The 3 Stages of Retirement and Its Implications on Our Retirement Planning
Singaporean's retirement age is going to be raised again.
On 3rd of March, the Minister of Manpower, Josephine Teo, announced during a parliamentary debate that with effect from 1 July 2022, the statutory retirement age will be raised from the current age 62 to 63, and the re-employment age raised from 67 to 68.
This means employers in Singapore cannot ask any employee to
retire before they day he or she turns 63. Also, as long as any employee is
willing and able to continue working, an employer must offer him or her
re-employment contracts till the age of 68.
This could cause mixed feelings among fellow Singaporeans. On the one hand, it shows the government's determination in protecting people's right to work and to earn an income. On the other hand, the deeper reason is really to address the fact that most Singaporeans approaching their retirement age do not have enough savings for retirement.
According to a survey released in 2018 by Nielsen and NTUC Income, 67% of parents aged 30 to 55 were expected to outlive their savings during retirement years. Only 6% of the respondents were confident of maintaining their current lifestyle when they retire. On the other side of the story, 70% of respondents between age 19 to 25 foresaw downgrading their current lifestyles to support their parents' retirement needs. Even so, only 8% of them were confident of providing enough support.
Meeting
retirement needs is a predicament in our society today as we must manage our
current spending needs and long-term savings. Here, we hope to explore how to
plan our retirement savings more effectively by analysing different stages of
retirement.
The 3 Stages of Retirement
Tracing the life trajectory of most Singaporeans and taking the CPF schemes into consideration, our retirement years can be divided into three stages:
Stage 1: age 55 to
64 (Semi-Retirement)
Stage 2: age 65 to
74 (Full Retirement)
Stage 3: beyond age
75 (Post Retirement)
Stage 1: Between Age 55 to Age 64 (Semi-Retirement)
55 is the age that Singaporeans and PRs can finally withdraw some cash from their CPF for whatever purpose they want. It is also around this age that most people experience a drop in their energy levels which may inadvertently affect work performance or working long hours.
People may adopt to this change in a proactive or passive manner. Some will take an initiative to reduce workload and shorten work hours, thus gradually transiting to a "semi-retired" state. For others, it could be an unpleasant experience of being transferred to a different (and often less well-paid) post or even being retrenched altogether.
As a result, most people may experience a drop in their
income at this stage. Hence would we have to adjust our lifestyle to
accommodate this drop in income level? For some people, it may be downgrading
their property. For some others it would mean lesser trips to that fancy
restaurant every month. However, if we make provision now to prepare ourselves
for the time when we become semi-retired, we can be certain that we can
maintain the same standard of living and most importantly continue to have a
surplus to build up our retirement nest egg.
Stage 2: Age 65 to Age 74 (Full Retirement)
At this stage, most people begin to enter the state of "full retirement". A small number of people may continue to work until they are 70 or older because they want to stay active or because they simply do not have enough savings to retire. To work by choice and not by need will have to come down to one thing. Have you prepared yourself for retirement? More importantly, is it sufficient?
The age of 65 is also when most Singaporeans and PRs begin to receive monthly pay-out
from CPF LIFE. Depending on their balance in the Retirement Account, they
can expect to receive various levels of pay-out every month.
Apart from CPF payouts, most "fully-retired" people will cease to have other sources of income. Under normal circumstances, most Singaporeans should have enough money or savings to meet their living expenses at this stage.
To maintain a comfortable lifestyle where we can continue to dine at our favourite restaurant or go for that holiday annually, we start to dip into our savings. The question that will be on our mind: “how long can we keep up with this lifestyle”? When we say how long, it is not how long can you keep up physically, but financially how long can our finances keep up with us. Hence we need to think of how can we safeguard our retirement by ensuring that our "income" will continue to "come in".
Stage 3: Beyond Age 75 (Post Retirement)
For most people, this is the time when they star to realise that they may outlive their savings.
A few factors could contribute
to their predicaments. Firstly, they could have already drained most of their
personal savings. Secondly, the payout from CPF LIFE would be worth less and
less given the rate of inflation. Lastly, many of them could suffer from
chronic illnesses or become disabled, resulting in large medical bills.
Such could be reasons why, in the survey mentioned earlier, so many middle-age
people thought they would outlive their savings and so few youngsters were
confident about supporting their parents financially.
By the time we reach this stage and realise that we do not have enough, most often, it may be just too late for us to do something about it.
What Could The "3-Stage" Analysis Enlighten Us for Retirement Planning?
No 1. The sooner we start saving up, the better.
Also, a survey released in 2019 by digital wealth manager Syfe shows that people aged 25 to 34 are actually the most promising ones towards a comfortable retirement, as they tend to have less expenses and low debt level. However, there is a drastic drop in "retirement readiness" among those aged 35 to 54, as they are "sandwiched" between caring for both the young and old, while also bearing higher debts and loans. If we can't avoid saving less with growing burden, then we have to save "harder" when we are young.
No 2. Ensure some flexibility in your saving plan.
Because of the many possibilities, we should retain some degree of flexibility in our retirement planning or to choose instruments that offer flexibility in saving and withdrawing funds.
A different aspect of flexibility is the adjustment of risk and returns. Generally, younger people have a long investment horizon and thus could afford to be more ambitious in their investment strategies. As one approaches retirement age, we should switch to safer instruments to avoid large fluctuations.
No 3. Invest in something that can give us a long-lasting income stream.
No 4. Don't terminate your hospitalisation insurance plan as much as possible.
In case the premium is indeed beyond your affordability, you can consider downgrading it to a restructured hospital plan, or cancelling the cash rider. These will greatly reduce your premium, while still making sure that your retirement planning wouldn't be paid to the hospitals instead.
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