Tajburrow

Step One:
Decide on your planned retirement age
According to an independent study conducted in 2013, a large majority of Singaporeans have inadequate savings and are not saving early enough for their retirement. As the cost of living rises, coupled with our longer life expectancies, retirement planning takes on even greater importance.

Currently, Singapore’s statutory minimum retirement age is 62 with re-employment opportunities available until the age of 65 based on performance. But like everything else in Singapore, this is expected to rise in the future. Earlier this year, Lim Boon Heng, former NTUC secretary-general, went on record to say that he believes that the retirement age should be upped to 70. What does this mean for you? Simply put, you have until the age of 62, or 65, to earn and save enough so that you can live the rest of your life from the savings you’ve accumulated. Of course, you may also choose to retire earlier if you think you have enough funds to tide you through the rest of your life.

Alex Lee, the Chief Actuary for Tokio Marine Life Insurance Singapore Ltd, highly recommends that you start planning for retirement as early as possible, perhaps in your late 20s or early 30s, and the first thing that you can do is to decide the age that you wish to retire at. Alex provides four common benchmarks – 50, 55, 60 and 65.

Step Two:
Choose the retirement lifestyle that you would like to enjoy, followed by a targeted monthly retirement amount you will need to fund such a lifestyle
Are you aiming for the same lavish lifestyle that you are now enjoying in the prime of your life? Or do you not mind adopting a more prudent approach? Perhaps you’re aiming for somewhere in between. It’s important to choose a retirement lifestyle that you’re most comfortable with. A 2013 global report regarding retirement compiled by HSBC found that 70 percent of the respondents in Singapore viewed spending more time with friends and family as one of their most important retirement aspirations. A close second was taking frequent holidays, with 63 percent of respondents hoping to pack their luggage as often as possible during their golden years.

The average Singaporean, Alex shares, requires 70 percent of his or her last drawn salary to maintain his or her current lifestyle during retirement. If you’re more prudent though, 50 percent of your last drawn monthly wage is more than enough to take you through the rest of your years. Thanks to Tokio Marine’s retirement calculator, we’ve put together a simple table that you can use to calculate the estimated monthly amount you need based on your age and current wage.

Assuming a retirement age of 65, an income stream of 20 years, and an expected yearly increment of 2 percent (based on average wage increase before inflation)

As you can tell from the table above, retirement can be a rather expensive exercise, which is why it’s important to start as young as possible. Do understand though that the table is a guideline. If you reckon you can live happily with a monthly income of S$1,800 for 20 years, then your total retirement goal will definitely be lesser than the amounts stated.

The best thing that you can do when you’re in your 20s or 30s is to become financially literate so that you can start exploring investments, whether alone or together with your family. “Investing early makes your savings work harder…and the power of compounding would potentially give you better returns to offset inflation, which will help to meet your healthcare and other unforeseen expenses in your later years,” Alex advises.

Step Three:
Calculate the different financial sources of retirement that you have
A large majority of Singaporeans, according to the HSBC report, are mainly relying on cash savings to help fund their retirement, supplemented by their life insurance pay-outs and the CPF LIFE programme. Unfortunately, the amount they receive might be woefully short of their targeted retirement monetary goal, which is why we highly encourage you, dear reader, to include secondary sources of income – property rental, financial instruments such as shares and bonds, etc. – in your financial portfolio.

Having a guaranteed monthly income, whether it be from the dividends you get from your share holdings or rental property, makes it easier for you to plan your retirement. Take note that with inflationary trends, your targeted retirement income might possibly be inadequate in the future, which is why it’s important to periodically review your financial portfolio. The best investment you can make for you and your children’s future is to attain financial literacy and responsibility as soon as possible. Acting early, especially when you still have the mental and physical capabilities to make a difference, will greatly lessen the burden during the later years.

Common Retirement Myths Busted

• “CPF Life pay-outs will be able to provide enough for my retirement.”
  As Prime Minister Lee Hsien Loong illustrated in his 2014 National Day Rally speech, the income stream from your CPF funds is most likely not enough to fund a retirement that many Singaporeans would consider comfortable. While certain policies, such as the extension of the Lease Buyback Scheme to four-room flats and the property pledge for the Minimum Sum, are being revised, you will still require additional streams of income.
   
• “I am a disciplined saver.”
  If your savings sit solely in a bank account, the effects of inflation and the rising cost of living will actually reduce the value of your savings over time. Hence, Alex recommends that personal savings should only form a part of your retirement funds.
   
• “I am still young and there is no need to plan ahead for my retirement now.”
  As we have illustrated clearly in the earlier part of the article, the amount of money you need for a comfortable retirement can be rather staggering, so it’s best to start as early as possible. Leaving it until later will only exacerbate the problem and while we understand that you want to enjoy your youth, we don’t believe that it should be at the expense of your old age.

Staying Healthy and the new MediShield Life

Healthcare expenses tend to be the main reason our retirement savings are depleted quickly. After all, old age can be rather unkind to our body. We start experiencing mysterious aches and pains, and our joints begin breaking down more often, leading to frequent clinic visits and hospital stays. In response to rising healthcare costs and longer life expectancies, the Ministry of Health Singapore will be enhancing the iconic MediShield scheme at the end of 2015, and will rename it as MediShield Life. We’ve reached out to the Life Insurance Association Singapore to break down what the new changes mean for the average Singaporean.

Key changes of MediShield Life
MediShield Life will provide all Singaporeans and Permanent Residents with health insurance coverage for life, regardless of changes to their health over time. The three key changes of MediShield Life are:

• Life-long coverage
• Coverage for pre-existing medical conditions
• Higher claim limits and lower co-insurance to cover more of large bills

Common misconception regarding the changes of MediShield Life
Following the MediShield Life Review Committee’s (MLRC) recommendations for MediShield Life, a common initial response amongst many Singaporeans is that they no longer see a need for Integrated Shield Plans (IPs).

An IP comprises two parts – the basic MediShield plan and enhanced benefits provided by IP insurers.

The MediShield Life plan and IP benefits are meant to be complementary and they both serve different needs. MediShield Life only pays for large hospital bills of up to Class B2 wards. For people looking for adequate financial coverage for stays in Class B1 or A of public hospitals, or private hospital wards, they should consider purchasing or retaining their Integrated Shield Plan to meet those needs and preferences.

As charges for the higher ward classes are more expensive coupled with lower or no Government subsidies, IPs provide Singaporeans who wish to stay in such ward classes with additional coverage above and beyond MediShield Life.

The effects of MediShield Life on those with existing IPs

• MediShield Life to provide life-long coverage
• Most IPs currently provide coverage for life. MediShield’s enhancement to provide life-long coverage will align MediShield Life with IPs over the lifetime of the policy
• Higher MediShield Life claim limits and lower co-insurance to better cover large bills

IPs are designed as a single product in terms of the premiums and benefits offered under MediShield and the top-up portion of IPs. Hence, IP policyholders will enjoy both the benefits of MediShield Life as well as the additional benefits under the top-up portion of IPs.

The top-up benefits provided by IP insurers can include:

• Less out-of-pocket expenses under as-charged benefits or optional riders
• Adequate coverage for Classes B1, A or private wards
• Coverage for pre- and post-hospitalisation treatments

MediShield Life to provide coverage for pre-existing conditions

For the IP insurer, the decision to provide coverage for pre-existing medical conditions will depend on the risk management strategies of the insurer. Regardless of the underwriting outcome by the IP insurers, Singaporeans and Permanent Residents are assured of basic life-long coverage under MediShield Life, even if they have pre-existing conditions at the time of joining MediShield Life.