Retirement planning in Singapore: A starter guide for confused millennials

When you think “retirement”, do you imagine travelling the world, cruising on your own yacht, and being surrounded by Playboy bunnies/boy toys? Sorry, but retirement in Singapore isn’t quite as cushy as that, unless you happen to be sitting on a fortune.

To me, being time-rich and cash-poor, as many Singapore retirees are, is a horrible combination. I’ve visited the polyclinic and library enough to know that I do not want to spend my golden years sitting there, staring into space.

So, how do you plan for retirement and provide a decent lifestyle for Future You? Here’s a look at what’s available to Singaporeans.

Disclaimer: I’m not a financial consultant. In fact, I’m learning about retirement planning myself and trying my best to understand complicated government acronyms. If you spot any errors or have advice to add, please enlighten me.

What’s the official Singapore retirement age?

Well… depends on whether you’re asking MOM or CPF.

According to the Ministry of Manpower, the official Singapore retirement age is now 62 years old  — although it’s slated to go up to age 65 by 2030.

This number is primarily meant to regulate employers, not workers. Should your employer suggest you “retire early to spend time with your grandkids” before age 62, you may have a case against them for unfair dismissal and can appeal to MOM.

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Of course, employers always try to get rid of older employees by throwing around words like “restructuring”, “streamlining”, or “focusing on core competencies”, so it’s not easy to get support for your case.

If you’re lucky to be with a good employer who doesn’t mind your age, you are free to continue working after you’ve passed retirement age. MOM sanctions this up to age 67. This is also known as the re-employment age, and, like the retirement age, it will increase to 68 in 2022, and eventually become 70 by 2030.

On the other hand, if you want the government to #returnyourCPF, your retirement funds will only be available to you from age 55. That’s a whole different “retirement age”.

Assuming you haven’t liquidated all your CPF funds and run off to retire in Batam, you need to wait another 10 years before you can smell your first CPF monthly payout, at age 65 (or later, if you choose).

How much would I spend during retirement in Singapore?

As everyone already knows, the cost of living in Singapore is pretty high. Just ‘cause you’ve retired doesn’t mean it’ll go down magically.

In fact, your cost of living might even increase, because (1) getting old usually means more medical bills and (2) free time costs money to fill up.

So, how do you figure out how much your expenses will be when you retire? My (totally personal, completely unscientific) formula goes like this: normal living expenses + old age contingency costs + emergency buffer.

Let me explain.

• Normal living expenses: Assuming you’ve paid off all your outstanding loans by retirement, your baseline should be your existing (not imaginary) living expenses. This would include food, transport, utilities, etc. plus the recreation you regard as essential to your quality of life.
• Old age contingency costs: Admit it, you will be less healthy than you are right now, so you need some kind of plan for healthcare, elderly care and even disability-related costs. Your best bet is to provide for these costs with health insurance, then set aside a sufficient amount after researching the elderly care options.
• Emergency buffer: All kinds of emergencies can happen. A bad fall. Your house gets flooded. Family drama. You get depressed and want to seek help. Since you can’t exactly ask CPF for an advance paycheck after you’ve retired, it’s good to have a bit of extra money as buffer.

How’s that magic number looking? Much higher than you thought, huh?

If you’re wondering how you compare to other Singaporeans, a survey commissioned by NTUC Income put the average desired retirement income at $3,314 a month.

It’s worth remembering that this number is subject to inflation as well. This is typically 3per cent a year. But if you have an atas lifestyle, budget for 4per cent to 5per cent a year as luxury goods appreciate faster. 

Check out your retirement income estimator with this tool from CPF.

Can’t I just withdraw money from my CPF Retirement Account?

I don’t think I’m the first Singaporean to have the impression that I’d be able to cash out ALL my CPF savings one day.

Guess what? … Cannot lah!

It turns out that you can only drain your CPF savings if you have less than $5,000 in your CPF account (Ordinary and Special Accounts combined) at age 55.

However, if your OA + SA balance is more than $5,000 when you reach age 55, you can withdraw  some money, but there’s a minimum balance that you cannot touch.

This amount is pegged to either the Basic Retirement Sum or Full Retirement Sum, both of which change yearly. We’ll use the current numbers, which apply to those who turn 55 in 2021.

