You may have already started saving for retirement, but with growing life expectancy and ever-rising costs of living, is that going to be enough? Probably not. That is why you need to start planning now.
You can use our Retirement Calculator to get a good idea of how much you will need when you retire, how much you will have, and what your shortfall will be. You can then start planning ahead.
Wait, what about your other needs?
To help you plan, our retirement calculator can give you a good idea of how much you will have when you retire, your estimated shortfall, and how you can close the gap in different ways.
Let us start by making sure you have taken care of the following:
• At least 3 months' expenses set aside for emergencies.
• Sufficient life, health and mortgage insurance coverage for your family.
• Plans to build a pool of funds for your children's higher education.
Now, you must ask yourself four questions:
Is your CPF sitting idle?
While CPF is a good way to save in a disciplined manner, idle funds in your CPF account earn interest at just 2.5 percent per annum. Considering rising inflation, that may be far from enough. You can make them work much harder by using a range of investments such as unit trusts, stocks and bonds.
If you have idle funds in your Central Provident Fund (CPF) ordinary account earning 2.5 per cent per annum, you can consider investing these funds for better returns to grow it at a faster rate so that you would have a bigger pool of CPF savings at retirement. Ordinary account savings can be invested in a wide range of investments, including unit trusts, stocks and bonds, to enhance your retirement nest egg.
Looking ahead, changes are in the pipeline to enhance the CPF system to better meet retirement needs.
A CPF Advisory Panel, set up in September 2014 has assessed that it would be prudent for CPF members turning 55 in 2016, to set aside enough CPF savings to provide for a Basic Payout of about $650 to $700 per month when they retire in 10 years' time.
To receive this Basic Payout, members would need to set aside a Basic Retirement Sum (BRS) of $80,500 as premiums in 2016. The BRS will effectively replace the current CPF Minimum Sum and will increase by 3 per cent per annum from 2017 to 2020.
CPF members can withdraw their savings above the BRS subject to a CPF charge/pledge on the value of their property. Members who do not own their homes should set aside the Full Retirement Sum – set at two times the BRS, or $161,000 in 2016.
The Panel also recommended that CPF members who want higher CPF LIFE payouts be allowed to voluntarily top up their CPF LIFE premiums with savings or cash up to the Enhanced Retirement Sum, which is set at three times the BRS, or $241,500 in 2016. The panel has also suggested that CPF members be given the flexibility to defer their payout start age, up to age 70, to enjoy permanently higher monthly payouts of 6 to 7 per cent for every year deferred.
Is SRS going to be enough?
The Supplementary Retirement Scheme (SRS) lets you save taxes while building your retirement fund. But on its own, it may not be enough. Fortunately, you can invest your SRS funds further in various instruments like unit trusts, insurance plans, bonds, shares and Singapore dollar fixed deposits to boost your retirement savings.
Are you making the most of financial assets?
Here is another reason to start early: Say a 25-year-old starts investing $5oo per month at 8 percent per annum. By age 62, she will have built up savings of $1.4 million!
By saving early and diligently, the power of compound interest can reap great rewards even with small amounts. You have a range of options like unit trusts, stocks, and bonds, and you can even choose investments that will give you a steady income after you retire.
Are you ignoring the value of property?
Property can be a great source of additional income after retirement. If you own an investment property, the rentals can provide you with a steady monthly income. If you own the property you live in, you can consider moving into a smaller property and renting out your owned property to get an additional income stream.
Retire in peace
On their own, the savings in your CPF or SRS accounts will probably be insufficient to meet your retirement needs. However, you can supplement them with other sources of income by using various types of investments. Most importantly, the earlier you begin, the more comfortable your retirement will be.
