Your Retirement Planning Versus Inflation

Your Retirement Planning Versus Inflation

Google ‘retirement planning’ and you will be bombarded with what can only be described as a barrage of information of what to expect, how much money you will need and how to start saving for your retirement. Read on and perhaps you’ll notice that a good many sources also caution that the money you save now may not be enough to sustain you in the future, and about the need to prepare for inflation in time to come. They’re not wrong — according to MoneySense, an assumed annual inflation rate of 3% means your cost of living will double in 24 years. While hard to wrap your head around now, this makes sense in light of how prices have changed since your parents’ time — coffee shop kopi-o doesn’t cost 50 cents anymore.

Since inflation is inevitable, the trick is to maximise all available avenues to not only save more in absolution, but to make even more of your savings. Here we’re breaking down some of the obvious and not-so-obvious ways of making sure you’ll always have enough in your golden years.

The obvious ways

#1 CPF LIFE

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Among the privileges accorded to Singaporeans is CPF Lifelong Income for the Elderly (CPF LIFE), an Income Generating Asset that converts your CPF Retirement Sum into a life annuity scheme with monthly payouts from the age of 65. This Retirement Sum is stored in your Retirement Account, which your Ordinary and Special CPF Accounts combine to form when you are 55.

There are 3 types of Retirement Accounts: Basic, Full and Enhanced, each of which demand a certain minimum sum. To withdraw money from your Retirement Account past your 55th birthday, you will need to choose the type of Account you intend to maintain, whereupon any surplus to the minimum sum may be encashed. That said, the selection of Account type depends on your fulfilment of certain criteria set by the government.

CPF LIFE is obligatory for most Singaporeans, but also a great addition to your retirement planning portfolio. Even so, an average Singaporean will receive a monthly payout of only $948 — way less than a carefree retirement will demand. Let’s explore other options.

#2 Savings

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Another obvious one: saving money the old fashioned way. Calculating how much you will need for your retirement can help you achieve clarity on how much money you should be setting aside monthly. Be it transferring a fixed portion of your income into a savings account or finding a side-hustle to accelerate your savings, being financially mindful will go a long way in making sure you have enough when you retire, and in the face of unexpected expenses. It’s also important to be aware of any gaps in your insurance portfolio such as medical or health coverage, to avoid your savings taking a blow in emergencies.

Steps you can take

#1 Supplementary Retirement Scheme (SRS)

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Having previously established that CPF LIFE may not be enough to fund your retirement, you may also choose to take part in the Supplementary Retirement Scheme (SRS). Unlike CPF LIFE, SRS is voluntary and privately run, available through DBS, UOB and OCBC by first opening an account with any one of them to begin making contributions. The IRAS website states that SRS is intended to help you save beyond just CPF, and that you or your employer, contributing on your behalf, can add to your SRS account in cash whenever you choose, subject to a yearly maximum value. You can only hold one SRS account at a time, but it is possible to transfer between operators.

A widely known benefit of participating in SRS is that it reduces your taxable income, dollar for dollar, subject to a tax relief cap of $80,000 annually. Note however that your SRS commitments are taxable upon withdrawal, but only 50% will be taxed if withdrawn after retirement. It’s a double-win.

#2 Retirement insurance

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Another way to factor inflation in your retirement planning is to leverage insurance plans designed to fit your retirement needs. Retirement insurance plans typically feature two stages: the first is accumulation, during which premiums paid are pooled and strategically invested in a mix of assets to generate an investment return, followed by vesting, where the insurer then makes payouts comprising guaranteed and non-guaranteed benefits to the insured individual. These bonuses, subject to investment performances, will be added to your insurance policy. These plans typically also offer a protection component throughout the policy term.

Etiqa offers two retirement planning solutions, differently structured for different priorities. ePREMIER retirement provides monthly retirement income for a period of 10 or 20 years from your selected retirement age (between the ages 60 and 65). Whereas ePREMIER eternity presto is a single-premium whole life insurance plan that offers monthly income for life as early as from the second year. Learn more about Etiqa’s retirement insurance plans here.

If you’re looking to spread premiums out rather than paying a single premium, you may consider eSAVE assure 5 presto, an insurance savings plan with a 5-year premium paying term and 10-year policy term. While not specifically structured for retirement planning purposes, its versatility can go a long way in helping you save meaningfully for the future.

#3 Investments

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If you have a higher personal and financial appetite for risk, personal investments are a good way to broaden your retirement planning portfolio. Our swathing suggestion, eschewing complicated detail, is to diversify your investments. This means investing in several completely different, disconnected and non-interdependent industries to ensure that one failing venture doesn’t claim all your commitments at once.

Such an approach can be risky. For example, one of the most common personal investments is the purchase of shares of publicly traded companies through stock exchanges which offers potential gains in the form of capital appreciation i.e. higher share price. However, in the event of bankruptcy, such investors are usually the last to receive any remaining funds and often, receive nothing. Besides that, share prices can also be affected by market events that adds to the volatility of holding such assets.

Nonetheless, well calculated personal investments can potentially yield handsome returns. Getting there is a process that requires a great deal of research, and those getting started may consider getting help from a financial advisor.

Your retirement, your rules

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While our suggestions constitute popular ways to save and grow your savings, how you plan depends very much on the length of time before your planned retirement. If you are retiring soon, purchasing easily liquidated and lower risk securities can give you peace of mind in knowing your funds are always accessible. Here were just some of the many ways you can account for inflation as you stack the proverbial retirement planning sandwich. With your finances on track for the future, free yourself to imagine the retirement befitting of a life of hard work.

End

All information provided is true at the time of publishing and conditions may have changed since. This policy is underwritten by Etiqa Insurance Pte. Ltd. (Company Reg. No 201331905K). Protected up to specified limits by SDIC.

As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid.

This content is for reference only. You should seek advice from a financial adviser before deciding to purchase the policy. If you choose not to seek advice, you should consider if the policy is suitable for you. This advertisement has not been reviewed by the Monetary Authority of Singapore.

Information is accurate as at 29 August 2019.

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