Over half of Singaporeans lack a retirement plan, and a significant percentage of those who do are not on track to meet their goals. This reality forces many to continue working past retirement age simply to stay financially afloat. We often see elderly individuals working in various jobs for low wages to make ends meet.
The Necessity of Working in Old Age
Nearly 50% of Singaporeans aged 65 to 69 are still employed, and a significant number in their 70s continue to work, often for minimal pay. While some may choose to work to remain active, the unfortunate truth is that many are working because they cannot afford to retire. A survey by SMU indicated that approximately one in three older adults believe they face at least a 50% chance of struggling to afford basic necessities, while an AsiaOne report found that only 39% of retirees have sufficient funds.
How Much is Enough for Retirement?
The amount needed for retirement varies significantly from person to person. A conservative retirement, involving living in a HDB property, using public transport, and taking occasional regional holidays, might require around $1,600 a month. On the other hand, a more luxurious retirement, featuring a private property, high-end car, helper, and expensive vacations, could necessitate at least $4,000 a month.
Estimating Retirement Savings
Assuming a person is currently 30 years old, plans to retire at 63, and expects to live to 85, with an average inflation rate of 2.5%, they would need between $1.25 million and $3.13 million to retire comfortably.
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The Role of CPF LIFE
CPF LIFE provides a monthly income during retirement, but recent data reveals that nearly one in four members aged 65 to 70 have less than the Full Retirement Sum in their CPF account. This means their CPF LIFE payouts may be insufficient to cover even basic living expenses. Furthermore, even with the Full Retirement Sum, the monthly payout under the CPF LIFE Standard Plan is fixed and does not adjust for inflation, effectively eroding purchasing power over time.
Longevity and Aging Population
Singapore's average life expectancy has increased significantly, from 62 years in the 1950s to 83.5 years today, and is projected to reach 87 by 2050. This means that retirement can now span 20 to 30 years or more, requiring more savings. Simultaneously, Singapore faces a rapidly aging population. By 2030, one in four people will be aged 65 and above, potentially leading to downward adjustments in CPF LIFE monthly payouts to maintain the scheme's sustainability. This creates a scenario where individuals need more savings for a longer retirement while potentially receiving lower payouts from CPF LIFE. The government is raising the retirement age to 64 in 2026 to encourage longer working lives.
Factors Affecting Savings
The high cost of living in Singapore is a major factor. While median monthly household income has generally risen faster than inflation, expenses, particularly food, continue to increase. Dining out expenses have risen from 35% of total household food expenses in 2012-2013 to 42% in 2023. Food services inflation has significantly increased the cost of eating out in recent years. Additionally, more Singaporeans are using credit and Buy Now Pay Later services.
Addressing the Rising Cost of Living
The government has taken steps to address the rising cost of living, particularly for lower-income households, with significant financial assistance provided through various government transfers. However, relying solely on these measures is insufficient.
Practical Steps to Plan for Retirement
Here are some practical steps to get started planning for retirement:
- Determine Your Retirement Needs: Utilize tools like the DBS NAV Planner or OCBC Financial OneView to assess your current finances and project future needs. Alternatively, use a Retirement Calculator to estimate savings requirements.
- Leverage Government Schemes: Take advantage of government schemes such as the CPF Retirement Sum Topping-Up Scheme, which allows topping up CPF accounts to earn interest and enjoy tax relief. Consider contributing to the Supplementary Retirement Scheme (SRS) account for tax relief and investment flexibility. Explore options like the Lease Buyback Scheme or the Silver Housing Bonus to unlock the value of your property.
- Start Investing: Invest to combat inflation and grow your wealth. Consider low-cost, broad-based ETFs and set up a regular savings plan to dollar-cost average into these investments, reducing risk and promoting steady growth.
It's never too early or too late to begin planning for retirement. Taking control of your finances early and consistently can significantly impact your future financial security.
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