As a 28-year-old, retirement isn't the first thing on my mind.
Yes, I do think about it once in a while (most often when my paycheck arrives and I realise that a portion of it has been deducted for my CPF). But otherwise, I'm more concerned about more immediate financial matters such as saving up enough so that I can afford a flat of my own or meeting my monthly insurance commitments.
Dad's recent 58th birthday celebrations, though, threw a new light on the term 'retirement'. I realised then that for my dad (age 58) and mum (age 56), retirement isn't a faraway concept but a near reality.
So it wasn't really a surprise when the thought suddenly struck me: What if my parents decide to retire tomorrow? Will they be ready? And what about my own retirement – when, and how, can I make it as smooth a journey as possible?
How to have a basic stream of retirement income for life
How will my parents upkeep their lifestyle during their retirement, so that they can finally enjoy a life free of work commitments and full of time meaningfully spent instead?
I know that as working adults, they've accumulated a retirement fund in their CPF accounts over the past few decades. Not only that, they will both be receiving a retirement payout under
CPF LIFE, which, as an annuity scheme, will provide them with a stable monthly 'income' for as long as they live.
(Note: Payouts illustrated here are estimated based on CPF LIFE Standard Plan parameters in 2016 and are relevant for those turning 55 in the year 2016.)
This is reassuring as their basic retirement income will be taken care of for as long as they live.
What about housing?
While the monthly payouts from CPF LIFE is for life, this amount may not be sufficient if there are standing financial commitments to honour, such as a housing loan.
I am currently planning my very first HDB purchase with my fiancée, and I am already thinking about the long-term implications. There are trade-offs to consider, and my parents' impending retirement brought these to the front of my mind.
If I depend largely on my OA to finance my house, I will be left with lesser savings in my CPF for retirement later on.
Alternatively, if I use a smaller portion of my OA, and instead make up for the rest with cash savings, I can maximise my CPF returns by transferring some of my CPF funds to the SA instead – thereby earning 1.5% or more interest, depending on the prevailing rate. This will eventually leave me with more funds in my CPF for retirement, though at the cost of my present savings and cash flow.
I will also have to think about my housing loan period. If I pick a longer-term loan, I will have to pay less each month, but it also means I’ll be paying more interest overall.
My parents had paid off their housing loans before they turned 55, thanks to prudent planning – this means they won’t have to worry about loan repayments during their retirement. As I am planning to move to my own flat within a year or two, I know that my parents also have the option of right-sizing from our current 4-room flat to a smaller flat via the
Silver Housing Bonus (SHB) scheme. Should they meet the
eligibility conditions for the SHB, they can use the net proceeds to top up their CPF Retirement Accounts (RA).
Balancing healthcare with retirement savings
Of course, another concern is the very nature of old age – there’s always the concern of deteriorating health or falling ill. In fact, mum had just broken her foot a couple of months ago, and the cost of treatment and physiotherapy sessions afterwards added up. Thankfully, it was mostly covered by insurance, but it was definitely a wake-up call.
A balanced lifestyle is key to one’s wellbeing, but financial balance is also necessary.
Thinking about my parents’ retirement makes me realise that it is prudent to have a suitable health insurance plan and sufficient emergency savings in cash. We have the
in our CPF to help cover for some of our healthcare costs, and we are also covered under
– but I intend to get some additional insurance cover for my parents, who might need more than just the basic healthcare coverage in their old age. I’ll need to look at the premiums and pick the one that is the most affordable in the long-run.
Retiring to enjoy life
Having thought about the practical side of things, I can’t help but wonder about the whole purpose of retirement. For me, I look forward to a welcome break from a lifetime of working hard to meet my goals – it will be a time for me to take a prolonged ‘vacation’ from work, just to enjoy life. I want the same for my parents: a purposeful and fulfilling retirement.
Of course, one thing doesn’t change – they will still need money to get through life, with a little bit extra for the things that makes life more comfortable and fun, such as the occasional indulgence in their favourite comfort food or a relaxing holiday. But all these will add up, and potentially even eat into their retirement savings.
My mum, who is currently a teacher, will be able to take on some part-time work as a tutor if she needs to earn extra income during her retirement. Likewise, Dad will be able to sell off some of his stocks to get some quick cash. However, I prefer to think of these as potential ‘safety nets’ in case they need extra cash, as these are not long-term solutions.
Meanwhile, I have the luxury of time on my side, and intend to utilise it to my advantage. The CPF Retirement Sum Topping-Up Scheme (RSTU), for instance, allows one to top up their CPF retirement account as well as that of their loved ones at any time, offering dollar-for-dollar tax relief of up to $14,000 for top-ups made in cash.
This scheme makes it beneficial for me to start topping up both my parents’ and my own retirement account early, in order to take advantage of the compound interest that I can earn with time.
Retiring tomorrow? Sure, no problem.
All this reflection made me realise that I have to do two things:
After all, life is about making the plans necessary to enjoy a desired outcome!
Jonathan Lim is a writer who loves taking showers - because that's when the best ideas strike! Showers and deadlines aside, most days are filled with copious amounts of black coffee and gym sessions.