I recently led my first corporate workshop of the year on the topic of “Transform your retirement planning in 2025.” Due to the time constraints of the 30-minute session, I felt that the content was too general to address specific real-life scenarios. To delve deeper, I decided to leverage AI for assistance, and I encourage you to explore this avenue as well. However, it’s important to remember that AI may not be aware of your individual values, existing desires, or concerns, and it might not have the most up-to-date information on policies and the investment landscape. Nonetheless, it can serve as a valuable starting point.

In this article, I will also share my personal opinions. Please note that these are not to be taken as financial advice; they are simply my own thoughts and approach to financial planning. If you require professional advice, please don’t hesitate to reach out to me as I am licenced financial service consultant as well.

My input will be in blue, and the AI-generated content will be in black.

I asked AI to research and develop a retirement plan for a young family of 4 with the following concerns:

Outstanding mortgage of 1 Million SGD.
Funding university education for 2 children (currently 4 and 8 years old)
Supporting retired parents/parents-in-law

Let’s get started!

Retirement planning is a crucial aspect of financial well-being, especially for families with young children and significant financial commitments like an outstanding mortgage. This comprehensive guide delves into the intricacies of retirement planning in Singapore, focusing on a family of four with an outstanding mortgage of 1 million SGD. We will explore various aspects, including estimated living expenses, retirement age and life expectancy, available retirement planning options, and strategies to accelerate mortgage repayment.

Estimated Living Expenses in Singapore for a Family of Four

Accurately estimating living expenses is crucial for effective retirement planning. Several factors influence the cost of living in Singapore, including housing, food, transportation, healthcare, education, and lifestyle choices. Based on our research, the estimated monthly living expenses for a family of four in Singapore range from approximately S$4,700 to S$12,575, excluding rent¹.

Here’s a breakdown of the estimated costs:

Housing: Rent for a 3-bedroom apartment in the city center can range from S$7,238 to S$10,000 per month¹.
Food: Groceries and dining out can cost between S$800 and S$1,200 per month¹.
Transportation: Public transportation costs are estimated to be around S$100 to S$150 per person per month².
Utilities: This includes electricity, water, gas, and internet, and can range from S$150 to S$300 per month³.
Childcare: Costs for childcare or domestic help can vary significantly, ranging from S$779.90 to S$2,500+ per month¹.
Education: Education expenses for two young children can range from S$10,400 to S$15,000 per year⁶.
Healthcare: Healthcare costs can vary depending on individual needs and health insurance coverage⁸.
Entertainment: This includes leisure activities, dining out, and other forms of entertainment, and can range from S$10 to S$100 per person per month⁴.

It’s important to note that these are estimated costs, and actual expenses may vary based on individual circumstances and lifestyle choices.

For a more accurate estimate, it’s advisable to track your own expenses, as spending habits vary. I monitor my monthly spending by maintaining a separate worksheet that records the total sum of each credit card I use.

To gain a deeper understanding of my spending habits, I tracked my daily expenses for three months. This allowed me to identify patterns, eliminate wasteful spending, and optimize my credit card strategy. Although I initially intended to track my expenses for a full year, I found that three months was sufficient to identify trends and annualize my expenses. Due to my busy work schedule and parenting responsibilities, I decided to prioritize other important tasks and stopped tracking my daily expenses after three months.

Average Retirement Age and Life Expectancy in Singapore

The official retirement age in Singapore is 63 years old, and the average life expectancy is 83 years⁹. However, recent surveys suggest that individuals anticipate retiring at an average age of 64¹⁰. This means that, on average, Singaporeans need to plan for approximately 20 years of retirement.

Given a low fertility rate and increasing life expectancy, Singapore belongs to the group of Asian countries hardest hit by demographic change¹¹. Singapore is set to become one of the oldest countries in the world, meaning that it faces major demographic challenges in the years ahead. The old-age dependency ratio will worsen from 12 today to 59 in 2050. The median age will also soar from 37.5 to 53.7 years by 2050¹¹. To address these challenges, there are suggestions to increase the labor force participation rate among older workers¹¹. This can help contribute to the sustainability of the retirement system.

The average life expectancy is currently 83 years old, and with more and more Singaporeans celebrating their 100th birthdays, it’s clear that many people will live longer than expected. This raises concerns about retirement funds lasting throughout an extended retirement period, especially if returning to work becomes impossible due to old age. The prospect of outliving retirement savings and becoming a burden to one’s children is a worry for many, as the younger generation will undoubtedly have their own challenges and responsibilities to manage.

