How Certain is Your Retirement in this Uncertain World? May 16, 2023
A sharp recall was triggered when the world ushered in 2020. A huge wave of COVID-19 infections had taken the world by storm as the world battled with the pandemic that ensued for the next three years. Thankfully, the pandemic has ended albeit with an overwhelmingly volatile global economy still reeling from the painful impacts of supply chain issues, inflation and an unprecedented Russia-Ukraine war. As the proverb says: “There are decades when nothing happens, and weeks when decades happen.”
The coming decade will be incredibly unpredictable, with a complex and ambiguous market, placing greater importance on securing our retirement more than ever. What should you take note of when planning for yours?
1) Going back to basics
In Singapore, we have the Central Provident Fund (CPF), which serves as the foundation for retirement planning for Citizens and Permanent Residents. The CPF was originally intended for retirement and was only much later expanded to allow the monies to be used for housing and medical purposes.
When one reaches the age of 65, which pays you regardless of how long you live, monies from their CPF Special Account (SA) will be transferred to a newly created account called the Retirement Account (RA). These monies in the RA will be used for an insurance annuity, CPF LIFE, when the account holder reaches the age of 65, regardless of how long you live. Such payouts provide predictable and consistent income, a characteristic which is not available in many other asset classes.
CPF LIFE serves as a national longevity insurance scheme, allowing the risk to be spread across a larger member base. It is a non-profit scheme administered by the CPF Board, hence making payouts relatively high. Therefore, we encourage our clients to maximise the benefits of CPF LIFE by having a substantial amount in their SA/RA Accounts.
2) Building your layers of wealth
CPF LIFE sets limits.
For example, take someone who:
- turns 55 in 2023
- has the maximum amount of S$298,200 in their RA
His/her payout from CPF LIFE in 2033 at 65 will be about S$2,370 monthly. However, for some, this may not be sufficient for the lifestyle they desire, especially with inflation factored in.
There is also a subset of people who may not have access to CPF LIFE at all, particularly foreigners who are working in Singapore on work passes. In this case, an additional layer of income is needed to strengthen one’s retirement foundation in the long run.
Complementing CPF LIFE with additional layers of wealth can be achieved by setting aside funds in a private annuity or retirement income plans. After all, the purpose of these instruments is to protect you from uncertainties by providing consistent and predictable payouts regardless of market conditions. Unlike investments, they require minimal management and offer flexible planning to cater to one’s desired retirement. Furthermore, they allow payouts to be received by loved ones in the unfortunate event of your passing.
3) Reviewing and revising regularly
Even the most carefully crafted plans can deviate from the intended course. The further your retirement is, the more likely it is that projections and estimates will need to be revisited and revised. Thus, regular reviews are of paramount importance to ensure that things are on track and in line with your retirement plan. This is also to avoid unpleasant surprises. So, small adjustments planning will help to keep you on track for a successful retirement.
Medical coverage is equally important. Coverage can be extremely expensive due to medical inflation. A hospitalisation plan and long-term care coverage can help to reduce the risk of being wiped out by hospitalisation or nursing home costs.
Retiring comfortably can be a dream come true with sound planning and proper execution.
Senior Financial Services Manager
Phillip Securities Pte Ltd (A member of PhillipCapital)
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About the author
Senior Financial Services Manager
As a Financial Services Manager with Phillip Securities, Elijah has demonstrated technical competency and knowledge in various areas of wealth management such as risk management, wealth accumulation, portfolio allocation, tax planning, retirement planning, estate planning, combined with significant practical experience in the advanced financial planning needs of individuals and families.
Besides managing his clients' financial portfolios and planning for their comfortable retirement, he also allocates a portion of his time to reach out to the public via webinars, educating them on various aspects of financial management to ensure that they feel confident in achieving their financial goals and dreams. He has been invited on the radio station Money89.3FM to share his views on various topics as well as being interviewed on Channel NewsAsia and The Straits Times.