The Minimum Income Standard (MIS) is a consensus-based research methodology used to determine the household income required to achieve a basic standard of living that matches a household’s location and economy.
Inherently, it defines what a person or family needs on a monthly basis, taking into consideration individual family members’ needs as well as to align themselves with society as whole.
In lieu of Singapore’s ageing and decreasing household sizes, researchers at the Lee Kuan Yew School of Public Policy (LKYSPP) conducted a study to determine the minimum amount a single elderly person needs for his or her basic monthly expenses in Singapore.
The number they found? $1,379 per month for an elderly person living alone and $2,351 for elderly couples.
Too high or too low?
One way to gauge whether this is too high or too low is to look at household wage levels in Singapore. In 2018, the 1st to 10th decile of households had a monthly income of $1,785, while the 11th to 20th decile of households had a monthly income of $3,574.
An elderly couple with $2,351 per month, the MIS as defined by the LKYSPP research, would be between the bottom 10% and 20% of households in Singapore. This is some ways off the median household income of $6,984 in 2018.
Furthermore, the average monthly household income for HDB 1- to 2-Room flats was $2,460, while for HDB 3-Room flats, it was $5,767. An elderly couple with $2,351 a month between them would be living close to the standards of those residing in HDB 1- to 2-Room flats.
Another way to estimate what we need is by looking at the CPF LIFE scheme in Singapore. Today, the government has set the Full Retirement Sum (FRS) as $176,000 in 2019. A quick check on the CPF LIFE estimator shows that a 55 year-old person with the FRS, on a Standard Plan, will receive a monthly lifetime payout of $1,387 - $1,533 when they reach 65.
This number is fairly close to the MIS figure of $1,379 that the study had determined.
Consider your costs of living
The statistics from the Department of Singapore corroborate with what the study found to be a basic living cost in Singapore. The 1st to 10th decile of Singaporean households are sustaining on a monthly household income below the MIS, while the CPF LIFE aims to provide a monthly payout close to the MIS.
However, you have to note that this is the basic standard of living. Over 80% of households are currently living at a standard that is higher than the basic level. This means that when you consider the amount you need in your old age, the basic level or even the FRS recommended by the CPF may not be sufficient for you to enjoy the retirement lifestyle you want.
The problem is that many Singaporeans might be contemplating a golden retirement after decades hard work, the reality is that just planning for the MIS or CPF LIFE’s monthly payout on Standard Plan after saving up to the FRS, will leave you in the bottom 20% of households in Singapore.
Planning for the income standard you want, rather than the minimum
Being mindful that the CPF LIFE only provides the bare minimum in our retirement, we have to carefully plan for our retirement needs. To begin with, get down to the basics of what you require to live a lifestyle you are at today.
Calculate how much you spend on accommodation, food, groceries, clothes, healthcare, transport, communication, utilities, and even additional costs like taking care of a loved one that is dependable on you. Majority of these expenses will still need to be afforded in your retirement.
Your current standard of living is a good gauge to what you aspire in your retirement. It’s easy to say you will lower your lifestyle once you retire, in practice, but it may not be possible after being accustomed to such a lifestyle. It may be even harder if you aspire to enjoy some luxuries in your retirement.
Next, consider how much you earn and how much you are able to save every month towards your retirement. Take for example, if you bring home $3,500 per month after CPF deductions, and your monthly expenses equate to $2,000 on average. This means you can save about $1,500 per month – money that could go to your retirement.
Put as much as you can towards your retirement savings. Also, while you’re at it, figure out if you can cut any unnecessary monthly expenses after jotting it down. Anything that you think you can live without in retirement, you should try to live without today.
Anything you save and invest today will feel like you’re taking away from your current self. But the good news is that it will be helpful to your future self. Planning for retirement wisely will help you grow your retirement nest egg.
Don’t forget inflation and greater medical needs in your old-age
Another common error is that while it is prudent to use the amount you are spending today to gauge your retirement needs, you are neglecting inflation.
Costs of the things we buy today will likely increase next year, and the year after, and the year after that. That’s how inflation works. While this year’s inflation rate is close to 1.7%, Singapore’s long-term inflation rate is closer to the 3.5% mark.
Consider this: 1) how much will prices for the same products rise from today to the time you retire and 2) if you are going to live for another 20 years after retirement, how much of your regular expenses will go up?
As a typical person’s susceptibility to medical conditions increases with age, you may be required to attend more regular check-ups, purchase costly medicine and seek medical treatments.
At the end of the day, you don’t want to be left in a situation where you’ll have to take up a part time job halfway through your retirement because it may not last. This is when you will be outdated in the workforce and likely not have the stamina or health to seek employment.
Build your retirement nest egg today
When building your retirement nest egg, you should look at it as adding layers of safety nets for your retirement.
The first safety net, and also the one every Singaporean and PR has, is your CPF. You contribute close to 37% of your wages to it through your working years, in a bid to afford the basic retirement level.
Next, the home you live in is an asset that you can tap on to unlock cash in your retirement. The easiest ways to do this is by a) renting out spare rooms once your children purchase their own homes for their families; b) sell back part of your HDB housing lease to encash unrequired lease; or c) downgrade to a smaller home.
While working, you would also have spare cash left over at the end of the month. You can use it to inflate your lifestyle, buy gadgets, luxury products and holidays OR you can use it to save and invest for your future.
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