How much savings do you need to retire in Singapore?

I’ll start this article by saying there’s probably no correct answer as to the amount “the average person” needs to retire in Singapore.

We are not all robots living identical lives. Some people are happy with just hitting the CPF basic retirement sum, while others think you need a few millions. There is no hard and fast answer.

The key, instead, is to figure out how much YOU need to retire. With this little guide you’ll hopefully be a little closer to your own answer.

What is the retirement age in Singapore?

If you’ve been keeping up with the news, you know this number has been raised. From July 1, 2022, Singapore’s Ministry of Manpower will be increasing the retirement age from 62 to 63. Not only that, the re-employment age will also be increased from 67 to 68. If you’ve been employed after 55 years old, you have to been at the same job for two years to be eligible for re-employment.

By 2030, the retirement and re-employment ages are expected to increase to 65 and 70 years old respectively. You might be decades away from retirement but it’s never too early to start planning.

How much retirement income do you need?

We will never agree as to how much is really needed for retirement. A lot depends on when you retire, and the kind of lifestyle you wish to have when you finally have enough to break up with your boss for good.

What’s important is knowing how to work out your own needs.

This 2021 study suggests that a single elderly person aged 65 years and above without chronic illness needs $1,421 a month to meet basic needs.

In compiling the survey, in addition to things necessary for survival like clothing, food, healthcare and transport, leisure and cultural activities were also included.

However, as these are still supposed to be “basic” costs, you’ll need more if you wish to live “comfortably”. And after experiencing cabin fever thanks to Covid-19, you’ll probably want to factor in some overseas travel.

There are other factors that can raise or lower your basic needs. For instance, if you have kids who are cool with living with and supporting you, you may not need as much. On the other hand, if you suffer from chronic health issues, want to travel the world or party like you’re 18, you’ll have to include additional costs.

Finally, note that these costs have not been adjusted for inflation. We can try to estimate, but nobody is able to predict with 100 per cent accuracy what costs in Singapore will be like in 10, 20, 30 or 40 years.

Here are some price increases that have happened over the years.

How will you fund your retirement?

You may never know for sure exactly how much you will spend in retirement, but it’s always useful to come up with an estimate based on the information you have now. If you’re still a few decades away from retirement, that figure will probably change as you move through life.

To be safe, it’s a good idea to err on the side of caution and always aim to exceed your savings and investment goals.

After landing on a ballpark figure, the next question to think about is — where will your retirement income come from?

We can categorise possible retirement streams into three broad categories;

• CPF payouts
• Annuities (i.e. retirement income plans)
• Passive income (e.g. dividend stocks, rent)

ALSO READ: Senior citizens without kids: 5 things to do to plan for old age

CPF Retirement Account payout sum

Your CPF accounts seem like a black hole your money disappears into, never to be seen again. But once you hit the age of 55, that changes. You’ll be able to withdraw some of your CPF savings once more.

You can, at minimum, withdraw $5,000 at age 55. If you own a property, you can withdraw any savings above the Basic Retirement Sum ($96,000 in 2022; rises every year).

Any money you don’t withdraw will sit there collecting interest until you are old enough to receive monthly CPF LIFE payouts — currently aged 65 for those born in 1958 or later.

For someone who is using the CPF LIFE Standard Plan and starts receiving payouts at the age of 65 in 2022, here’s what the payouts look like:

Someone retiring in 2022 will need $428,300 in CPF savings in order to receive the $1,421 a month basic income found in the “What’s Enough” study. You can use the CPF LIFE Estimator to estimate your payouts.

Annuities purchased from insurance companies

Annuities are retirement plans that you can buy from insurance companies.

You pay a certain amount into the annuity on a monthly or yearly basis over a certain number of years (usually up to 15 to 20 years), or make just one single payment (eg. if you strike Toto and want to pay in some of your winnings).

After a certain number of years or when you reach a certain age, the annuity will start to pay out an income. In this way, annuities can supplement your CPF payouts.

To work out how much you need to pay for your desired income, tell your insurance agent how much income you wish to receive and they will be able to work out how much you need to pay into the annuity each month to achieve that sum.

Example: Let’s say you expect to have the Full Retirement Sum ($192,000 in 2022; rises annually) in your CPF account. This would entitle you to monthly payouts of about $1,000-ish at age 65. However, that’s too little.

You might thus sign up for an annuity that requires you to pay in about $1,600 per month over a period of 10 years in order to enjoy a guaranteed income of $1,000 per month, to be paid out over 20 years.

Avenues of passive income

When you’re young, you may be more interested in your investments’ capital gains — i.e. the profit you make when you buy low, sell high.

But as you get older and think about retirement, the idea of earning passive income from them may become more appealing.

There are certain types of investments will produce a steady income over time. This includes things like renting out a spare room or investment property, or collecting dividends from dividend-bearing stocks.

So how much do you need to invest to earn your desired income stream? That depends on the yield of the investment.

A high-yielding dividend investment like REITs (real estate investment trusts) typically deliver 5 per cent to 8 per cent a year in dividends. Assuming an annual yield of 5 per cent, you’ll need to invest $240,000 to generate $1,000 a month worth of dividends.

But as with all investments, there is no guarantee of dividend yield. Your income may fluctuate, and you may even lose your capital.

Therefore, it’s important to balance out any passive income-generating investments (including property, since it’s subject to the vagaries of the market) with lower-risk products like CPF LIFE and private annuities.

How much do you need to retire in Singapore?

The best way to plan for retirement in Singapore is to stack multiple retirement products together:

• First, CPF LIFE forms the base of your retirement income
• If the payouts aren’t enough, stack on private annuities
• And if you have sufficient risk appetite, you can then stack on passive income-yielding investments

Let’s revisit our previous example of a 65-year-old retiring this year.

• You’ve hit the CPF Full Retirement Sum and will get $1,000 a month in CPF LIFE payouts. CPF savings required: $192,000
• You also supplemented your CPF with an annuity paying out an extra $1,000 a month. Annuity premiums: $1,600 a month for 10 years
• But that’s not enough for anything above basic needs, so you’ve invested in dividend-yielding investments to get $1,000 a month for pocket money. Investment needed: $240,000

You now have a multi-asset portfolio that generates about $3,000 a month in retirement income, but the total amount required can be complex.

You can adapt this “template” to work out the exact details of your nest egg. For example, if your CPF savings are on the lower side, then you’ll want to look at CPF top-ups and supplementing with investments and insurance products.

ALSO READ: CPF Life: The complete guide to payouts, plans & minimum sums in 2022

To end on a more optimistic note, don’t freak out if you hear people say they’re working towards a nest egg of $5 million or bragging about buying their second investment property.

Everyone’s needs are different, and the important thing is to figure out what YOU need and then break down your own retirement plan into small, achievable steps.

This article was first published in MoneySmart.