Common Retirement Planning Mistakes Singaporeans Make
Retirement, referred to as the ‘golden years’ by many, is a time to reap the rewards of years of hard work and dedication. However, achieving a comfortable and worry-free retirement requires careful planning and foresight, especially in Singapore, where the cost of living is higher than in most countries. Unfortunately, it’s not unheard of for Singaporeans to fall prey to a number of mistakes that can impact their quality of life in their later years. That’s why having a retirement plan is so important.
Read on to understand more about the four common retirement planning pitfalls and discover effective strategies to navigate them, as well as the crucial role that an insurance savings plan like Income's Gro Retire Flex Pro II can play in securing your financial future.
Understanding the Pitfalls
Mistakes in retirement planning can cast a long shadow over your golden years, potentially leaving you with insufficient funds to support the lifestyle you've worked so hard to achieve. Here are four common pitfalls to avoid:
1. Starting Too Late
One of the most common errors in retirement planning is misjudging the time horizon, leading to delayed savings and investment opportunities. It's easy to fall into the trap of thinking retirement is far off, but those years can slip away quickly, with the consequences of not planning ahead being a much less comfortable retirement than you imagined later on.
To avoid this, it's crucial to start saving and investing as early as possible. Starting early leverages the power of compound interest where your investments grow exponentially, building a more secure financial safety net for retirement. For instance, consider two individuals aiming to save S$1 million by 65, assuming a 5% annual compound interest rate. Assuming the one who starts saving at 30 reaches his goal in 35 years, the one starting at 40 will need to contribute significantly more to reach their goal in the remaining 25 years. This is to compensate for the lost time and missed compounding opportunities.
2. Not Accounting for Inflation
The Monetary Authority of Singapore (MAS) projects that core inflation will gradually moderate in 2024, continuing the downward trend observed in recent months. While this suggests a potential easing of inflationary pressures, it's crucial to remember that inflation remains a dynamic force, influenced by a number of factors, including global supply chain disruptions, geopolitical events, and even domestic policy changes like the recent GST hike to 9%. The reality remains that the cost of living continues to rise, impacting the purchasing power of your hard-earned savings over time.
However, the good news is that with proactive planning, the impact of inflation can be effectively managed. The best way to start is by projecting your future expenses based on realistic inflation estimates, to ensure your savings can not only sustain you but also empower you to thrive throughout your retirement years.
3. Over-Reliance on CPF
While the Central Provident Fund (CPF) is a cornerstone of Singapore's retirement system, diversifying your retirement savings strategy beyond CPF can unlock even greater potential for financial security and flexibility in your golden years. CPF offers significantly valuable support when it comes to financing bigger expenses like housing and healthcare, but it's important to be aware of the withdrawal criteria and how it may impact your retirement plans.
Essentially, monthly withdrawals from your CPF account are determined by your Basic Retirement Sum (BRS), which, depending on when you turn 55, may not be enough to cover all your desired expenses.
For instance, if you turn 55 this year, your BRS would be $102,900, resulting in monthly payouts of approximately $950 to $1,000 under the Standard CPF LIFE Plan. The BRS is periodically adjusted to keep pace with inflation, but once you start receiving these payouts, the amount you receive each month remains fixed for life. This can pose a challenge in the long run as the cost of living continues to rise, potentially eroding the purchasing power of your payouts over time. To keep up with future BRS increases, you might also need to contribute more to your CPF during your working years to maintain the same level of retirement income.
To ensure a financially secure and fulfilling retirement, it’s therefore recommended to diversify your savings beyond CPF. Explore options like insurance savings plans, investments, and annuities to supplement your CPF payouts. Planning these alternatives provides greater flexibility and control, allowing you to tailor your financial plan and build a robust nest egg that can withstand inflation and support your desired lifestyle throughout your golden years.
4. Focusing Only on Financial Planning
While financial security is undoubtedly crucial for a comfortable retirement, it's essential to recognise that a fulfilling retirement extends beyond more than just monetary wealth. Retirement presents you with an opportunity to pursue your long-held passions, indulge in leisure and social activities, and nurture meaningful connections with your loved ones.
Begin by reflecting on why your retirement plan matters, considering aspects like your desired lifestyle, passions, and goals in addition to your financial needs. By doing that, you can create a retirement filled with purpose, meaningful experiences, and the freedom to live life to the fullest.
The Role of Insurance Savings Plans in Retirement
Insurance savings plans offer a valuable way to supplement your retirement income and provide financial security in your golden years. They offer features like an additional income stream, potential for growth and flexible payout options, making them a powerful tool to complement your CPF savings and help you achieve the retirement lifestyle you desire.
One such plan that could be a valuable addition to your retirement portfolio is Income's Gro Retire Flex Pro II. It offers several benefits that can help you achieve your retirement goals, such as:
- Receive monthly cash payouts1 during your retirement, providing an illustrated total yield at maturity of up to 4.08% p.a.2,3.
- Choose your premium payment terms and payout period to suit your budget and retirement needs.
- You may choose to adjust when your cash payouts1 begin by up to 5 years4,5 if you decide to retire earlier or later.
To further prepare you for retirement, Gro Retire Flex Pro II also lets you enjoy up to 12 months of financial relief through a premium waiver and the option to defer premiums in the event of retrenchment6,7,8.
