Everything you need to know about retiring in Singapore

You are in the prime of youth and in the early stages of your professional career. Retirement is far, far away. You’ve probably heard of terms like retirement savings plans, and perhaps think that this is something you should only worry about when you are closer to retirement, right?

Well, not really!

It’s never too early to plan for your retirement. You might have plans for that world tour or spending leisurely hours at that luxury farmhouse that you want to purchase – but for all that to happen, you need to start savings today.

Why Should You Start Planning Now?

The future is full of uncertainty. Inflation is rising, so today’s 1 SGD may not be worth as much in the future. Therefore, the lifestyle you lead today may cost much more to sustain, say a decade from now. That’s why you should start your retirement planning from today.

What is the Retirement Age for Singaporeans?

As per the Ministry of Manpower (MOM) policy, the official retirement age is 62 years. This age limit is set to go up to 65 years by 2030. You might continue to work beyond this age if you are fit to do so and your employer has no issues with it. At present, MOM has set this age limit at 67 years, also known as the re-employment age. This will also increase to 70 years by 2030.

What are the Living Expenses in Singapore?

Retirement expenses in Singapore are high and as time passes, they will only go higher. And with age, your medical expenses will also rise. Of course, your health insurance will take care of some of it, though not all. And you need to factor in unforeseen & emergency expenses as well.

An NTUC survey in 2019 had worked out the desired average retirement monthly income at around $3,300. This is a ballpark figure and is subject to inflation at 3% to 4% per year.

What are the Retirement Savings Options that Singaporeans Have?

The pension system in Singapore is among Asia’s earliest and most developed. The main support system of this structure is the Central Provident Fund (CPF) – an extensive social security system. 

The CPF helps working adults set aside retirement funds. Such funds are mainly stored in the Special Account (SA) that gives you an interest of 4% as of now. Contributions to this account are to be used for retirement-related investments. 

Apart from SA, the CPF consists of: 

-Ordinary Account (OA) whose contributions you can use for property & insurance purchases. You can also redirect this account’s balance to affiliated accounts.

-Medisave Account (MA) for hospitalization, medical care & medical insurance premium-related expenses.

In the initial days of your career (age 35 years and less), 37% of your monthly wages will go towards CPF contributions. You will contribute 20% and your employer, 17%. A majority of this amount goes to your OA to facilitate your home purchase. As you grow older, contributions shift to the MA & SA, as your needs change. 

When you turn 55, you will have a Retirement Account (RA) in your name. The SA & OA balances will move on to this account, provided the amount is more than $5,000.

You can withdraw the CPF RA money only if the combined OA & SA balance is less than $5,000. Otherwise, there will be a minimum balance that you can’t withdraw.

Retirement savings plans:

You could also get yourself a retirement savings plan. These are usually endowment plans that are geared toward accumulating & growing your funds. Upon maturity, which usually coincides with your retirement, these plans will provide either a lump sum payment or monthly income (for up to 20 years in some cases).

These plans also come with an insurance component that will protect you from unfortunate events. For example, outstanding premiums will be waived off, and you will also receive additional monthly income in case of an accident that results in total permanent disability.

You can always supplement your retirement savings plans by investing your CPF savings in the stock market, via the CPF Investment Scheme. This will, in all probability, fetch you higher returns but it carries an element of risk with it. You can also opt for a retirement plan from financial institutions.

Investment linked plans:

Investing in stocks is not everyone’s cup of tea. Getting things right requires a lot of research and amazing timing as well. And so, if you are looking for an easier path to good returns, you can opt for Investment Linked Plans.

ILPs offer a convenient walk-around to the complex nature of investments. They are hybrid financial tools that combine life insurance with investment to provide you with protection & the promise of handsome returns.

You can investment funds on a monthly basis and enjoy substantial returns during your retirement years. Some of the better plans provide a range of investment portfolios that are designed to meet varying return expectations, risk appetites and time horizons. The better investment linked plans will also provide loyalty bonuses and start investing your 100% of your money from day 1 of the plan. 

So, there are multiple options for you to work out retirement savings plans. The trick is to start early so that you don’t feel the pressure as your retirement days are approaching.