CPF balance at age 55	Minimum balance (for property owners)	Minimum balance (for non-property owners)
Less than $5,000	No limits apply. Can withdraw everything
$5,000 to $186,000 (Full Retirement Sum)	$93,000 (Basic Retirement Sum)	Only allowed to withdraw up to $5,000
Over $186,000 (Full Retirement Sum)	$93,000 (Basic Retirement Sum)	$186,000 (Full Retirement Sum)

As you can see, the scenario is different depending on whether you own a property or not. But there are certain terms & conditions around property ownership.

To qualify as a “property owner”, you need to able to top up your CPF to the Full Retirement Sum if you sell your property. For the full details, you can read this guide to how the retirement sums work. Have fun.

What is CPF LIFE and how does it work?

So, we’ve established that you can’t just demand that the authorities return your CPF in full once you’re 55. There goes my dream of buying a boat and living out the rest of my days at sea.

Instead, you’d withdraw a bit of money when you’re 55, then sit tight and wait  until age 65, when your CPF LIFE payouts start.

The more CPF savings you have at retirement, the higher your monthly CPF LIFE payouts:

If you look at the monthly payouts, you’ll realise that, actually, CPF payouts aren’t all that high. Given that my cai png cost $5 the other day, it might not even be enough to sustain the cai png life.

On the other hand, CPF LIFE payouts are for life, so even if you live till 150, you’ll still get a monthly income.

It’s not exactly fun, but it’s worthwhile to check out the CPF LIFE scheme while you’re still young so you have time to save up and plan accordingly.

Will I have enough savings to hit the CPF Retirement Sum?

Good news! You do not need to worry about hitting the CPF Retirement Sum. There’s no minimum sum you need in order to get CPF LIFE payouts. Your payouts are simply pro-rated based on the amount of retirement savings you have.

Not-so-good news: If your CPF balance is low, your payouts will be pathetic.

There’s still a CPF Basic Retirement Sum, but its purpose is to determine how much $$$ you can withdraw at age 55, and how much you need to keep in your account for future payouts.

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To keep up with inflation, the CPF Retirement Sums increase every year at about 3.15per cent per year. For those turning 55 in 2021, the current BRS is $93,000, about a 3per cent jump from last year’s $90,500.

One common problem is that a lot of us have a big chunk of CPF funds locked up in housing. I mean, my CPF OA balance is so kosong, HPB called to ask if it can be featured in their latest anti-diabetes campaign.

Should too much of your funds be locked up in housing, there are a couple of HDB schemes to help you liquidate your home while still having a place to stay, so you don’t have to eat concrete screed when you’re old. We’ll leave it to you to decide if they’re worthwhile.

But that’s not really going to help the large population segment — homemakers, casual job workers, freelancers — who simply don’t have enough sufficient CPF savings in the first place to get decent payouts from CPF LIFE.

How else can you do retirement planning in Singapore?

The CPF Retirement Scheme needn’t (and shouldn’t) be your only retirement plan. 

If you…

• Don’t have enough CPF savings to get the retirement payouts you want
• Don’t trust the government to provide for your retirement
• Don’t think CPF LIFE can beat inflation
• Want a higher retirement income than what CPF LIFE can provide
• Want to diversify risk by putting your retirement eggs in more baskets
• Want more information on and control over your payouts

… Then it’s a very good idea to diversify your retirement portfolio.

Many Singaporeans supplement their CPF payouts with a retirement plan from a bank or insurer. These pre-packaged products are offered by most financial institutions, such as NTUC Income, Aviva and Manulife.

You simply pay premiums ($X) while you’re working in exchange for receiving an income ($Y) during your retirement years. The plan may or may not have an insurance component built in. Do take the time to understand what you’re getting into, because if you thought that CPF LIFE was confusing… oh boy, you’re not gonna enjoy reading insurance policy documents.

Alternatively, you can also start building your passive income stream with some investments you might already be familiar with, such as:

• Renting out spare rooms in your home
• Investing in dividend-yielding stocks or REITs
• Purchasing an endowment plan if you need the insurance coverage

In my opinion, which actual investment vehicle you choose doesn’t matter all that much… as long as you’re doing SOMETHING. Pick what you understand and feel comfortable with, and start in that direction.

Of course, your retirement investment plan is for the long term, so please don’t try and bank on less predictable instruments, like forex or cryptocurrency speculation.

You may also want to consider opening a Supplementary Retirement Scheme account and using it for your investments.

ALSO READ: CPF Special Account (SA) Shielding: How you can perform this retirement 'cheat code'

Singaporeans and PRs can contribute $15,300 a year to the account, and the funds (as well as investment returns) are eligible for tax relief. However, you’ll be charged a penalty if you withdraw the funds before retirement age.

This article was first published in MoneySmart.