Strategies and Instruments That Can Help Late Savers Prepare for Retirement

When it comes to retirement, everyone wants to spend their later years pursuing enjoyable leisure activities — like playing golf, focusing on a beloved hobby, or relaxing on an exotic beach with a mojito. So how are you preparing for retirement?
 
If you’re a “late saver” and can’t answer that question, it’s a good indication that you should start now — unless you’re positive that you can retire comfortably on CPF Life’s pay outs, which can range from $600+ to $1,900+ a month.
 
Here are some helpful strategies and instruments that can help you prepare for retirement. 
 

1. Evaluate Your Financial Situation and Make Necessary Adjustments

To prepare for retirement as a late saver, you need to start by freeing up as much of your monthly income as possible for retirement-building instruments. You don’t need to start living on the bare necessities in life like a monk — but lifestyle changes need to be made in order to free up more money for retirement.
 
Start by conducting a cash flow analysis of your current financial situation to find out how much you’re really spending/saving monthly. Here’s a simple example of a cash flow analysis for a married 35-year old mid-career professional making $7,000 a month (minus CPF). 
 

Monthly Expenses		Monthly Income
Mortgage	$1,500	Income	$7,000
Health	$200	CPF	($1,200)
Utilities	$500
Groceries	$400
Dining	$1,000
Entertainment	$750
Transportation	$500
Credit Cards	$500
Total Expenses	$5,350	Total Income	$5,800
Total Savings	$450

$450 a month isn’t going to go very far towards reaching a meaningful retirement savings goal. As a late saver, you need to set aside 20% to 30% of your income minus CPF for retirement instruments such as health insurance and savings and investment plans — and in the case of the professional above, $1,160 to $1,740 will go much farther towards building your retirement nest egg.
 
Take a deeper look into your monthly expenses and evaluate what can be reduced. These additional savings can bring you closer to saving an ideal amount of 20% of your income monthly. In cases where you are unable to cut down on any expense, this exercise will help display any savings shortfalls, and show how much your household is spending every month.
 

2. Use Your CPF Productively

 
Considering that 20% of our income goes into CPF, it’s a good idea to look into growing your CPF retirement savings with the CPFIS scheme. The CPFIS scheme enables you to invest a portion of your Ordinary Account (OA) and Special Account (SA) savings to grow your savings at a potentially higher interest rate. 
 
As long as you have a minimum balance of $20,000 in your OA and $40,000 in your SA, you can participate in the scheme to utilize a variety of investment products including:

• Unit Trusts (UTs)
• Investment-linked Insurance Products (ILPs)
• Annuities
• Endowment Policies
• Exchange Traded Funds (ETFs)
• Singapore Government Bonds (SGBs)
• Gold Products & ETFs

 
However, keep in mind that just like any other investment, there is risk involved with using the CPFIS scheme — so don’t forget to follow safe and smart investing practices!
 
If you would prefer something less risky, you can also consider doing a voluntary top up of your Special Account with the Retirement Sum Topping-up Scheme. To do this, you need to be below 55 years old, and have less than the current full retirement sum in your SA, which is inclusive of the net savings you have withdrawn under the CPF Investment Scheme. The advantage of this scheme is that your savings in SA earn an interest rate of 4% a year, while your savings in OA earn an interest rate of 2.5% a year. To calculate just how big of a difference in savings this scheme can make compared to your OA’s normal interest rate, check out this calculator by CPF.
 
Ensure that unfortunate events don’t wipe out your savings
 
MediShield Life provides you with basic health coverage — it provides coverage for B2 and C wards in public hospitals, and you will need to pay out-of-pocket for the deductible and co-insurance.
 
Purchasing additional health insurance protection may seem like an unnecessary expense, but it’s extremely important as it ensures your retirement nest egg won’t get wiped out by costly medical expenses.  
 
Here’s a chart illustrating the different types of health insurance that you can evaluate to offset the rising cost of healthcare: 
 

Type of Health Insurance	What It Does
Private Medical Insurance	Reimburse hospitalization, surgery, and certain inpatient/outpatient expenses in higher class wards
Supplemental Medical Expense Insurance	Supplements private medical insurance with riders that deliver more medical coverage
Disability Income Insurance	Replaces a percentage of the insured individual’s income in the event of disability due to an accident or illness
Long-Term Care Insurance	Pays a fixed monthly amount for long-term nursing care if the insured individual is unable to perform basic daily activities
Critical Illness Insurance	Pays a lump sum in the event the insured individual is diagnosed with a critical illness covered by the policy
Hospital Cash Insurance	Pays a daily cash benefit if the insured individual is hospitalized due to an accident or illness

While the types of insurance listed above can provide financial protection in the event of costly medical emergencies, Long-term Care and Critical Illness insurance can play a big role in protecting your retirement savings.
 
Here’s why these policies should be considered as part of your retirement planning:

• Long-term care insurance: protects you and your family from loss of income in the event you suffer an unfortunate accident or illness that leaves you unable to work and perform daily living activities such as bathing and eating, as this policy can help cover the cost of long-term nursing care.
• Critical illness insurance: protects you from the high cost of medical treatment in the event that you are diagnosed with a critical illness or need surgical operations covered in the policy, which can include major cancers, heart-related surgery, and kidney failure among others.

 

3. Evaluate Savings and Investment Plans to Generate Retirement Income

 
Used in tandem with your CPF savings and additional health insurance protection, savings and investment plans have the potential to ensure that you’re able to retire comfortably. That’s because savings and investment plans can help to supplement your income during your retirement years, and also provide life insurance features like total and permanent disability (TPD) and accidental death coverage.
 
For savings and investment plans, there are two types of each to consider:

• Regular Premium Plans: Enable you to make regular premium payments while enjoying the benefits of each plan during the interest accumulation period.
• Single Premium Plans: Enable you to a lump sum payment to grow your nest egg faster during the interest accumulation period.

 
Each type of plan caters to different circumstances and needs. As a general guide, ensure that you have sufficient liquidity before investing in single premium plans. If you are unable to make a lump sum payment, but are willing to make a smaller monetary commitment towards your retirement, regular premium plans may be more suitable. To learn more about our savings and protection plans, and figure out which are best suited to your retirement needs, try consulting our digital adviser, askSage. Some plans are even available to purchase online!
 
The strategies and instruments listed above are intended to help you plan and set your retirement journey in motion. However, if you need more help navigating that journey, or wish to find out more about investment-linked plans, chat with one of our advisers online.  

This advertisement has not been reviewed by the Monetary Authority of Singapore.