How to spend your retirement funds?
Spending your savings can be a lot more complicated than building them up. This could be why advice on saving for retirement is more easily available than advice on how to draw down the money you have accumulated post-retirement.
To be fair, it can be tough coming up with a one-size fits all solution as the retirement drawdown amount could depend on many things, such as the desired lifestyle, the retirement age and other sources of retirement income, if any.
For most of us, the retirement concept is largely positive and aspirational, though health and related healthcare costs could mar this for some. Let's ensure that running out of money mid-way does not become another issue.
How much do I need to save?
Understandably, knowing how much you can withdraw would depend very much on how much you have among your assets.
Unfortunately, at the onset of retirement planning, pinpointing the amount that we think we would require for retirement can be tough. Many variables come into play, making it hard to quantify what we would require, say 20 to 30 years down the road, as we move along in our life stages and experiences.
For many of us, retirement planning only becomes meaningful when we are in our late 40s, as by then, we are more settled in life and in a better position to anticipate the future ahead.
Generally, starting earlier is recommended as we have time to modify our savings goals to ensure we remain on track. We also avoid taking unnecessary risks with our finances, which by starting later in life, we may have to do, to make up for any shortfall in funds.
If you are unsure how much to set aside for your retirement, use our retirement calculator to help you in this area.
Having had some idea, you can then follow up with a visit to our friendly financial planners at any branch.
Our financial planners are trained to help you figure out what is lacking in your portfolio, and how you can make up for it (via investments, dividend/interest, selling assets, rental income, etc) and even suggest how you can ensure your portfolio keeps growing during retirement.
You should then systematically review your portfolio to ensure it is kept up to date with your lifestyle changes and market events.
Another reason why you should be in regular touch with your financial planner, is that this is a good way to keep up to date with the latest on national schemes aimed at helping you reach your desired retirement outcome.
The Retirement Sum Scheme (for those born before 1958) and the CPF Lifelong Income For The Elderly -- or CPF LIFE Scheme -- provide you with monthly payouts once you are 65 years of age, for as long as you live, while Medishield Life is an individual basic universal healthcare insurance scheme that helps pay for large hospital bills and expensive outpatient treatments.
The Supplementary Retirement Scheme (SRS) is a means of tax relief and more meaningful for those in the high income brackets.
We will not go into great detail about these schemes, as there is sufficient information already available. What is important is to ensure that your overall retirement portfolio takes these schemes into account during planning, but is not overly reliant on them. You also need to ensure that when you are ready to drawdown, you do so from the right options at the right time.
How and when to "drawdown"?
For instance, if you still have money left in your CPF Ordinary and Special Accounts, you can rely on the interest earned on the amount as part of your post-retirement drawdown if you stopped working at 55 years of age.
Then from age 62 onwards, you can start drawing down from your SRS account, but make sure you stay within the taxable limit (approximated at 50 per cent of the withdrawal sum). Withdrawals are penalty-free only if they take place after the statutory retirement age that was prevailing at the time of your first SRS contribution (currently that age is 62 years).
After 65 years, if you have to decide between receiving monies from CPF Life, SRS or income you're your Ordinary and Special Accounts, our advice would be to leave as much money in your Special Account as possible.
This is because you still earn 4 per cent interest on the balance in the Account, even after age 55. This is an attractive level to let your money to grow over time as you utilise other sources for your retirement drawdown.
These other sources could be from your investments, such as annuity from previously purchased insurance plans or coupon payments from bond investments or Real Estate Investment Trusts.
How to keep generating income post-retirement?
It's always good if you can continue working after retirement, as aside from the extra income, you also gain from a social and mental health aspect as well.
But you can also choose to let your money work for you. Different periods and asset mixes would produce different results so keep reviewing your portfolio and continue investing, by selectively moving monies into interest yielding assets like Real Estate Investment Trusts, or bond funds when they are attractively valued.
In this way, your portfolio will continue to generate passive income for you to live on.