Provident CEO Christopher Tan shared how to resolve the 5 common issues retirees face during their retirement. On one relaxed Saturday morning, I turned into FM98.5 radio station and learnt more about how we in Singapore can plan our retirement.
1. Long life
Living longer than the amount of savings we have is not a scenario we would like to be caught in. With modern advances, it is very possible that we would live much longer than our grandparents. According to the data at Singapore Statistics, people born in the 1970s are expected to live to around 65 years old while those born after 2010 are expected to live to 80 years old.
So the first concern is that we might live longer than the amount of money we have for our daily lives. Christopher advised that Singaporeans can use their CPF to buy CPF Life (CPF Lifelong Income For the Elderly). This is compulsory for Singapore Citizen and Permanent Resident born in 1958 or after and have a certain amount of CPF in their Retirement Account. This is because at 4% interest yearly, it is the highest that you can find in the market. However, there is always a con and in this case it is that there is a top-up limit to the amount of CPF Life one can buy.
2. Countering Inflation
The only way to counter inflation is to invest. With the CPF Life Plan, the interest rate is fixed. However, there is this new variable interest rate plan Accelerating Plan which will be available that allows us to beat the 2% inflation in Singapore. With this plan, the amount that you would receive yearly in the beginning will be lower than the CPF Life Plan. If you don’t want to take up this Accelerating Plan, the other option is to top up the CPF or to take up the annuity plan at an older age.
3. Investment Pitfalls
Christopher cautioned that you should know what you invest in, ie you should invest as if investing in a business. Christopher advised to put your money into 3 batches: (1) money for the next 5 year expenses, this is the money that you should not invest but put in the bank. Although this means you cannot beat inflation, the money is readily available if there is a need. The second batch of money is used to invest in safer products such as bonds. The third batch of money would be money you would not need for the next 10 years, and you should use this for investment. With the 10-year horizon in place, this is to ensure that short-term fluctuations in the market will not force you to sell off your investments at a loss.
4. Good medical insurance
Medishield Life is compulsory for all Singaporeans and PR for stay in B2 or C wards in government restructured hospitals. If this is alright for you, then there is no need for you to buy riders. Currently, there is a subsidy for the insurance yearly premium but the subsidy is only for the first 5 years.
5. Overspending
According to a survey conducted, retirees used a lot of money in the first 5 years after retirement. Some of the money would be used for expensive pursue such as travelling. There is a need to estimate the amount of money you can use yearly so that you do not overspend. Christopher reminded that one of the solutions is to portion the savings into three batches as suggested in Point 3.
Although I am still a long way from retirement, it is always not too early to plan for ones retirement.
