Last Updated on by Tree of Wealth
Thinking about retirement can be a stressful and daunting topic, especially with the rising cost of living in Singapore.
While it is good to have a gauge on how much is required to retire comfortably here, there is probably no right answer as to how much is necessary, as everyone has different expectations for their post-retirement lives.
Some Singaporeans are happy with having the basic necessities during retirement, while others would prefer to live more lavish lifestyles.
Thus, instead of trying to determine the average amount required to retire in Singapore, it is more important to figure out how much you would require to live the retirement lifestyle that you desire.
What is a basic retirement income?
Perhaps the most straightforward way to figure out how much you require to live your desired lifestyle after retirement is to determine how much you need to spend on necessities a month.
While it is impossible to predict that figure right now, here are some surveys that can provide an estimate as to how much retiree households in Singapore spend.
First, according to the Household Expenditure Survey (HES) 2017/18, the 20th to 40th percentile or lower-middle segment of retirees spent around S$600 per month. On the other hand, the upper-middle segment of retiree households spend around S$1,130 a month.
Another study by the Lee Kuan Yew School of Public Policy (LKYSPP) found that among 100 focus group participants who were mostly aged 55 and above, a single elferly person would need around S$1,379 per month for basic needs.
In the LKYSPP study, “basic needs” went beyond subsistence living to include expenses that would make for a more meaningful retirement. These expenses included recreation and culture, and participation in social activities.
However, these are still basic costs, and do not factor in medical costs in the event of an accident or chronic illness, or other unforeseen circumstances that might result in financial burden.
These also do not take into consideration the inflation rate, and while we can try to estimate, it is difficult to pinpoint an exact number.
It’s not all doom and gloom – after we’re retired, there is a high chance that many of the expenses incurred during our working years will already be paid for. This includes the education of your children, mortgage costs, and other loans or insurance costs.
How to fund your retirement
Now that we have taken a look at what the bare minimum you might require for retirement is, the next step is figuring out where your retirement income will come from.
Like how we are advised to create multiple streams of income in our working years, the same applies for our retirement years.
However, this is slightly more complicated for a retiree, as he or she no longer has a constant flow of income. With retirement periods stretching for as long as 30 years, there is a need to ensure that your income streams can cover your basic living expenses, lifestyle-related expenses, and caregiving expenses in the event of disability or illnesses.
- Income stream to fund basic necessities
While you are working, you might lament about having to contribute your income to CPF, but not see any returns. However, when you hit 55, you will be able to withdraw some of your CPF savings.
When you hit 65 years old (for those born in 1954 or earlier) you will begin to receive your monthly CPF LIFE payouts.
According to the surveys above, a benchmark amount for basic necessities that a retiree requires would be close to S$1,500. With reference to the 2021 payout rates, you would have to have around S$280,200 in your CPF savings to receive around S$1,500 a month in payouts.
For many, the CPF LIFE payouts can help to cover their basic necessities in retirement.
- Funding lifestyle related expenses
Your retirement years are also rightly called your golden years, and it’s important to invest in some leisure or recreational activities that could boost your quality of life.
Of course, you will have to fund these lifestyle related expenses, and it will likely be via investments. The key source of retirement funds will come from your monthly income, and is likely to be the savings after you have deducted your expenses.
Whether you invest in equities, real estate, endowment policies or bonds, you will be making your money work for you, and these investments will act as a hedge against inflation, while at the same time providing you with the income required to fund your lifestyle activities in your retirement years.
- Contingency income
While severe disability or illnesses will not affect all of us, there is a chance that you might have to incur hefty costs if it does.
While your investments might be able to aid you in covering such contingency costs, the national insurance schemes like ElderShield/CareShield Life can also provide you with some income.
Furthermore, some retirement insurance plans also have in-built benefits to mitigate the risks of disability in your old age, and it is thus important to invest in such policies.
- Income from private insurers
A solid retirement income plan can go a long way in ensuring that you have a comfortable safety net in retirement. This will work hand-in-hand with the CPF Life payouts to ensure that your existing retirement strategy is supplemented.
Most retirement income plans provide you with monthly guaranteed payouts, and a lump-sum bonus.
Besides monetary value, these plans can also provide you with extra protection against disabilities, terminal illnesses or death.
While the CPF LIFE scheme can provide most Singaporeans with a basic, liveable income in their old age, it is important to also have other income streams.
Of course, the amount required to retire also differs on the goals and aims of your retirement life. For some, S$1,500 is sufficient to get by, while others might have elaborate travel plans or recreational activities to pay for.
It is also important to ensure that you are prepared for any misfortunes that might leave you having to bear hefty costs.
While everyone has different wants and needs, it is still imperative to ensure that you are adequately prepared to live out the retirement life that you desire.
Should you be concerned and keen to find out how to better plan for retirement, feel free to get in touch below and our friendly Licensed FA advisors will get in touch with you.