During Chinese New Year, we are used to the sight of seniors enjoying the merriment in the company of many young ones. But times are changing.

Fewer Working Adults To Accompany Each Senior Citizen

In our parents’ time, in 1970, one elder was surrounded by 13.5 working adults. Today, the ratio has shrunk to 4.8. In 15 years’ time, if existing trends persist, this ratio will plunge to 2.1.The stark reality is that today’s young working adults will have to be more self-reliant in their retirement years than past and present retirees.

Let me offer you a three-step strategy for your retirement plan. It is useful to revisit these steps periodically, as circumstances, risk appetites and CPF retirement schemes change.

Step 1: Define Your Retirement Goals 

Ask yourself when you could realistically retire. Work out how much money you will need for your desired retirement lifestyle for a decent number of years. Remember that older people face higher medical expenses, including health insurance premiums. The good news is that a longer life expectancy means you have more earning years to add to your personal assets. But this advantage is frittered away if you do not start your retirement plan early.

There are many online tools that can help you with the computations. The CPF retirement calculator gives you a quick overview of how much you need to set aside for your retirement by guiding you through a detailed review of your income and expenditure expectations.

You may also like to note the views of others. Financial planners generally recommend that you should have at least two-thirds of your last drawn income to maintain the lifestyle you have grown accustomed to. Quantitatively, a DBS Bank survey of over 1000 Singaporeans found that 85% of respondents expect to receive an average of S$3,500 per month for 15-20 years or more. To achieve this, the bank recommended that the respondents should aim to have S$900,000 upon retirement. This is much higher than the current CPF Minimum Sum of S$161,000. The required sums are not “peanuts”; retirement planning is no monkey business.

Step 2: Assess Your Current Situation

Work out how much money you can realistically expect to have from your various sources when you retire. Review your overall insurance coverage by talking to an experienced insurance adviser, as healthcare costs will rise very quickly as you get older and other mishaps could derail your financial plans.

From my experience, most people will end up with a shortfall, even after deferring their preferred retirement age. Work out how much more you need to start saving from today in order to prudently invest and make up for this shortfall.


Step 3: Plan To Build Up Your Retirement Assets

Most of us know that to save means to sacrifice and be a wise consumer. It is up to you to have the necessary will and discipline to put money aside regularly. But being able to save is only one side of the coin. As a retiree you are not spared from the effects of rising costs due to both inflation and higher costs of living. For illustration, since 1987, the CPF Minimum Sum has grown from S$30,000 to S$161,000, representing a compound annual growth rate of 15.6%.

Fortunately, over the past 12 years, the Minimum Sum has increased at a lower rate of 8.4%. In both examples, the rates of increase far exceed any bank deposit rates for those periods. Hence, if you leave too much money in your bank for too long you will not be able to keep up with rising costs. The answer is to be a SMART Saver, as recommended in my previous article.

Individual investments can go up or down in value, but over time, a well-diversified portfolio can give you a better return than leaving your money in the bank. In practice, for the small investor, diversification is hard to achieve economically, as blue chips are costly. But you can achieve diversification by judicious selection of a few unit trusts and investment-linked insurance policies (ILP) that themselves invest in a range of companies, industries or countries.

Investing in funds saves you a lot of time and stress. The time you save can be more profitably channeled into building your career, looking after your health and bonding with your family.

Be SMART and start on your retirement plan.

Visit Cents & Sensibility page to find out more about Shiyun's work.