pillar of your retirement nest egg.

This is not an unsubstantial amount, ranging between 1.0% and 11.5% depending on your age. Moreover, this money will also be compounding at a minimum rate of 4.0% per annum, with the first $60,000 in your CPF combined balance earning an additional 1.0%.

Of course, you will also be contributing towards your Ordinary Account (OA) and Medisave Account (MA), but these are predominantly meant for uses other than your retirement.

CPF Lifelong Income For the Elderly (CPF LIFE) is a life annuity scheme that provides Singapore Citizens and Permanent Residents (PRs) with a monthly payout for as long as they live.

When you turn 55, the balances in your CPF OA and SA accounts will be transferred to a newly minted RA – Retirement Account – up to the current Full Retirement Sum. This amount will compound over the next 10 years and will eventually go into CPF LIFE at age 65. You can choose to defer your monthly payout till as late as age 70.

For those aged above 55, an “additional extra interest” of 1.0% will be paid on your first $30,000, compounding your funds in your RA up to 6.0% per annum.

Once you turn 65, you can start receiving your monthly payout of close to $1,350, if you contributed the Full Retirement Sum and opt to go on the Standard Plan. Here’s a more detailed explanation of the CPF LIFE.

Once you enter retirement, your children would have most likely left the nest. This leaves you with three ways to monetise your existing home – 1) downsize to a smaller home as you don’t need as much space (you can also tap on the Silver Housing Bonus); 2) rent out spare rooms for extra income or even rent out the entire flat and move in with your children; and 3) tap on HDB’s Lease Buyback Scheme.

Previously, only available to homeowners living in four-room and smaller flats, HDB’s Lease Buyback Scheme has been extended to include all flat types since September 2018.

This scheme is designed to help elderly homeowners continue living in their flats while selling a portion of their remaining lease to HDB. The amount they receive will flow into their Retirement Account.

In effect, this provides them with monthly payouts, via CPF LIFE, in exchange for a portion of the lease on their HDB flats, sold via the Lease Buyback Scheme. You can visit the HDB website to get more information on the Lease Buyback Scheme.

The Supplementary Retirement Scheme, or SRS, was introduced in 2001 to encourage individuals to save for retirement, over and above their CPF savings. You are only allowed to have one SRS account and you can open an account with any of the three local banks, DBS, UOB or OCBC in Singapore.

Unlike your CPF savings, which are compulsory and can be used for your housing, medical needs and to provide basic living expenses in your retirement, SRS contributions are voluntary and meant to be invested to provide an additional source of income for your old age.

The main benefit is that yearly contributions, up to $15,300 for Singapore Citizens and PRs and $35,700 for foreigners, made to your SRS account are eligible for dollar-for-dollar tax relief. This means that you save on your yearly tax bill while building your nest egg for your retirement. When you eventually retire, you will receive a 50% tax concession on your withdrawals.

Find our more about how you can take advantage of SRS here.

As we enter different stages in our lives, we will have differing levels of ability to set aside savings to grow our retirement nest egg. This is why it is important to implement a retirement plan as early as we can. This will smoothen the amount we need to contribute each month as well as allow us to sleep better at night.

AIA Pro Lifetime Protector provides a one-stop protection and investment solution that helps you stay on top of your different needs at every stage in life. This plan offers you all-round protection with comprehensive coverage for death, disability and critical illnesses regardless of how your investments perform in the first 10 years. In addition, you retain the flexibility to reduce focus on protection and focus on wealth accumulation in your later years, as well as choose to receive regular payouts to supplement your income during retirement.