Living a financially secure life after retirement is the best way to enjoy old age since it is an unravelling reality. The main objective of having a secure retirement plan is to help you maintain a preferred lifestyle even after you have left the job market. However, it can become challenging if you don’t start building your own pension and saving for later years now.
Remember, when you retire, your employment income stops, but not your expenses. You continue to pay for your food, your transport, your health care, and so on. If you are not lucky enough, you may still have an outstanding mortgage loan to pay.
So what can Singaporeans do to get ready for retirement? Do you have retirement plans that generate guaranteed passive income to pay off these expenses? The answer may lie with the very people who are already living their golden years, so the following are 5 key tips to ensure you have a financially secure retirement.
Build Up Your CPF Savings
CPF savings can help provide for your basic needs during retirement. Your CPF contributions accumulate during your working life. When you reach 55 years old, your Special and Ordinary Account savings, up to the Full Retirement Sum (FRS), will be transferred to a Retirement Account. You earn risk-free interest on your CPF savings, at higher rates than from banks. Owing to rising life expectancy of Singaporeans from 81.4 years to 82.8 years today, the government introduced the CPF Lifelong Income For the Elderly (LIFE) in 2009.
CPF LIFE is a national annuity scheme that allows you to receive a monthly income for the whole of your retirement life, starting from your payout eligibility age. The more you have in your CPF accounts, the more income you will have when you retire. Therefore, you can build up these savings through cash top-ups to your Special Account (SA) or Retirement Account (RA), and voluntary contributions to your CPF accounts or MediSave account.
Use MediSave To Plan For High Health Care Costs
In Singapore, health care costs continue to skyrocket every year, which is a clear indication for future retirees to expect higher costs. Therefore, it is important to set a plan to help you adjust to the unforeseen changes in health care costs and maintain your retirement goals. A secure retirement plan requires you to plan for a long life; therefore, use MediSave to save for long-term health care expenses. You can use their MediSave money to pay for specific medical costs at all public healthcare institutions, and approved private hospitals.
MediSave was established in 1984 to allow resident employees to save 8-10.5% of their income annually, as it accumulates tax-free interest. The exact percentage depends on age, with individuals under 35 contributing the lowest, while those above 50 contributing the highest amounts. If your monthly income is less than SGD$1,500 or you’re self-employed, your MediSave contributions have special rates. You can accumulate up to SGD$49,800 in your MediSave account (the Basic Healthcare Sum), and any overflow goes into different CPF retirement account.
Seek Alternative Housing Options
Before deciding where to live after retirement, you should start researching on alternative housing to help you cut down on your bills. Once you leave the job market, you will have the freedom to choose many places to live. It is advisable to opt for a location with a lower cost of living, but comfortable enough to pursue your retirement goals. With many other factors to consider, such as closeness to family members, pricing, and nearness to health care facilities, choosing a residence during retirement can become overwhelming if not well thought out in advance.
You can choose to rent out your current home and convince a few like-minded retirees to join you in buying an outdoor space, which would act as a common place for group activities as well as for privacy. Generally, when you start pondering on where you desire to live after retirement, you must first choose a safe place that where you can easily access health care. Generally, Bukit Panjang remains the cheapest area in Singapore for renters followed by Woodlands, Choa Chu Kang, Punggol, Sembawang and Sengkang.
Write a Living Will
However much you wouldn’t want to think about the end of your life while still young, death is an inevitable occurrence that has to be cushioned to minimize its effects on your family. A living will is a prewritten directive that your family can use to honour your wishes when undergoing treatment before the end of life. Even though it lacks meaning after death, it effectively serves as a reference to your decisions when you cannot communicate them due to illness.
Securing a retirement with a living will is one of the preferred ways of preparing ahead of time because it saves your family the agony of making difficult choices during a health crisis or emergency. You should ensure you have a living will, especially if you have acute illnesses, such as cancer, HIV/AIDS, diabetes, stroke etc., since it is legally recognized when honouring your end-of-life care needs.
Avoid Spending your Retirement Savings
Let’s face it! The urge to use your savings to fund emergencies can sometimes be irresistible. However, when it comes to retirement assets, resisting this urge because it can go a long way to give you a tax-free growth, which will also help you accomplish some important goals in the future. Even though it has become a daunting task for many young people to sacrifice their salaries to secure their retirement, you should make long-term savings plans to avoid short-term spending. You should also try to maintain your lifestyle as you save for retirement so that you monitor the plan vis-à-vis the amount of savings.
Implementing these cue points will not only condense your retirement plans into actionable steps, but will also give you an overview of the lifestyle you want to live during retirement.