Income Option for Retirement Planning in Singapore

Singapore offers a variety of retirement planning options to help individuals secure their financial future. These options include:

– Central Provident Fund (CPF): CPF is a mandatory social security savings scheme funded by contributions from employers and employees. It serves to meet retirement, housing, and healthcare needs¹². CPF savings are categorized into three accounts:

Ordinary Account (OA): Primarily used for housing, but can also be used for investment, education, and retirement.
Special Account (SA): Designed for old age and investment in retirement-related financial products.
MediSave Account (MA): Primarily for healthcare needs.
CPF LIFE (Lifelong Income for the Elderly) is a national longevity insurance annuity scheme that provides monthly payouts from age 65 for as long as you live⁹. You will be automatically included in CPF LIFE if you are born in 1958 or after and have at least S$60,000 in your retirement savings when you start your monthly payouts.

It is important to understand the different retirement sums and their impact on monthly payouts. These sums are:

– Basic Retirement Sum (BRS): The lowest level of pension income, calculated on the average spending of a lower-middle income retiree household. Read here to see how it was determined,

– Full Retirement Sum (FRS): Twice the BRS.

– Enhanced Retirement Sum (ERS): Four times the BRS.

The retirement sum you set aside in your RA will determine the level of retirement income you receive under the CPF LIFE plan

CPF LIFE is appealing due to its lifelong payouts, and it’s recommended to plan for it before turning 55. My husband and I, currently in our mid-30s, aim to surpass the lower-middle income bracket during retirement by diligently saving to reach the full retirement sum.

I estimate needing approximately 410,000 SGD by age 55, which translates to saving an average of 12,812.5 SGD annually over 32 years. This calculation is conservative as it doesn’t factor in interest earned on OA and SA accounts. I’m keen to know if this goal is achievable and how to best manage any surplus funds to optimize returns.

Since OA savings are often used for mortgage payments, there’s a possibility of insufficient funds for retirement.

– Supplementary Retirement Scheme (SRS): SRS is a voluntary scheme that complements CPF to enhance retirement savings. It offers tax benefits and allows individuals to invest in a wide range of financial products¹⁶. SRS funds can be invested in a variety of instruments, including stocks, bonds, Singapore Government Securities (SGS), Singapore Savings Bonds (SSB), fixed deposits, foreign currency fixed deposits, unit trusts, and single premium insurance products¹⁶.

The SRS scheme is most beneficial for those with a chargeable income exceeding 120,000 SGD. Contributing 15,300 SGD to an SRS account results in tax savings of 1,795.5 SGD, whereas the tax savings are only 550 SGD for someone with a chargeable income of 40,000 SGD.

Personally, I don’t utilize the SRS scheme due to benefit of liquidity outweighs tax saving benefit at this point.

– Insurance Plans: Insurance plans, such as retirement income plans and annuities, can provide a guaranteed income stream during retirement. These plans offer various features, including capital guarantees, potential growth, and flexible payout options¹⁹. There are different types of insurance policies that can be used for retirement planning, such as term life, whole life, and universal life insurance²⁰. Term insurance covers the insured person for a fixed period²⁰. Whole life insurance provides the policy holder with life-long protection²⁰. Universal life insurance can help you achieve your financial goals by allowing you to build cash values through the accumulation of interest, or by allowing you to access those cash values when necessary²⁰.

The saying “buy term and invest the rest” isn’t really my style. I think term plans are best for covering your mortgage for a set time. That way, if something unexpected happens, you won’t have to move because you can’t afford your mortgage payments. For long-term growth and lifelong coverage with shorter payment times, whole life and universal life insurance are better options.

– Investment Options: Investing in assets like stocks, bonds, ETFs, and REITs can help grow your retirement nest egg. These options offer the potential for higher returns but also come with higher risks¹⁶. You can consider dollar cost average strategy if you are busy and have no interest to learn to manage your risk in investment.

– Other Options:

MediShield Life & Integrated Shield Plans: These plans help cover hospitalization expenses¹².

My mother-in-law, who is in her 70s, recently told me she pays approximately 6,000 SGD annually for an Integrated Shield Plan. This was a wake-up call for me; people retire, get sick, and pass away, but inflation and expenses continue.

Critical illness & long-term care insurance: These help deal with unforeseen medical bills¹².

Critical illnesses encompass more than just cancer and stroke, and although early diagnosis and treatment are possible, they come with substantial costs that extend beyond medical expenses. While insurance premiums for critical illness coverage are higher than those for death coverage, having this insurance provides peace of mind and the option to take a break from work to focus on recovery.

Additionally, there are government schemes available that can be explored to enhance your understanding or assist your parents in their retirement planning.

