Preserve Your Retirement Fund | Be Financially Secured in Singapore
Budgeting | Singaporeby Priyadarshini 16 January 2023
Longevity is highly valued in many Asian cultures. Everything from bamboo to overly-long noodles can be a symbol of longevity in China. However, in Singapore, one of the world’s longest-lived countries, people living too long are becoming an issue. We look at how you may ensure that your retirement income lives as long as you do. Consider it an anti-aging treatment for your portfolio. In this blog, we tell you about how to preserve your retirement fund.
What happens if you outlive your retirement funds?
Even the best-laid plans can unravel if one of the following events occurs:
You live for a longer period of time than expected. Have you planned for your retirement income to last until the age of 85, but you’re now 90 and still alive? You’re out of luck. Inflation eats away at your retirement savings? The Pioneer Generation had no idea that the expense of living would skyrocket in the way that it has. But are these legitimate concerns?
Singapore’s life expectancy was the third highest in the world in 2018. But it is anticipated to grow much further, potentially making us the longest-lived people in the world by 2040. And those are just averages; if you’re lucky and have strong genes, you might be able to live into your 90s.
What about the inflation rate?
We’re already a developed country, so inflation can’t get any higher, right? Well, from roughly 2008 until the mid-2010s, which were Singapore’s peak immigration years. The inflation rate constantly exceeded 5%. Inflation rates were at their highest since the 1980s during this time period.
Currently, inflation is substantially lower and is projected to remain so. However, you never know when global events or government actions may produce another increase, so you should budget for at least 3% to 4%.
3 ways to preserve your wealth
Here are three ways to sprinkle across your portfolio to provide some security:
- Choose life payouts.
- Select rising payouts.
- Have backup plans in place.
Choosing long-term payouts
The CPF Retirement Sum program was upgraded to CPF LIFE for a reason. The government recognized that people were living longer lives and designed CPF LIFE to provide payouts for the rest of a person’s life. Some products, most notably insurers’ annuities or retirement plans, offer two payout modes, similar to CPF LIFE: “term” and “life.”
Term annuities will pay you an income for a set period of time, such as 20 or 30 years. Life annuities, on the other hand, provide payments for the rest of one’s life. So, if you want to increase the lifespan of your portfolio, you can sign up for an annuity or retirement plan. This will give you lifelong payouts to supplement the income you should already be receiving from your investments.
If you don’t have enough CPF LIFE contributions, such as if you’re self-employed, you can consider topping up your Special Account (SA) or Retirement Account (RA) to take advantage of the high-interest rates and ensure yourself a lifetime income.
Select rising payouts
Inflation is the reason why it’s so difficult to locate hawker lunches for less than $3.50 these days. As a retiree, you will most likely feel the effects of inflation. Because you will (ideally) have at least one or two decades to enjoy your retirement. One method to guard against this is to select rising rewards from your plans wherever available.
What is the best plan to begin?
LIFE CPF. CPF LIFE provides three different compensation options:
CPF LIFE Standard Plan – You will get consistent monthly payments for the rest of your life.
The CPF LIFE Escalating Plan – Your payouts will increase by 2% per year.
And the CPF LIFE Basic Plan – Once your RA balance falls below $60,000, your benefits will be reduced.
It’s usually a good idea to maintain a diversified portfolio that includes more than just CPF LIFE and an annuity/retirement plan for further security. In an ideal world, you should also include a backup plan in case of an emergency. Aside from providing you with a better retirement income, your portfolio and backup plan can also save you if inflation soars or you live a very long life.
A fallback strategy would be to monetize your house by renting out rooms, downsizing, or engaging in the Lease Buyback Scheme if you own an HDB apartment. You are not required to use it if you do not need to, but it is always a choice in the event of an emergency. So, with these steps, you can preserve your retirement fund and be financially secured.