Planning for your parents' retirement in Singapore: What you need to know
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PUBLISHED ONJune 08, 2023 6:24 AMByLiam Hoo
Liam is a history major who guzzles coffee a little too much for his own good. He enjoys sharing his curiosity about the world and eccentric quirks with others. In his spare time, he's either daydreaming, writing, or daydreaming about writing.
As Singapore gradually grows into a mature society, old age and retirement issues are fast becoming hot-button topics. Projections indicate that by 2030, the number of Singaporeans aged 65 years and older will hit 900,000.
Yet at the same time, a significant proportion of Singaporeans are still unable to adequately protect their longer-term needs for retirement-in fact, one in eight Singaporeans underestimate their retirement financial needs by 31 per cent.
Just like marriage, retirement is a significant milestone for anybody and a cause for celebration as one approaches a distinctively relaxed and leisurely stage of life.
As your parents approach this stage, it is of course, essential to assess their retirement readiness. In this simple and intuitive Homage guide, we provide some pointers on the factors that determine how ready your parents are for retirement.
Read on to find out more about the key factors that will sustain their preferred retirement lifestyle such as mortgage payment, health insurance coverage, debt clearance, and sufficient funds as well as tips to ensure a smooth and secure financial transition to retirement.
When are your parents ready to retire?
Before they're ready to rest and relax, your parents will need to have minimally filled in the following checkboxes:
Fully-paid Mortgage
One crucial aspect of retirement readiness is owning a debt-free home. If your parents have diligently paid off their mortgage, it is a positive indication that they are heading towards a more secure retirement. Living mortgage-free significantly reduces their monthly expenses, allowing them to allocate their funds to other retirement necessities.
It could otherwise be a stressful retirement if your parents have to fuss about how to continue paying monthly mortgage instalments without regular income. Check-in with your parents about their mortgage status and chip in to help them pay it off if you can.
Adequate & Comprehensive Health Insurance Coverage
Healthcare expenses can pose a significant financial burden, especially during retirement. Reviewing your parents' health insurance coverage is vital to ensure they are protected against sudden illness, hospitalisation, surgeries, or chronic conditions.
You should therefore first help review your parents' MediShield Life, ElderShield, or CareShield Life healthcare policies. Understanding the extent of coverage and any potential gaps will help you evaluate their financial preparedness for healthcare costs. It is essential to ensure that their healthcare policies provide coverage for sudden illness, hospitalisation, injury, and chronic illness all of which are crtical healthcare issues as one ages.
There are as many as 37 critical illnesses that your insurance should provide coverage for and here are some of them:
Eldercare will also become a significant but necessary expense. It's important to have frank conversations with your parents about their preferred type of eldercare and consider the costs associated. Hiring a domestic helper, a dedicated home-based caregiver, and staying in a nursing home all have their associated pros, cons and costs.
All in all, your parents' healthcare insurance should provide coverage tailored to their retirement healthcare needs that also safeguards them against the maladies of old age. It can be hard to discuss issues of mortality and healthcare with your parents, but this is necessary to help ensure that they have a secure retirement without worry or risk of ill health.
No outstanding debts
Retiring with outstanding debts can be a considerable burden on your parents' financial well-being. It is advisable for them to clear any outstanding loans, including credit card debts, personal loans, or car loans, before retiring.
By entering retirement debt-free, your parents can focus on enjoying their retirement years without the added stress of ongoing financial obligations. Parents may sometimes be hesitant to share about their financial debts with their children so you may need to approach the topic sensitively and with care for their feelings.
Enough Funds to Sustain Post-retirement Lifestyle
One of the primary considerations for retirement readiness is ensuring sufficient funds to maintain one's preferred lifestyle. This can come from a combination of passive income, cash savings, and CPF Life payouts. It is of course recommended that your parents should maximise their passive income streams as much as possible as they near their retirement age to ensure regular cash flow into their twilight years.
Some well-known ways of generating passive income streams include:
To determine the amount needed, various factors should be taken into account, such as their intended lifestyle choices, their pool of savings/funds, and monthly CPF payouts based on age and sex.
How much do they need to retire?
How much your parents will need exactly in total for their retirement will depend on the following factors:
Savings & Fund Pool
Assessing your parents' pool of savings and funds is essential in determining their retirement readiness. Consider their current savings, investments, and any other assets that can contribute to their retirement income.
This evaluation will provide a clearer picture of how much additional income they may require to sustain their lifestyle during retirement. Take note especially, to how much passive revenue these assets can generate for your parents as they continue to age in the long term.
Monthly CPF Payouts
The Central Provident Fund (CPF) plays a vital role in retirement planning for individuals in Singapore. The amount of CPF Life payouts varies based on the remaining balance in their CPF savings. To get a better understanding of the potential payouts, refer to the official CPF website or use the CPF Life Payout Calculator.
Additionally, it is crucial to familiarize yourself with the minimum age to receive payouts and the necessary steps to start receiving CPF payouts.
To know exactly how much your parents will receive each month based on their current Retirement Account balance, try out this CPF Life calculator here.
You can also refer to the table below for a quick comparison :
| Desired Monthly Payout from 65 | CPF LIFE Premium at 65 (Savings You Need at 65) | CPF LIFE Premium at 65 (Savings You Need at 65) | Savings You Need at 55 |
|---|---|---|---|
| $540 - $570 | $97,300 | $75,900 | $60,000 |
| $820 - $870 | $154,500 | $123,000 | $99,400 |
| $960 - $1,030 | $184,400 | $147,500 | $120,000 |
| $1,510 - $1,620 | $298,800 | $241,600 | $198,800 |
| $2,210 - $2,370 | $443,100 | $360,200 | $298,200 |
CPF monthly payouts will begin according to your parents' eligibility age. Here's when they can expect their payouts to begin:
| Year of birth | Payout eligibility age |
|---|---|
| Before 1944 | 60 |
| 1944 to 1949 | 62 |
| 1950 and 1951 | 63 |
| 1952 and 1953 | 64 |
Once you're eligible, the CPF payouts will automatically start depending on your plan without any need for further instruction.
Preferred lifestyle choices
Most importantly, you should understand your parents' desired lifestyle during retirement as it is crucial for accurate financial planning. Factors such as travel plans, transportation preferences, hobbies, and leisure activities should be considered to estimate the funds required for a comfortable retirement.
This means you should be asking your parents how many holidays they intend to have per year and to where, if they intend to continue driving, and what kind of hobbies and social activities they would like to keep. Aligning their financial resources with their lifestyle choices will help your parents enjoy their retirement years to the fullest.
Resources for Retirement Planning
There are many online resources easily available for retirement planning.
As a rule of thumb, a good retirement spreadsheet template should include:
- Current savings, investments, and net assets
- Number of years till retirement
- Annual withdrawal rate
- Investment return rate
- Projected retirement income needs
- Additional income sources
- Cost of living expenditure
- Taxes
Here are some resources that you can consider using:
Retirement should always be a happy and celebratory occasion-we hope this guide has been useful for you in planning for your parents' retirement and we wish them joyful and relaxing twilight years ahead.
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