Strategies to Avoid Common Pitfalls and Plan Your Retirement Savings
To secure a fulfilling retirement, it's vital to be proactive and strategic in your planning. Navigating the complexities of retirement requires a well-crafted roadmap to avoid common pitfalls and ensure financial security, such as the following:
- Start Early, Save Consistently: The earlier you start saving, the more your investments benefit from compound interest. Even the small, regular contributions can grow significantly over time. You may also wish to consider automating your savings, to create a more hassle-free approach to reach your goals.
- Account for Inflation: Explore investments with growth potential or inflation-protected annuities. These proactive measures can help ensure your savings maintain their value and support your desired lifestyle throughout retirement.
- Diversify Your Retirement Savings: It may not be best to put all your retirement eggs in one basket. Besides CPF, you may wish to consider diversifying with insurance savings plans, equities, bonds or real estate too. This balanced approach is more likely to help mitigate risks and potentially enhance your returns, while creating a more resilient retirement portfolio.
- Plan for Healthcare Costs: As you age, your healthcare needs will increase. Factor in potential medical expenses you will need to cover when planning for retirement. It may also be worth considering revising your existing health insurance plans or term life insurance plans to protect your savings and ensure access to medical care.
- Adopt a Holistic Approach: Retirement is more than just money. It's a chance to live life to the fullest — pursue passions, try new things, and enjoy time with loved ones. A truly fulfilling retirement includes physical and mental well-being, staying connected with others, and doing things that bring you happiness — so many sure to factor that into your planning.
- Seek Professional Advice: Retirement planning can be complex. A financial advisor can offer personalised guidance based on your goals and situation, helping you create a plan that not only secures your finances but also aligns with your vision for a fulfilling retirement.
Embrace a Secure and Fulfilling Retirement
Remember, retirement planning is a journey, not a destination. A well-rounded retirement plan encompasses not only your financial well-being but also your physical health, mental health and lifestyle considerations. By understanding and avoiding common pitfalls, you can pave the way for a secure and fulfilling retirement.
1 The cash payout consists of a monthly cash benefit and a non-guaranteed cash bonus.
2 This is for illustration purposes only. The total yield at maturity is not guaranteed and is based on the assumption that the Life Participating Fund earns a long-term average return of 4.25% per annum for a male non-smoker, aged 40, who chooses a retirement age of 70, a payout period of 20 years and pays a single premium. It is also based on the assumption that all cash benefits and non-guaranteed cash bonuses due for the entire policy term are paid out to the policyholder. Based on the illustrated investment rate of 3.00% per annum, the total yield at maturity will be up to 2.97% per annum.
3 The figures in the illustration are not guaranteed and are illustrated based on the assumption that the Life Participating Fund earns a long-term average return of 4.25% per annum in the future. Returns are illustrated based on estimated bonus rates that are not guaranteed. The actual benefit payable will vary according to the future performance of the Life Participating Fund. The calculation for the illustrated total yield at maturity also assumes that all cash benefits and non-guaranteed cash bonuses due for the entire policy term are paid out to the policyholder.
4 The policyholder may choose to shorten or extend the accumulation period, by up to 5 years, in multiples of 1 year.
The request to exercise this option must be made on a date:
a) At least 2 years after the policy entry date; and
b) At least 2 years before the end of your original or revised accumulation period, whichever is earlier.
Other terms apply for this benefit. Please refer to the policy conditions for further details.
5 Please note that your policy benefits (including cash benefits, death benefit and surrender value), bonuses (if any) and riders (if any) may change if you change the accumulation period and/or payout period. You may request your financial advisor representative to generate the policy illustration for a different accumulation period and payout period to understand the changes in the policy benefits.
6 For regular premium policy, Gro Retire Flex Pro II includes Gro Retire Flex Pro II – Protection Benefit, a non-participating compulsory rider, which provides coverage for Accidental Death Benefit, Disability Care Benefit and Retrenchment Benefit. Please refer to the policy conditions for further details.
7 If the policyholder is retrenched, the policyholder will not have to pay the premiums for the Gro Retire Flex Pro II – Protection Benefit rider and its basic policy for six months from the next premium due date onwards. The policyholder will have to pay premiums for the month that the policyholder starts permanent paid employment and this benefit will end. Terms apply for the benefit. Please refer to the policy conditions for further details.
8 At the end of the fifth month when the policyholder has stopped paying premiums, the policyholder can choose to defer the premiums for the Gro Retire Flex Pro II – Protection Benefit rider, its basic policy and optional riders for the next six months.
The following will apply during the deferment period:
- Gro Retire Flex Pro II – Protection Benefit rider, its basic policy and any optional rider will remain in force;
- Anniversary remains unchanged;
- Any cash benefit payable will be paid after deducting the deferred premiums due;
- Bonus will continue to be declared; and
- The policyholder is not allowed to take a policy loan on the basic policy.
At the end of the deferment period, the policyholder will need to pay the deferred six months premium in a single payment. The policyholder can claim the Retrenchment Benefit only once under the Gro Retire Flex Pro II – Protection Benefit rider. Terms apply for the benefit. Please refer to the policy conditions for further details.
This article is meant purely for informational purposes and does not constitute an offer, recommendation, solicitation or advise to buy or sell any product(s). It should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income Insurance products mentioned are specified in their respective policy contracts. Please seek independent financial advice before making any decision.
These policies are protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact Income Insurance or visit the GIA/LIA or SDIC websites (www.gia.org.sg or www.lia.org.sg or www.sdic.org.sg).
This advertisement has not been reviewed by the Monetary Authority of Singapore.
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