This article was contributed to us by AIA Singapore.
Daunted by the sheer figures in question or thinking it still early days, many in Singapore procrastinate retirement planning.
Given the high cost of living in our country, and the risk of long-term inflation constantly chipping away at our spending power, we really can’t afford to not plan for our golden years.
Like it or not, our future retirement needs to be planned for today. Here are some actionable plans that you can start putting in place today in order to build your retirement nest egg.
# 1 CPF Retirement Sum Topping Up
For most Singaporeans and permanent residents (PRs), CPF LIFE payouts will provide us basic monthly income in our retirement. The exact CPF LIFE payout we end up receiving will be computed based on our CPF Retirement Account (RA) balances. Of course, this amount is dependent on our contributions, on a mandatory and voluntary basis, to our CPF Special Account (SA) and Ordinary Account (OA) while working.
The bigger the amount we have in our RA, the greater our monthly CPF LIFE payouts will be.
One easy way to increase our retirement nest egg is to make voluntary contribute to our SA today. The amount we contribute will go directly into our SA (or RA if we are age 55 or above), earning us a risk-free interest of at least 4% per annum. In addition to this, we also enjoy a tax relief of up to $14,000 per year when we make voluntary contributions.
We also have to note that CPF LIFE monthly payouts only starts from age 65. If we intend to retire earlier, we will not be able to count on our CPF LIFE payouts to tide us through.
In addition, any voluntary top-ups we make into our CPF account today is also irreversible.
# 2 Singapore Savings Bonds
Issued by the Singapore government, the Singapore Savings Bonds (SSBs) offers a risk-free investment to grow our retirement nest egg. What’s more, it also provides superior liquidity, letting us withdraw our money if we really need it.
These bonds pay out a coupon rate of close to 2.6% per annum if we keep them over the entire 10-year holding period.
As mentioned, we can also exit this investment at any point in time, without penalties, by giving just a month’s notice. This makes it attractive for anyone who wants to invest their emergency funds or savings for future expenses (such as their children’s education, home renovations or retirement) but are not sure when they will require their money back.
# 3 Savings Plans
Savings plans offered by financial institutions are another viable alternative to the SSBs.
Unlike the SSBs, most of these plans are typically less liquid requiring you to hold them for a fixed term to enjoy the promised interest returns.
In addition, many of these savings plans offered by insurers also include a small insurance component, providing you with basic added protection. Many of them also offer the option of deciding your own policy duration so that you can choose a suitable plan based on when you may need to use your money.
# 4 Regular Shares Savings
Offered by several brokerage firms in Singapore, Regular Shares Savings (RSS) plans allow investors to start investing in the Singapore Exchange (SGX) from as little as $100 a month.
RSS plans are ideal for new investors with limited knowledge, savings and confidence. However, for the strategy to pay off, you need to stay vested over a long-time period.
Do note however that unlike the other options listed in this article, there is no guarantee you will receive a return when you invest in an RSS plan. In fact, you may even suffer losses.
This is because you are essentially choosing stocks to invest in and there is no way to predict if the stocks you invest in today will do well in the future. What this means is that you must be prepared to take on a higher risk if you wish to build your retirement nest egg through RSS plans.
# 5 Retirement Products
Last, but certainly not least, retirement products offered by insurers can be a practical option if you are looking to build a secondary layer of income to supplement your CPF LIFE monthly payouts. One such product is the AIA Retirement Saver (III).
What the AIA Retirement Saver (III) provides is a guaranteed stream of income for 15 years. In addition, policyholders may also enjoy potentially higher return, based on the performance of the participating fund of the insurer.
Policyholders can also choose the premium terms that best fit their needs. For those who are already established in their career, a shorter premium term of between five to 10 years may make sense. For those who prefer paying a lower premium each year, spreading out the annual premium payable over a longer period of time may be preferred option.
There is also an option for those who have saved up a sizeable amount to pour their money into the policy with a single lump-sum premium.
Unlike the CPF LIFE which only starts providing payouts from age 65, AIA Retirement Saver (III) policyholders have the flexibility to choose when they would like to start receiving their monthly payouts. This can be from as early as 55 to as late as 70.
What’s Your Why During Retirement?
Retirement doesn’t mean you stop living a meaningful life. Contrary to that, it should actually mean that you live your life pursuing your biggest passions and interests.
To ensure this, you need to have sufficient funds for your retirement. This makes it imperative that you plan well in advanced for this stage of your life. The tools listed above provides you sufficient options to grow your retirement nest egg even if you are risk averse or have limited investment knowledge.
There’s no excuse not to start today!