Strategies To Help Late Savers Put Their Retirement First

By Contributing Author, 08 May 2018 4990

When it comes to retirement, everyone wants to spend their later years pursuing enjoyable leisure activities — like playing golf, focusing on a beloved hobby, or relaxing on an exotic beach with a mojito. After a life spent working hard and supporting a family, it’s only natural to want to enjoy yourself a little. So how are you preparing for retirement that you can truly enjoy?
If you haven’t yet done anything in preparation, you should probably start start now, unless you’re sure that you can retire comfortably on CPF Life’s pay outs, which range from  $350+ to $2,230 a month, depending on your CPF balance saved.
If you need help putting your retirement first, here are some helpful strategies and instruments that can help. 


1. Adjust Your Monthly Spends To Put Your Retirement First  

To prepare for retirement as a late saver, you really need to put yourself first and free up as much of your monthly income as possible for retirement fund building. That doesn’t mean to say you need to live like a monk, but some basic changes will need to be made.
Start by conducting a cash flow analysis to find out how much you’re really spending and saving monthly. Here’s a simple example of a cash flow analysis for a married, 35-year-old mid-career professional, making $7,000/month (minus CPF). 
Monthly Expenses Monthly Income
Mortgage $1,500 Income $7,000
Health $200 CPF ($1,400)
Utilities $500  
Groceries $400
Dining $1,000
Entertainment $750
Transportation $500
Credit Cards $500
Total Expenses $5,350 Total Income $5,600
Total Savings $450    

$450/month isn’t going to go very far towards reaching a meaningful retirement savings goal. As a late saver, you need to set aside 20% to 30% of your income (less CPF) for important expenditures like insurance and savings and investment plans. In the case of the professional above, that translates to $1,120 to $1,680, which will go much farther towards building a retirement nest egg.
Take a deeper look into your monthly expenses and evaluate what can be reduced. Perhaps reduce the number of meals you have at restaurants or put off buying that new gaming console for your kids. Prioritising your retirement needs now might take some getting used to, but these additional savings can bring you closer to hitting that ideal 20%-30% mark. 

2. Use Your CPF Productively

Considering that 20% of our income goes into CPF, it’s a good idea to look into growing your CPF retirement savings with the  CPFIS scheme. The CPFIS scheme enables you to invest a portion of your Ordinary Account (OA) and Special Account (SA) savings to grow your savings at a potentially higher interest rate. 
As long as you have a minimum balance of $20,000 in your OA and $40,000 in your SA, you can participate in the scheme to utilize a variety of investment products including:
  • Unit Trusts (UTs)
  • Investment-linked Insurance Products (ILPs)
  • Annuities
  • Endowment Policies
  • Exchange Traded Funds (ETFs)
  • Singapore Government Bonds (SGBs)
  • Gold Products & ETFs
However, keep in mind that just like any other investment, there is risk involved with using the CPFIS scheme — so don’t forget to follow safe and smart investing practices!
If you would prefer something less risky, you can also consider doing a voluntary top up of your Special Account with the Retirement Sum Topping-up Scheme. To do this, you need to be below 55 years old, and have less than the current full retirement sum in your SA, which is inclusive of the net savings you have withdrawn under the CPF Investment Scheme. The advantage of this scheme is that your savings in SA earn an interest rate of 4% a year, while your savings in OA earn an interest rate of 2.5% a year. To calculate just how big of a difference in savings this scheme can make compared to your OA’s normal interest rate, check out this calculator by CPF.

3. Ensure that unfortunate events don’t wipe out your savings

MediShield Life provides you with basic health coverage — it provides coverage for B2 and C wards in public hospitals, and you will need to pay out-of-pocket expenses for the deductible and co-insurance.
Purchasing additional health insurance protection may seem like an unnecessary expense, but it’s extremely important as it ensures your retirement nest egg won’t get wiped out by costly unexpected medical expenses.  
Here’s a chart illustrating the different types of health insurance that you can evaluate to offset the rising cost of healthcare: 

Type of Health Insurance

What It Does

Private Health Insurance & Riders
  • Reimburse hospitalisation, surgery, and certain inpatient/outpatient expenses in higher class wards
  • Supplements private medical insurance with riders that deliver more medical coverage
Disability & Long Term Care Income Insurance
  • Enhances your long-term coverage against moderate and severe disabilities
  • Pays a fixed monthly amount for long-term nursing care if the insured individual is unable to perform basic daily activities
Critical Illness Insurance
  • Pays a lump sum in the event the insured individual is diagnosed with a critical illness covered by the policy
Hospital Cash Insurance
  • Pays a daily cash benefit if the insured individual is hospitalised due to an accident or illness

While the types of insurance listed above can provide financial protection in the event of costly medical emergencies, long-term care and critical illness insurance can play a big role in protecting your retirement savings.
Here’s why these policies should be considered as part of your retirement planning:
  • Long-term care insurance: protects you and your family from loss of income in the event you suffer an unfortunate accident or illness that leaves you unable to work and perform 2 or more daily living activities such as bathing and eating, as this policy can help cover the cost of long-term nursing care.
  • Critical illness insurance: protects you from the high cost of medical treatment in the event that you are diagnosed with a critical illness or need surgical operations covered in the policy, which can include major cancers, heart-related surgery, and kidney failure among others.

4. Evaluate Savings and Investment Plans to Generate Retirement Income

Used in tandem with your CPF savings and additional health insurance protection, savings and investment plans have the potential to ensure that you’re able to retire comfortably. That’s because savings and investment plans can help to supplement your income during your retirement years, and also provide life insurance features like total and permanent disability (TPD) and accidental death coverage.
For savings and investment plans, there are two types of each to consider:
  • Regular Premium Plans: Enable you to make regular premium payments while enjoying the benefits of each plan during the interest accumulation period. 
  • Single Premium Plans: Enable you to a lump sum payment to grow your nest egg faster during the interest accumulation period. 
Gro Retire Flex is a flexible savings plan that allows you to craft your desired retirement lifestyle with monthly cash payouts and allows you to choose your desired amount and duration of payouts. The plan also provides insurance coverage as well as additional peace of mind in the event of terminal illness, accidental death and disability.

Each type of plan caters to different circumstances and needs. As a general guide, ensure that you have sufficient liquidity before investing in single premium plans. If you are unable to make a lump sum payment, but are willing to make a smaller monetary commitment towards your retirement, regular premium plans may be more suitable.

Get expert help if you need it

Putting your future needs first might not be easy, but it’s a necessary step to take, especially as you get closer to retirement. The strategies above are can help you plan and set your retirement journey in motion. However, if you need more help navigating that journey, or wish to find out more about what plans might help you along the way, chat with one of our advisors online or leave your contact details here for one of our friendly advisors to reach out to you.

Important Notes:
This article is meant purely for informational purposes and should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income products mentioned are specified in their respective policy contracts. For customised advice to suit your specific needs, consult an Income insurance advisor.

This advertisement has not been reviewed by the Monetary Authority of Singapore.