Define your retirement lifestyle
Most of us work hard to play hard, whether it's as youth or as seniors. How we plan to achieve our goals is what will eventually determine our quality of retirement.
The results from the OCBC Financial Wellness Index 2022 showed that more Singaporeans starting to make retirement plans (68% in 2022 compared to 66% in 2021). However, many are still underestimating the amount needed for retirement.
In the survey, participants were asked to choose from 3 tiers of retirement lifestyles.
This year, the percentage of people who picked the more lavish Lifestyle B went up by 6 percentage points to form the majority (41%), compared to 2021.
On average, Singaporeans indicated they would need $2,372 for Lifestyle B, but the actual cost of that lifestyle in today’s value is 35% higher than their estimations ($3,210).
Less than half of the Singaporeans surveyed are on track to achieve their retirement goals (42% compared to 49% in 2021).
Despite the pandemic having put the brakes on spending among Singaporeans in 2021, this year painted a rather different picture. Across key savings categories, Singaporeans were spending lesser compared to 2021, with the exception of travel.
On average, Singaporeans indicated they would need $2,372 for Lifestyle B, but the actual cost of that lifestyle in today’s value is 35% higher than their estimations ($3,210). Source: OCBC
With increasing advances in technology and healthcare, we are likely to live longer than our grandparents’ or parents’ generation. Many people underestimate how long they will live and find their savings depleted too early. As such, it is important to have a perpetual income stream during our retirement.
That is where CPF LIFE comes in. As a national longevity insurance annuity scheme, CPF LIFE insures you against the risk of having nothing to live on when you are old, by providing you with a monthly payout for as long as you live.
There are 3 different types of CPF LIFE plans available. Deciding the kind of retirement lifestyle you want is key to choosing the right plan for you.
If you are worried about inflation, you might need monthly payouts that increase yearly. The Escalating Plan has this feature. If you prefer to keep within a fixed budget, you can consider the Standard Plan. If you don’t mind starting with lower monthly payouts which will progressively be lower later on, then the Basic Plan is good enough.
|Higher level monthly payouts
|Monthly payouts that start lower but increase by 2% annually
|Lower monthly payouts
Based on the type of retirement income you wish to have, you can then choose the type of plan that suits your needs.
Other important things to consider would be:
1. How much retirement income do you wish to receive?
2. How much retirement savings should you set aside in order to receive this income every month in retirement?
3. What should you do if the retirement savings you currently have do not meet the above sum?
But before that, let’s look at the retirement lifestyles you could be envisioning and estimate how much that would cost.
The joy of having alternatives
#1. The Jetsetter
This lifestyle is for you if you dream of seeing the world in your golden years. With more time on your hands, you plan to travel up to 3 times a year after retiring.
How much you need to fund this lifestyle:
Based on the 2017/18 Household Expenditure Survey conducted by the Department of Statistics, the second quintile (20th to 40th percentile, or lower-middle segment) spends about $600 per month in their retirement while the 4th quintile (or upper-middle segment) of retiree households spends about $1,130 a month.
For the sake of this example, let’s calculate using the upper-middle household expenditure of $1,130 a month. To factor in your travel expenses, we’ll also refer to the Household Expenditure Survey’s household overseas travel spending of $340 a month.
Keeping the above figure in mind, as well as the spending required to fly to nearby countries 3 times a year, the amount you need every month: $1,130 + ($340 x 3 trips) = $2,150 a month
To make things easier, we’ll round it off to $2,100 a month.
Based on the calculator from CPF’s Be Ready microsite, you’ll need to set aside $413,600 in your Retirement Account (RA) by age 65 to receive this amount. A much lower sum of $260,800 is required if you set aside the amount in your RA by age 55.
#2. The Happy-Go-Lucky Grandparent
You’re the sole breadwinner who looks forward to spending quality time with your family. You want to retire comfortably at age 65 and at a sustainable pace, with both you and your spouse’s basic needs covered. You also want to plan family outings and dine out occasionally.
How much you need to fund this lifestyle:
Let’s calculate using the upper-middle household expenditure of $1,130 a month. As you’ll be out and about with more of your budget going towards dining and entertainment, we’ll estimate your additional spending to add up to $200 a month, assuming that you’ll spend $50 every weekend on dining out.
