This article was contributed to us by AIA Singapore
Retirement is a long-term game. With Singaporeans expected to live between approximately 80 and 85 years-old, your parents will likely have close to 20 years in retirement from the official retirement age of 62 today.
Importantly, once they go into retirement, it is often difficult to return to employment as they would have lost key skills and contacts in the working world. This is why it is important for them to have a robust retirement plan before they do so.
This is where you can help your parents achieve a less stressful retirement. No doubt, bringing you up, clothing you and feeding you took a toll on their financial well-being. Out of love, they may even have dug deep into their financial reserves or borrowed money to give you an education and even pay for your holidays and wedding.
Here are five ways you can help your parents achieve a less stressful retirement.
1. Discussing the topic
While you can never repay the love and sacrifices they made for you, you can help with planning for their retirement. The most logical way to start doing this is to have an open conversation about their plans and expectations, as well as the policies and investments they already have.
This, however, can be a tricky topic to navigate for several reasons. You will likely be sandwiched between caring for your parents and planning for your own future, including saving for your home, wedding, children and even your own retirement. Also, discussing money can be sensitive, and this is more prevalent in Asian households where elders are not often questioned.
What you can do is start to gather basic information of your parents’ financial standing. As you learn more about their well-being, you can start to give them your input and start contributing.
2. Contributing to your household
One of the simplest ways to alleviate some of your parent’s financial stress is to start contributing towards household expenses. If you live with your parents, it’s only fair you share in paying for the utilities, groceries and other household bills. As an added benefit, this will also instil a sense of responsibility in you when you get married or move into your own home.
While there is no fixed sum that you should be contributing, one simple estimate can be to calculate how much you may be spending if you lived on your own, paying rent, laundry, utilities as well as eating all your meals out.
If your parents are comfortably covering the household expenses at the moment, you can consider topping up their Central Provident Fund (CPF) Special Account (SA) or Retirement Account (RA). This will enable them to reach their Minimum Sum (MS) faster, and withdraw payouts under CPF Lifelong Income For the Elderly (LIFE) when they turn 65 years-old. Doing this will also earn you up to $7,000 in tax rebates for the year.
3. Ensure adequate healthcare coverage
One of the best ways to ensure a clean bill of health is for your parents to continue keeping their minds and bodies active after retirement. This could mean finding flexible work arrangements or contributing to the community in some way.
Of course, another main aspect of protecting their health is to ensure they have adequate healthcare coverage. In Singapore, everyone is covered under MediShield Life which will help to pay for large hospital bills and selected outpatient treatments. You can also look at increasing coverage for your parents with a rider providing additional private insurance such as the AIA HealthShield Gold Max.
Many of your parents may already have insurance coverage, and you should review the medical coverage they have and assess whether they require additional cover. Besides just planning for medical insurance coverage for your parents, you can also chip in for insurance premiums. This makes sense as the onus will fall on you and your siblings to help pay for any medical and hospitalisation bills for your parents should they require it.
Other types of medical insurance such as life insurance plans and critical illness plans may also be useful. However, you should note that at their age, these plans can be relatively expensive and that they may already have bought similar plans when they were younger.
4. Review investments
Another main component of your parents’ retirement will be their plan to build their retirement nest egg. If they are able to fund their retirement with their investment returns and CPF Life payouts, it will provide for a much less stressful time.
To do this, you should first know what they are invested into. This will give you a good gauge on whether any intervention on your part is even required.
As a rule of thumb, people close to retirement should hold a well-diversified and low-risk investment portfolio. This is because, given your parents’ age and requirement for liquidity, they may not be able to ride out volatility inherent in certain investments.
At the same time, leaving money in the bank to earn minuscule interest returns isn’t sensible either – inflation will continue to eat away at their spending power. You can play your part in ensuring they hold a balanced investment portfolio.
5. Consider living options
As you and your siblings grow up and move away, your parents may not need a large home with many rooms if they are currently living in such a property. Downgrading may seem like a dirty word to some of our parents, but it can be beneficial if they are able to unlock some value in their property during their retirement years and maintain a smaller home at the same time.
Of course, some parents may not even consider such a possibility. In such scenarios, you and your siblings may need to contribute towards their household expenses while still maintaining your own homes. This may cause you financial stress.
Another possibility is that they could rent out their home while living with you or one of your siblings. Even in this case, their home should always be kept as a safety net for them. Living with many people under one household could bring about challenges and disagreements.
Whatever the scenario, the goal is to figure out the housing option that requires the least upkeep and delivers the most return, financially and emotionally, for your parents.
Helping your parents prepare for a good retirement
While you’re at the prime of your life, your parents are becoming frailer and could be more dependent on you. Spending quality time with them is as important as planning their finances and contributing to their expenses.
At the end of the day, by helping them stay on top of their retirement plan, you will be minimising additional costs due to haphazard planning and maximising their asset values.
While on this topic, you can also discuss preparing a will. While approaching this subject could look like you and your siblings are already jostling for your inheritance, it is important to ensure that their assets will be divided according to their wishes rather than hearsay during certain stages of their lives.
At the same time, they should also make their CPF nomination as well as ensure that their insurance policies will be paid out to the beneficiaries of their choosing.
This article was contributed to us by AIA Singapore