Running a marathon is no easy feat. It takes effort to plan your training runs, discipline to get through them, and on the day of the race itself, the perseverance to last the 42km.
Retirement is no different. With lifespans going up, retirement can for some people last even 20–30 years – it’s important to gear up so your resources last. Preparing for the long journey ahead can seem daunting, but like running any race, even one as long as a marathon, preparation is key.
Key points:
- Before you hit the ground running, there are a multitude of factors to consider when planning for your retirement, such as lifestyle, healthcare and legacy planning.
- Work out your must-have income floor by quantifying your projected expenses for your needs and stress-testing its stamina with inflation assumptions.
- Then, set in place multiple income streams for your retirement marathon. These will fall under decumulation, preservation, growth and legacy.
Check your fitness for the marathon.
Planning your retirement route
The first step is to determine how big your nest egg should be. And review these calculations regularly.
- Start with your current spending habits and consider other lifestyle changes in your golden years. Factor in all aspects to derive the minimum monthly income you need to cover your desired standard of living.
- Next, consider the kind of lifestyle you want, including discretionary expenses like travel, entertainment, beauty, and wellness. Think also about general expenses, which may include taxes, property maintenance costs, and vehicle ownership.
Retirement target to sustain different monthly expenses over 20 years1
Source: DBS, February 20251
Note: Projections for ‘Conservative’ are based on the average retiree’s monthly expenses. Projections for ‘Aspirational’ are based on the top 20% of retirees with more aspirational lifestyles.
Factoring in healthcare costs is essential. In Singapore, healthcare accounted for 11% of monthly expenses for retiree households (aged 65 and above), which is much higher than the 6.7% for the average household.
At the same time, medical costs have accelerated in recent years and may continue to rise significantly in the future. It becomes important to set aside a percentage of your retirement income for healthcare insurance premiums and possible medical expenses.
Year-on-year growth in prices of outpatient services1
2022 | 2023 | 2024 | |
Fees at Polyclinics | 7% | 14% | 8% |
Fees at GP Clinics | 13% | 19% | 4% |
Dental Services | 4% | 7% | 4% |
Source: Singstat, DBS
Stress-test your retirement target with various inflation assumptions, and make adjustments along the way. The most common inflation rate planned for is 3%. But as we live in a volatile world, also stress-test with inflation rates of 4% or 5%.
Preparing for the big race
Once you have firmed up your plans, it’s time to get ready for the long run ahead. This means building multiple passive income streams that will lie in one of three income types so you can enjoy financial freedom post-retirement.
Ideally, your retirement portfolio should be diverse, with income streams from private pensions, savings, property, investments and more.
- Decumulation
Marathons are all about carefully drawing down on your energy reserves. Run too fast at the beginning, and you will not last the distance.
Similarly, for retirement, drawing down the savings you have built over the years is the first basic step of any retirement plan. Such assets include insurance, cash savings and pensions.
But spend wisely because you will no longer have income to supplement your savings after you have ended your career. One simple method of drawing down on your assets is the 4% rule, which indicates that if you withdraw 4% a year from a diversified balance portfolio, your retirement portfolio may last you for a minimum of 30 years based on historical returns. - Preservation
Next, remember to pace yourself during the race – instead of simply drawing down and losing stamina, you should be carefully preserving your principal sum by tapping on regular income streams from financial assets such as property, unit trusts, and insurance plans.
Preservation will sustain your principal capital when you draw only from returns or interest. The race is lengthy – preservation helps ensure that the yields from these assets help mitigate longevity risk. - Growth
And lastly, invest to grow your savings, even in retirement.
While you should be focused on preservation for retirement, it does not mean you cannot invest for growth. Making long-term investments to grow your principal can also be a prudent move, especially with safer and more stable assets such as a more conservative portfolio of stocks, fixed-income assets and funds. Like improving your timing over the long run, investments will serve as a way for your wealth to flourish, with every return you get.
Preserving your legacy at the finish line
As in most great endeavours of life, family plays a vital part. Legacy planning is a crucial part of forming your retirement plan, as you think about what you will leave your family with.
Part of ensuring your wealth is efficiently distributed to your intended beneficiaries is having a sound estate plan, which will factor in the assets unused in your lifetime and pass them on to your loved ones. Set it up by preparing a will and a Lasting Power of Attorney.
Insurance plans in your legacy planning are another way to protect your loved ones. These form not only another income stream that preserves your capital, but are also a way to ensure your wealth is grown and preserved for the next generation.
When adding retirement income insurance to your portfolio, think about whether you are comfortable with a lump sum premium payment, or if you prefer spreading the premium payment over a certain period.
If regular premium payments make more sense for you, insurers offer plans with carrying income payouts.
- While some, like the Manulife IncomeSecure plan, guarantee annual payouts, others, such as the Manulife IncomeGen (II) plan, guarantee monthly payouts.
- These can all be tailored according to the needs of your decumulation portfolio, and how this income stream will add to your retirement funds.
If a single premium, with the convenience of a one-time transaction, works better for you, options that vary in terms of when payouts begin are available as well, whether you prefer them to start sooner, or later.
- Perhaps your retirement portfolio factors in an income stream that starts earlier, in which case plans with payouts that start earlier, such as the Signature Lifetime Rewards (II), would be more suitable.
- Or maybe flexibility in currency, which an insurance plan like the Signature Income Series would provide, is what your retirement portfolio would benefit from. These might all differ according to your timeline as well.
With legacy insurance plans including the option to change the life insured, an added peace of mind comes with the knowledge that your policies can be transferred to the next generation, passing your wealth on to your loved ones.
Enjoy your retirement marathon
After training your retirement portfolio to include multiple income streams supporting the lifestyle you have carefully designed and prepared for, it’s time to bask in the financial freedom of your golden years.
Remember, there is no one-size-fits-all solution. But we can all make retirement planning a priority to ease the journey, and find the finish line of a dream retirement at our fingertips.