As such, you will probably need: $1,130 + $200 dining out expenses = $1,330 a month
For simplicity's sake, let’s round this off to $1,400 a month.
Similarly, using the calculator from CPF’s Be Ready microsite, you’ll need to set aside $270,700 in your RA by age 65 to receive this amount. A much lower sum of $168,000 is required if you set aside the amount by age 55.
#3. The Lifelong Learner
Now that you’re essentially time-rich in retirement, it’s time to pick up those hobbies you’ve left on the backburner.
How much you need to fund this lifestyle: Let’s say you’ve elected to pick up a coding course, which we estimate to cost around $450. Assuming you’ll enrol in a similar course twice a year, your expenditure on courses will be: ($450 x 2 courses) / 12 months = $75 a month
To ensure you’ll also have enough savings for your basic needs, we’ll take into account the Household Expenditure Survey’s lower-middle retiree monthly spending of $550 a month.
All in, you will probably need: $75 + $550 = $625 a month
Now, let’s round this off to $700 a month.
Once again, we’ll use the calculator from CPF’s Be Ready microsite. To receive this amount, you’ll need to set aside $128,500 in your RA by age 65. A much lower sum of $75,600 is required if you set aside the amount by age 65.
Note: The estimated required amounts in the examples above are based on the CPF LIFE Standard Plan.
During our golden years, we may or may not be actively working, or have alternate sources of income. Using the figures above as rough examples, you should find out the amount needed to support your desired retirement lifestyle and work towards that. To get some help in figuring out the details, try out the CPF Planner.
Learn how you grow your CPF savings to achieve your desired retirement lifestyle with the 4 tips below!
4 tips on boosting your CPF Life savings
Here are some ways you can bump up and achieve your desired CPF LIFE monthly payouts for the time when you hit age 65 and beyond.
#1. Make cash top-ups to your CPF Special Account (SA)
This is especially wise for those who have a considerable amount of cash sitting idle in the bank. Before the urge to spend compels you to add those enticing sale items to cart, why not seize the opportunity to earn higher interest rates of up to 5% p.a.* by parking the extra monies in your CPF SA instead?
Not only does it accelerate the growth of your monies by letting compound interest do its magic, the interest rate alone puts ‘high-yield’ savings accounts to shame. To top it all off, you can also enjoy tax relief of up to $7,000 per year. Find out more about the Retirement Sum Topping-Up Scheme (RSTU) here.
#2. Transfer Ordinary Account (OA) balance to SA
Our OA (mainly used for housing) earns an interest rate of up to 3.5% p.a.* while SA (used for retirement) earns a higher interest rate of up to 5% p.a.*
While transferring money from your OA to grow our monies in SA is a no-brainer at first glance, it gets a bit more complicated if you own or plan to buy a property, as you can no longer use the OA savings for housing once you have transferred it to your SA. Instead, you’d need to fork out payments for your home in cash. That is why this tip is best for those who no longer need to use OA for housing payments.
Note that transferring your OA is only allowed if you’re below 55 and have less than the current Full Retirement Sum (FRS) in your SA.
#3. Choose not to withdraw at 55
Once you hit age 55, you can withdraw up to $5,000 from your CPF savings (OA and/or SA), or anything above your FRS, whichever is higher. The FRS can be set aside fully with cash, or with cash (i.e. at least the Basic Retirement Sum) and property.
However, if you have no urgent need for these monies, you do not have to withdraw them. These savings will continue to grow with the attractive interest earned in your accounts, if you choose not to withdraw.
#4. Defer your payouts up to age 70
While you can start receiving your CPF LIFE payouts at age 65, it doesn’t mean that it’s a must for you to do so, especially if you can rely on other income streams for financial support. The compounding effect plays a key role here, as the longer your CPF savings earn interests, the more your retirement savings will grow and the higher your CPF LIFE payouts will be. For each year you defer, your payouts can grow by up to 7%! This will give you up to 35% increase in payouts if you choose to start your payouts at 70.
*Includes extra interest. Members who are below 55 years old are paid an extra interest of 1% p.a. on the first $60,000 of their combined balances (capped at $20,000 for OA). Members who are 55 years old and above are paid an extra interest of 2% p.a. on the first $30,000 and 1% per annum on the next $30,000 of the combined balances (capped at $20,000 for OA).
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