Ageing in Singapore is getting more and more difficult with the country’s rising standards of living. Singaporeans are living longer – 1 in 2 Singaporeans aged 65 today will live beyond 85 years old while 1 in 3 of them will live beyond 90! This means that you need to rework your retirement planning and mitigate the risks of longevity.
You need to properly plan your own retirement and not depend on your children because by 2030, there will only be 2.4 working-age adults to support each senior aged 65 and above, a drastic decline from the 13.5 working-age residents to each resident aged 65 and above back in 1970. This will put a great burden on the country and working adults such as your children if you do not have proper planning in place.
Kids are no longer an insurance to your old age. Changes in the structure of the family unit and shifting demographic patterns mean that it is more difficult for many Singaporeans to rely on the family’s support in their old age. Currently, ask any Singaporeans in the sandwiched generation and they will understand the challenges of supporting ageing parents and also bringing up their children. They are much more proactive in planning for their retirement so that in future, their own children do not have such worries and burden.
The government’s policies such as CPF Life and CPF will form the basis of your retirement funds, but they are not likely to help you sustain your lifestyle. With illnesses becoming more prevalent in old age, you will definitely need more than CPF to help you in your retirement years.
How then, do you prepare adequately for retirement in Singapore?
Ageing in Singapore – How to Be Prepared For Your Retirement
These trends mean that it is very important for you to plan your finances so that you are prepared and do not have to outlive your retirement savings. Think about how you want to spend your retirement years, and then start setting aside a lump sum every month to be invested. This can be a mixture of funds such as REITS, ETFs, stocks, property trusts, bonds, insurance policies or some good savings plans. It’s never too early to start preparing for retirement. Even in your 20s, you are too late. Do it as early as possible so that your money will have more time to be compounded and grow. Use an online retirement planning calendar if you must to help you on the journey.
Insurance Life and Savings Plans
It is vital to get as least 1 – 2 life and savings plan per person to help you cope with ageing in Singapore. If you are married, this is all the more critical as you do not want your wife or children to be left with nothing if something happens to you.
A life insurance plan provides you with protection in the event of total permanent disability (TPD) and death. Though this can also be achieved with a term insurance, a life insurance plan also provides you with regular savings and some can even be converted into annuities for your retirement.
An endowment or savings policy is also a necessity. It is a plan that is designed to pay a lump sum after a specific term or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Such policies also pay out in the case of TPD or death.
Getting such policies into your portfolio will ensure peace of mind for both you and your family, spouse and children, and help you plan towards retirement and ageing in Singapore.
Exchange Traded Funds (ETFs)
Exchange traded funds (ETFs) are basically investment funds that are listed and traded on a stock exchange. Your money is pooled with money from other investors and invested according to the ETF’s stated investment objective.
An ETF typically aims to produce a return that tracks or replicates a specific index such as a stock index or commodity index. Passively managed by ETF managers, index tracking ETFs have fees and charges that are usually lower than those of actively managed investment funds.
ETFs may also be structured as cash-based ETFs or as synthetic ETFs, which involve the use of derivatives.
Real Estate Investment Trusts (REITS)
According to Wikipedia, a real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands.
In Singapore, dividends paid out by REITs are completely tax-free, which means that you pay 0% on all the income you get from REITs. Therefore, if you rake in S$10,000 in dividends yearly, you get to keep every cent.
If you invest in a REIT, you can expect it to yield between 5% and 8% a year in dividends (paid out quarterly or every 6 months). Singapore REITs as a whole did extremely well in 2018 and seem poised to do the same in 2019.
How is it possible for yields to consistently be so high though? It’s because REITs are required by law to redistribute at least 90% of their taxable income each year i.e. pay it out in dividends. So, many investors like REITs for the steady recurring income.
But the share price of a REIT can fluctuate, just like regular stocks. That means that besides the dividends, you can also make money by selling the REITS when its share price goes up. Though of course, a REIT’s share price can fall too. Some investors do not mind the trade-off but just be aware of what it entails when you buy REITS.
REITS Exchange Traded Funds (ETFs)
Exchange-traded funds (ETFs) are traded on a stock exchange, just like REITs. One major difference between ETFs and REITs is that ETFs track a specific index. As a result, the returns of the ETFs would usually be the same as the underlying index, such as Nikko AM STC Asia REIT ETF, Phillip APAC SGX REIT ETF and Lion-Phillips S-REIT ETF, for instance.
Central Provident Funds (CPF)
With regards to CPF, you can consider making cash top-ups or CPF transfers to your Special/Retirement account to earn attractive interest rates. If you choose to start your monthly payouts later (up to age 70), your CPF LIFE monthly payouts will increase by up to 7% annually.
Retirement Planning in Singapore
With proper advice and planning in advance, ageing in Singapore may not be as bad as it sounds. Your retirement starts with prudent planning and starting early is the key. Don’t embark on it when it is too late! Get in touch with us – we have experienced financial advisers who can better advise you on how to plan your retirement years.