Tax Implications of Different Retirement Planning Options

CPF: Compulsory CPF contributions are not taxable. Voluntary contributions made by the employer are taxable²⁸.
SRS: Contributions to SRS are tax-deductible, and investment gains accumulate tax-free²⁴. Tax is payable upon withdrawal, with a 50% tax concession if withdrawn at retirement²⁴. However, if you withdraw SRS funds before the statutory retirement age, the amount withdrawn will be subject to income tax and a 5% penalty²⁴.
Insurance Plans: Insurance premiums are generally not tax-deductible, and insurance payouts are not taxable²⁹.
Investment Options: Investment gains are subject to capital gains tax, but Singapore does not have a capital gains tax regime³⁰.

If you receive dividend payment from Singapore shares or investment plan, it is not taxable too while rental income from your property is taxable. If you plan to invest in property for rental incomes, remember to factor in agent commission, additional tax liability and re-instatement cost as tenant might not treat your property as gently as yourself.

Estate Planning for Retirement Planning in Singapore

Estate planning is a crucial aspect of retirement planning that ensures the smooth distribution of assets and protects your loved ones’ financial well-being. It involves:

Will-writing: A will ensures that your assets are distributed according to your wishes after death¹².
Trusts: Trusts can be used to manage and protect assets for beneficiaries, such as children or those with special needs¹². You can set up a trust with Special Needs Trust Co (SNTC), a non-profit trust company that provides affordable trust services for families with special needs³¹.
Nominations: CPF nominations ensure that your CPF savings are distributed according to your wishes¹².
Lasting Power of Attorney (LPA): An LPA allows you to appoint someone to make decisions on your behalf if you lose mental capacity³¹.
Advance Care Planning (ACP): ACP discussions facilitate the process of planning for one’s current and future healthcare, including discussing one’s personal beliefs and goals for care with loved ones and healthcare providers³¹.
Advance Medical Directive (AMD): An AMD informs the doctor that you do not want extraordinary life-saving measures if you’re unconscious or terminally ill³¹.

My father-in-law suffered a stroke at 59 years old without a Lasting Power of Attorney (LPA) in place. This meant my mother-in-law had to hire a lawyer to access his CPF and bank accounts. Unfortunately, the lawyer overlooked a clause related to their flat. Over a decade later, when my husband and I bought our HDB flat, we were ineligible for the $15,000 proximity grant due to this oversight. To qualify, I had to spend an additional $6,000 to add the missing clause and wait for four years for the process to complete. By the time I received the proximity grant, I had almost reached the end of my Minimum Occupation Period (MOP).

Funding University Education

University education in Singapore can be a significant investment. The average cost of a 3-year university course in Singapore is S$60,000 to S$85,000 ¹⁶. For a Singapore citizen, the average cost of university tuition fees is $38,250 for a four-year general undergraduate degree ¹⁷. Including living costs, the total estimated figure to obtain a university degree is $79,850 ¹⁷. It is important to note that university costs for local and international students can differ significantly. For instance, while a Singaporean citizen might pay around S$32,000 for a four-year university course, an international student could pay more than double that amount ¹⁶.

Strategies for Funding University Education

Start Saving Early: Begin setting aside funds for your children’s education as early as possible to take advantage of compound interest.
Explore Government Schemes: The government offers various schemes and grants to help with education costs.
Consider Education Savings Plans: These plans offer a structured approach to saving for education expenses.
CPF Education Scheme: You can use your CPF OA savings to pay for your children’s tuition fees at approved educational institutions.

My mom always said that knowledge is the best gift she could give me, and I totally agree. She believed that money can be easily lost, but a good education will always stay with you. That’s why I want to give my kids the best education possible, so they can have a bright future. This includes university and also the skills they’ll need to succeed in the future.

Supporting Aging Parents

Supporting aging parents can involve various expenses, including:

Living Expenses: This includes providing a monthly allowance, covering their daily needs, and contributing to their housing costs.
Healthcare Expenses: As parents age, healthcare costs tend to increase. This includes regular check-ups, medical consultations, medications, and potentially long-term care. The cost of informal caregiving for seniors in Singapore is estimated at S$1.28 billion annually, highlighting the potential financial burden of healthcare expenses for aging parents ¹⁸.
Elderly Care Services: Depending on their health and care needs, you may need to consider home care services, assisted living facilities, or nursing homes. On average, monthly fees for nursing homes in Singapore range from S$2,000 to S$3,600 or more before government subsidies ¹⁹.

Creating a dividend-paying fund to cover my parents’ living expenses was one of my best decisions. This strategy not only relieved my parents’ financial burden but also allowed me to focus on my children’s needs without worry.

Developing a Retirement Savings Plan for the Family

Given the family’s financial situation, outstanding mortgage, and future needs, here’s a framework for developing a retirement savings plan:

1. Assess Current Financial Situation: Evaluate income, expenses, assets, and liabilities to understand the starting point.

2. Set Retirement Goals: Define the desired retirement lifestyle and estimate the required income.

Retirement means different things to different people. For some, it’s about early retirement, while for others, it’s about enjoying the fruits of their labor. Although everyone’s retirement goals are unique, the common desire is to enjoy life to the fullest.

