Why You Should Speak To Your Parents About Their Retirement Plans

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 84.8 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.

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.

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 (III) – 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.

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.

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.