Parents Don’t Have A Retirement Plan? Here’s How You Can Help

Your parents may think that their CPF and personal savings are enough to support their retirement years. However, this isn’t a one-size-fits-all plan and their retirement needs may be different depending on their health and other conditions. Here’s how you can help.

According to the World Bank, Singapore has one of the highest life expectancies in the world: with the average life expectancy at 84 years. 

Meanwhile, the minimum retirement age in Singapore is 63. This means that on average, most will spend 20 years in retirement. 

While your parents may have spent decades building their retirement funds, just how much money is enough? With the cost of living and inflation reaching its highest in recent years, the funds may not be enough to sustain them for two decades. 

 Furthermore, your parents will also need to have a safety net for unforeseen events such as large medical bills, accidents, and other emergencies. They may also have ongoing financial obligations such as their home loan to worry about.

If your parents don’t have a retirement plan, here are some ways to support them through their retirement years. 

1. Make voluntary top-ups to CPF accounts

Your parents’ CPF savings will likely be their main source of retirement funds, so it’s crucial that they maximise their CPF savings to make the most of their retirement payouts. One way to do this is to make voluntary top-ups to their CPF accounts.

If your parents are below 55 years old, they can earn an additional 1% interest or up to 5% per annum on the first S$60,000 of their total savings in their CPF accounts. However, note that this is capped at S$20,000 for CPF OA. 

Meanwhile, if they are 55 years and above, they can earn an interest of up to 6% per annum on the first S$60,000 of their combined CPF savings (capped at S$20,000 for CPF OA). That’s 2% extra interest. 

The higher interest earned and compounded will help them to reach their CPF retirement sums quicker, and also higher CPF LIFE payouts. 

Aside from ensuring that they have higher CPF payouts in the future, they can also enjoy potential tax relief of up to S$8,000 per year if they make cash top-ups to their CPF SA, and an additional S$8,000 if they make cash top-ups to their loved ones’ SA or CPF Retirement Account (RA). That’s up to S$16,000 of income tax relief in a year. 

Likewise, you can also make cash top-ups to their CPF SA and RA and enjoy personal income reliefs.   

2. Understand their current financial situation and needs

You should also have an open conversation with your parents about the state of their finances. Although it can be difficult for your parents to be transparent about their financial situation, it helps to know where they stand in savings, expenses, debts, and investments, or if they have an insurance plan. 

The result of the conversation gives you a better picture of whether they are well-equipped for retirement or if they need your help to reduce their liabilities. 

3. Ensure that your parents have the right insurance coverage

Even if your parents make a budget that covers all their expenses including housing, food, and transportation, unforeseen things such as large medical bills, accidents, and sudden family changes can happen and this can jeopardise their retirement funds.

Furthermore, as your parents get older, they become more prone to health issues and diseases. That’s why it’s important that your parents have the right insurance coverage, so a critical illness plan and a long-term care plan such as ElderShield can help to cover any medical-related costs and prevent the costs from burdening the family. 

4. Invest their money

Rather than allowing inflation to eat into their savings, your parents can invest their money (if they haven’t already). However, given their age, it’s likely that your parents will have a lower risk profile and therefore have a less aggressive approach.

While they may baulk at the idea of investing their money, investing helps to cope with inflation and any unexpected costs or emergencies. The returns from these investments allow them to increase their passive income, along with CPF LIFE payouts), without losing any sleep.

Stable investments like bonds, unit trusts, high-interest savings accounts, or regular savings plans offer lower returns as opposed to stocks and exchange-traded funds (ETFs), but are less risky. Better yet, all they really need to do is to park their money and wait for it to grow. Apart from the banks, robo advisors also let you invest via regular savings plans. 

This allows them to invest their money and increase their passive income (along with CPF LIFE payouts), without losing any sleep.  

5. Help your parents to reduce their debt 

Aside from ensuring that they’re properly insured and have adequate retirement funds, it’s also important to get rid (or at least reduce) any existing bad debts, such as credit card debts or car loans. If left unpaid, these debts will eat into their savings and jeopardise their retirement plans. 

Start by listing down all their debts and then prioritising debts with the highest interest rates. For example, credit cards are notoriously known to charge high interest rates for missed or late payments. Not only that, but the interest will also compound, resulting in higher interest payments. 

If the amount is too big to pay off, you can also consider paying more than the minimum amount so that you can get out of debt faster. If you’re targeting to pay off within three months, consider applying for a balance transfer to pay off faster. 

Read these next:
Beginner’s Guide To CPF Retirement Sums And How To Get There (2022)
CPF Basic Retirement Sum: How to Maximise Your Retirement Payouts
What is a Debt Consolidation Plan And How Does it Work In Singapore?
Have a More Comfortable Retirement Through Tax Optimisation: SRS
How Much Do You Really Need For Your Dream Retirement Lifestyle?