The Kueh Lapis Theory of Retirement
Congratulations on becoming a full-fledged adult! Your career is in full swing, and perhaps children’s laughter and bickering fill your house. The songs that defined your youth are now playing on Gold 90.5 fm, and parties end before midnight. You worry more about your parents’ health. And before you know it, your CareShield Life letter arrives.
Each day is a step closer to retirement. What’s a good way to start thinking about it?
What can you do after retirement in Singapore?
Retirement looks different for each of us. For some, retirement is travelling around-the-world in a camper van. For others, retirement is keeping the brain active with mah-jong game sessions or part-time work. Or it might look like a mini childcare centre for your grandkids so your children can pursue their career aspirations.
With our unique collection of life experiences and dreams, there is no ‘magic’, one-size-fits-all sum for retirement.
Getting to a reasonable income for retirement
It’s helpful to think of your retirement needs like a kueh lapis cake, which is a beloved local snack that is made up of layers.
- Each layer represents a different retirement savings tool
- The size of the full cake represents your total retirement savings
To get a taller, bigger kueh lapis cake, you could:
- Use more types of retirement savings tools (Get more layers)
- Grow the money you get from each retirement savings tool (Thicker layers)
Base layer: CPF Life
CPF monies form the base of your retirement savings if you are a Singapore Citizen or Permanent Resident. Consider converting these savings into a lifelong income stream instead of withdrawing it as a lump sum.
You will be auto-enrolled into the CPF Lifelong Income For The Elderly (CPF LIFE) Scheme if you meet the following criteria:
- You are born in 1958 or after; and
- You have at least S$60,000 in your CPF retirement savings before you reach 65
You can still choose to join CPF LIFE, at any time from 65 to one month before you reach 80, and you can even choose from three types of CPF LIFE payout plans!
2nd layer: Insurance
Insurance coverage is important because our healthcare costs will rise significantly with age. There is a place for plans that provide pure protection, and those that provide income on top of protection.
- Before you retire, check that you have health insurance cover, such as an adequate hospitalisation & surgical plan, and a long-term care plan.
- This is especially important if you have always relied on your company’s employment benefits insurance plan.
- It is a bad idea to have insufficient health insurance at a life-stage where medical costs typically increase.
Protection + income plans:
- Such plans provide monthly income, mimicking the monthly salary that many of us are used to getting.
- It is a gentler transition into retirement, and helps retirees manage their spending.
- There are low-commitment options for e.g. RetireSavvy that allow you to make top-ups and customise your payouts along the way, even up to 2 years before you retire!
- Note however that this type of plan typically has lesser life coverage.
3rd layer: Investments
Investments help your money to catch up with or outrun inflation. In Singapore, inflation has historically been about 2%. By starting early, you can reap the benefits of compounding over time.
Here are four principles to help you diversify your investments better:
- Use different types of investments. For instance, bonds, stocks, unit trusts, and exchange-traded funds (ETFs).
- Invest across different geographies and types of industries. For instance, by investing in Singapore, other major developed countries, and emerging countries.
- Time is your friend. For instance, with regular savings plans such as Invest-Saver that apply the time-tested approach of dollar-cost averaging.
- Tap on different types of expertise. For instance, complement your DIY portfolio with professionally-managed ones such as digiPortfolio.
4th layer: SRS
Consider participating in the Supplementary Retirement Scheme (SRS) to enjoy some tax relief and boost your nest-egg. It is a voluntary scheme to encourage individuals to save for retirement, while enabling them to reduce their current tax bill.
Top layer: Cash
Cash is the layer that you must always have. Always have some in your savings account. While this money is not going to beat inflation, there are very good reasons for holding cash:
- You will need it for the rainy days;
- Your investments may need more time to be liquidated; and
- You want the flexibility to invest at opportune moments.
And while you’re still drawing a salary, you can earn more interest by placing your deposits in savings accounts that have higher interest rates.
How much do I need to retire in Singapore? Where to begin
It helps to appreciate how much a basic lifestyle would cost. By this, we mean no air-con, no car, and you just spend on food and medical needs.
The Lee Kuan Yew School of Public Policy estimated that retiring in Singapore with such a lifestyle would have cost S$1,379 a month in 2019. After considering inflation, and being in retirement for about 23 years, the total amount required comes closer to S$1.3 million.
Start planning for retirement by viewing your cashflow projection on DBS NAV Planner. See your finances 10, 20 and even 40 years ahead to see what gaps and opportunities you need to work on.
You can improve the forecast by syncing your other bank and government accounts using your Singpass.
If you are ready to grow your insurance layer in the kueh lapis cake, consider building your own customised plan online with RetireSavvy.
Alternatively, you may wish to speak to a Wealth Planning Manager today for a financial health check and how you can better plan your finances.
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This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.