All views expressed in this article are the independent opinion of MoneySmart.
For many of us, thinking about our finances on a day-to-day basis is mostly about knowing how much we earn and deciding what we’re going to do with that money. Of course budgeting is extremely important, but there’s a lot more to planning your finances than just coping with your current expenses and short-term liabilities.
Have you ever thought about whether or not you will continue living the way you are living now when you retire? Even though most people know that general inflation exists, most might not be aware of the “lifestyle inflation” that occurs as the standard of living and level of affluence improve in Singapore. Because we enjoy better things in life today (compared to that of during our parents’ or grandparents’ time), the amount we spend on both our daily and lifestyle needs have definitely gone up.
And that’s just one aspect of our lives that will impact how much we need to save for our future needs. Here, we take a look at two key facts that should influence the way we plan for our future, especially the expenses we will incur over the years of our retirement.
Singaporeans are living longer
population statistics, 1 in 2 Singaporeans aged 65 years today is expected to live beyond the age of 85. Singapore has also
topped the world in life expectancy, with a projected lifespan at birth of 84.8 years. By 2040, Singaporeans’ life expectancy is
expected to increase to 85.4 years, which is an increase of 2.3 years from the 2017 benchmark of 83.1 years. This means that an average person will be spending more years in retirement, which of course also means that you will need more savings for your retirement.
What does this translate into? Let’s say you need
$1,400 a month for living expenses in retirement, not including discretionary spending for leisure. If you are to live just 2 years longer, you would need to save about $33,000 more. This isn’t even taking into account the cost of healthcare, which is something extremely important to factor in to your overall cost for retirement.
Most Singaporeans wish to maintain their lifestyle even after retiring
We are not only just living longer, our lifestyle expectations and standard of living have improved as well. Although there’s nothing wrong with that, it is definitely something that we need to be financially prepared for.
According to a survey by the CPF Board, 4 in 5 Singaporeans wish to maintain their current lifestyles after they retire. This means that they want to be able to afford the travel, dining and entertainment options that they are enjoying right now. The key difference of course is that you won’t be earning an income from employment during your retirement years, so it’s important to plan ahead and save beyond what’s needed for your daily needs.
Getting the support you need for your retirement with CPF
In view of the increasing life expectancy and standard of living in Singapore, CPF has evolved to better meet the changing needs of our aging population..
CPF LIFE, for example, was introduced back in 2009 to provide us with a monthly payout from age 65, for as long as we live.
Against the backdrop of increasing life expectancy, CPF LIFE ensures that everyone has a steady stream of income and will not run out of savings throughout retirement.
Here is how it works:
When you turn age 55, a Retirement Account (RA) will be created for you. The savings from your Special Account (SA), followed by savings in your Ordinary Account (OA), up to your Full Retirement Sum (FRS), will be transferred to your RA to form your retirement sum. You can use your RA savings to join CPF LIFE and start receiving lifelong monthly payouts from age 65*.
The amount of monthly payouts you will get under CPF LIFE depends on the amount you have set aside in your RA. For example, if you turn age 55 this year and set aside $120,000 in your RA, you will receive a monthly payout between $960 - $1,030 from age 65.
Retirement planning might seem like a big and daunting task, but in reality, it boils down to understanding how much you need for expenses based on the retirement lifestyle you desire, and taking steps towards saving that amount.
To help you plan ahead, you can use the
CPF LIFE Estimator to calculate the amount you need to save or set aside in your RA to get the monthly payouts that you desire. You can also find out how much monthly payouts you can get with the amount of RA savings you have in your CPF.
Retirement Sum Topping-Up (RSTU) Scheme
To help us save up for the monthly payouts we need for our desired retirement lifestyle, we have the option of topping up our SA (for those below age 55) up to the current Full Retirement Sum, or RA (for those aged 55 and above) up to the current Enhanced Retirement Sum^. Top-ups can be made via CPF transfer or cash. Our CPF savings enjoy attractive interest of up to 5% p.a.#, which will help grow our retirement nest egg significantly over time.
In addition, you can also enjoy dollar-for-dollar
tax relief of up to $7,000 per calendar year when topping up your SA or RA with cash. If you are also making cash top-ups to your loved ones (parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings), you can enjoy additional tax relief of up to $7,000 per calendar year.
Find out more about the
Retirement Sum Topping-Up Scheme and how you can leverage on the perks of attractive interest and tax relief to save more and build your nest egg with greater ease.
Planning ahead for retirement based on changing needs
As our demographic landscape and aspirations change, it is important to understand how these changes affect us as individuals too, so we have a greater appreciation of what we need to plan for, as well as an understanding of how the policies put in place can be harnessed to help us. Hopefully, this insight will enable us to better prepare for the future with confidence.
*The payout eligibility age for those born in or after 1954 is 65. For payout eligibility age of older cohorts, refer to
this page (under “Why do I need to set aside a retirement sum?”).
^In 2019, the Full Retirement Sum is $176,000 and the Enhanced Retirement Sum is $264,000.
#Inclusive of 1% extra interest on the first $60,000 of combined CPF balances. Members aged 55 and above will enjoy an additional 1% interest on the first $30,000 of their combined CPF balances.