Planning for retirement in Singapore can easily be overlooked. Between working some of the longest working hours in the world, shouldering financial stress to afford the high cost of daily living and finding time to be a little happier in life, there is precious little time to dedicate to retirement planning.
Even for those who consider retirement planning, many of us may be (falsely) comforted by the retirement safety net that the government has already built for us – CPF LIFE. By taking a hefty chunk out of our monthly salary to put into our CPF accounts during our working years, we can receive CPF LIFE monthly payouts in our retirement, for as long as we live.
For those who understand CPF LIFE, we may be acutely aware that it primary purpose is to provide a basic retirement income in retirement. Many of us may be currently leading a lifestyle in excess of “basic”, and to continue a similar lifestyle, have to build other sources of retirement income during our working years.
For example, if we turn 65 this year, we can stand to receive $1,013 to $1,115 in monthly CPF LIFE payouts.
*This is a broad estimation using the CPF LIFE estimator, for someone turning 55 today and opting for the Standard Plan, but with inputs for the Minimum Sum (now Full Retirement Sum) of $123,000 that was required in 2010.
How Much Do We Need in Retirement Today?
So, we know that someone who turns 65 this year will receive $1,115 a month in CPF LIFE payouts at the high end. But how much do we really need to spend in our retirement?
Minimum Income Standard (MIS)
In 2019, a team of researchers from the Lee Kuan Yew School of Public Policy (LKYSPP) conducted focus group discussions with over 100 participants from varied backgrounds to understand what a basic elderly household budget would look like.
They found that single elderly households require $1,379 a month, while coupled elderly households require $2,351 a month to meet their basic needs. This is higher than what saving even the Minimum Sum and going on the Standard Plan for CPF LIFE would provide today, at the higher end of the estimation.
Note that this is a 2019 figure, and just applying the 20-year average MAS core inflation rate of 1.7% increases it to $1,402 a month and $2,391 a month for single and coupled elderly households respectively.
Retiree Household Expenditure
Another way to look at how much those in retirement would need for their monthly expenses would be to dive into Singapore’s Report on the Household Expenditure Survey 2017/2018 that is compiled every five years.
Apart from just giving us some statistics, the figures found in this report can also be extremely valuable as it is classified by housing-type, which can provide some indication on the standard of living we would like to achieve given the home-type we are currently living in or are accustomed to.
In this survey, it was found that household members, in households comprising only non-working persons aged 65 and over, spent an average of $1,154 each month.
Of course, these figures are again based on past data and need to be updated to reflect what someone retiring in 2020 may need to spend each month. Simplistically, this is what may be more representative in 2020.
Extrapolated from Report on the Household Expenditure Survey 2017/2018 for 2020 figures
On average, each retired person, living in a household comprising only non-working persons, would need to spend $1,194 per month.
As we can see from the data, those who live in HDB flats spent less, with those in the smallest 1- & 2-Room HDB flat spending $711 each month. Even those living in 5-Room and Executive HDB flat spent less than what their estimated CPF LIFE payouts would be if they kept the Minimum Sum when they turned 55.
On the other hand, those living in condominiums and landed properties spent more than double their counterparts living in HDB flats each month. Those living in condominiums and other private apartments also spent more than those living in landed properties.
Are Our CPF LIFE Monthly Payouts Enough?
From a numbers perspective, it looks like those living in HDB flats could have paid for their retirement lifestyle entirely from their CPF LIFE monthly payouts, if they had kept the Minimum Sum when they turned 55. They would have been receiving $1,115 and spending under that amount.
In reality, the figures show a drastically different picture – with retirees drawing an average of only $361 from CPF LIFE (and CPF Retirement Sum Scheme).
It may be logical that those living in the smallest housing-types may not have been wealthy enough to build up the Minimum Sum to receive a monthly payout valued at $1,115. However, from the data, even those living in landed properties, with the highest CPF LIFE income, only received $867 each month. This is less than half of what they were spending each month.
Of course, many of these people may have a much smaller CPF balances as contribution rates may have been lower because of their age. Nevertheless, we should also take heed that active management may be required for us to ensure our CPF LIFE payouts can afford a basic retirement living standard.
Taking a leaf from the wealthier households, investments made up their biggest source of income during their retirement years. We should also look to actively build our investment portfolio over the long-term so we can enjoy the fruits of our labour during our retirement.
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