3. Prioritize Mortgage Repayment: Develop a strategy to pay off the mortgage faster, freeing up funds for retirement savings.

While property is the best asset to hedge against inflation and a mortgage has the lowest interest rate, a loan is still a liability. My current strategy is to refinance when necessary to minimize interest charges. Additionally, I plan to invest idle funds for 20-30 years at an expected return of 8-11%, which is higher than my borrowing interest rate of 3%. Hopefully, the capital growth from these investments can pay off the outstanding loan itself.

4. Maximize CPF Contributions: Ensure both husband and wife contribute the maximum allowed amount to their CPF accounts.

We prefer to maintain liquidity at this stage, so we are both working towards the Full Retirement Sum goal only.

5. Consider SRS Contributions: Explore the benefits of SRS and contribute regularly to maximize tax relief and investment opportunities.

I would prefer to have greater access to liquid assets at this point.

6. Explore Insurance Plans: Evaluate insurance plans that offer guaranteed income and potential growth to supplement CPF LIFE payouts.

7. Invest Wisely: Diversify investments across different asset classes to balance risk and return. Consider your risk tolerance and the liquidity and flexibility of different investment options³². Explore the concept of total return investing, which combines growth and income generation to maximize retirement income³².

I adopted a dollar-cost averaging strategy for long-term growth and passive income investing. I also explored higher-return instruments, such as cryptocurrency. However, this represents a minor, speculative, short-term position that wouldn’t impact my long-term goals, even if the crypto market crashed.

I view losses from DIY trading and investing as learning experiences. These experiences have taught me that the principle of buying low and selling high is more complex in practice. Having a job, saving, and investing long-term in a balanced and well-managed portfolio remains a relevant strategy in today’s market.

8. Review and Adjust Regularly: Monitor the plan’s progress and make adjustments as needed based on changing circumstances and financial goals. Life events and changing financial circumstances may require adjustments to the retirement plan¹².

I review my and my clients’ accounts multiple times a year to find opportunities and mitigate risks in their portfolios.

9. Build an Emergency Fund: Having an emergency fund is crucial for unexpected events and can help avoid dipping into retirement savings¹⁴. Aim for 3 to 6 months of emergency funds¹⁴.

Due to the uncertainty of my self-employment income and the possibility of another unforeseen event like the Covid lockdown, I have decided to maintain a 12-month emergency fund.

10. Plan for Healthcare Costs: As you age, your healthcare needs will increase. Factor in potential medical expenses you will need to cover when planning for retirement³³.

Integrated Shield plans do not cover outpatient treatment, which can be expensive.

11. Consider Supporting Others: If you need to support family members or dependents during retirement, factor in their expenses when planning your retirement income needs³⁴.

If our parents’ retirement funds run out after 20 years, we may have to support them financially due to the 30-year age gap between us at 55 and them at 85. On the other hands, through generational wealth transfer planning, our children can also benefit from our passive income stream when they retire if we have planned for it.

12. Account for Fixed Expenses: Consider ongoing expenses like health insurance premiums that can affect retirement income needs³⁴.

13. Bucket Investments: Allocate investments to different time horizons (short-term, medium-term, and long-term) to manage risk and ensure a steady income stream throughout retirement¹⁸.

14. Consider Inflation: Inflation erodes the purchasing power of savings over time.

Retirees are not immune to inflation.

15. Seek Professional Advice: Consider seeking advice from a qualified financial advisor for personalized guidance and informed decisions about your retirement plan.

Besides profession advice, the first person to include in your retirement planning is your spouse, as it’s a lifelong journey. My husband and I used to attend investment seminars together before having children, and now we enjoy investment webinars. It’s beneficial to have someone to discuss and debate new opportunities with.

Conclusion

Retirement planning in Singapore is a multifaceted process that requires careful consideration of various factors. By understanding the available options, maximizing contributions, and adopting a disciplined approach, families in Singapore can secure their financial future and enjoy a comfortable retirement. Remember to review and adjust your retirement plan regularly to ensure it aligns with your evolving needs and financial goals.

If you still remember the story about the tortoise and the heir, a successful retirement planning requires the patience and focus of tortoise. Fast and furious does not have an edge in long-term planning, yet steady and sustainable strategy will be the key to pleasant retirement. Similar to the fable of the tortoise and the hare, successful retirement planning necessitates a measured and persistent approach. While rapid advancements may not be advantageous in the long run, adopting a steady and sustainable strategy is crucial for ensuring a comfortable retirement.

Can we glean insights from the planning of Singaporean retirees in the Household Expenditure Survey 2023 Report to better inform our own retirement income planning strategies?