Before we deep dive into this topic, let’s first set up some parameters. With retirement age at 65 and the current life expectancy for Singapore in 2021 is 83.80 years, a 0.16% increase from 2020*, that’s a grand total of 18.8 years. Let’s not forget as well that the number of centenarians - those aged 100 and above - in Singapore has doubled over the past 10 years, from 700 in June 2010 to 1,500 in June 2020**.
Just assuming that we live till the life expectancy of 83.8 years, we will have $27,780 annually to spend. However, if we live till 100, we will be looking at a measly $14,285.71 annually. Can you imagine yourself having this lifestyle? Let’s not forget that the bottom 20% monthly household income in 2020 was $4,295 monthly***, working out to $51,540 annually.
This means that if you were to live till the life expectancy age of 83.8 years, you would be living a lifestyle of close to the bottom 20% of the population. If you were fortunate enough to live longer than that, you would now need to worry about how long your money is going to last you before it runs out. Otherwise, you would have to live on half the monthly expenses so as to stretch the money longer.
We once knew of someone who stayed in a one room flat in Holland Village. He told us that he had $500,000 in total in savings and CPF and was prepared that it was enough to last him and his spouse through his retirement. He mentioned that he didn’t have much expenses and would only need to spend $50 for both him and his spouse on a daily basis. What he didn’t take into account was the onset of cancer in his spouse. Not only did the hospitalisation bills pile up, he had to take taxi on a daily basis to the hospital to bring his spouse for her treatments and follow – ups. All his plans to spend just $50 a day was gone in an instant. To fast forward the situation, after spending more than $400,000 on his spouse’s medical, his wife unfortunately didn’t survive the condition and eventually passed on leaving with little in the bank account. To his dismay, he was also stricken with cancer as well and the money definitely didn’t last him very long. He had to survive on charity for his basic needs and medical bills.
Many times when we think that the funds that we have are sufficient, we need to look not only on the positives but also at the various scenarios if it really sets in. Are we really good to go?
One general rule of thumb would suggest that you need 50% to 70% of last drawn annual income to maintain your current standard of living during retirement****. Another alternative is to look at your basic necessities and make sure that you have guaranteed passive income that will pay you for as long as you live.
Just supposing that your last drawn income is $10,000 monthly and each month you have $5,000 worth of fixed expenses. In the first method, you would need $5,000 - $7,000 of income throughout retirement. In the second method, you would need to ensure that you need to have $5,000 in guaranteed passive income for as long as you live. Any amount above that would be for luxuries, for travel or even for investments.
So, what are some of the examples of guaranteed passive income instruments?
- CPF Lifelong Income For The Elderly (CPF LIFE) Scheme
- Lifelong Annuities – This allows for guaranteed income above CPF LIFE
Reference
* Singapore Life Expectancy 1950-2021 | MacroTrends, https://www.macrotrends.net/countries/SGP/singapore/life-expectancy , 2010-2021
**Reaching 100: Number of centenarians in Singapore has doubled in 10 years (Straits Times Premium) (duke-nus.edu.sg), https://www.duke-nus.edu.sg/allnews/reaching-100-number-of-centenarians-in-singapore-has-doubled-in-10-years-(straits-times-premium), 1 Oct 2020
***(DOS) | SingStat Table Builder – Average Monthly Household Income from Work (Including Employer CPF Contributions) Among Resident Employed Households By Deciles 1/, https://tablebuilder.singstat.gov.sg/table/CT/17262, 8 Feb 2021
****Retirement (lia.org.sg), https://www.lia.org.sg/consumers/getting-started/retirement/, 2021
