Retirement Planning in Singapore (2019) – A Starter Guide for Confused Millennials
When you think “retirement”, do you imagine travelling the world, cruising on your own yacht, and being surrounded by Playboy bunnies/boy toys? Sorry, but retirement in Singapore isn’t quite as cushy as that, unless you happen to be sitting on a fortune.
To me, being time-rich and cash-poor, as many Singapore retirees are, is a horrible combination. I’ve visited the polyclinic and library enough to know that I do not want to spend my golden years sitting there, staring into space.
So, how do you plan for retirement and provide a decent lifestyle for Future You? Here’s a look at what’s available to Singaporeans.
Disclaimer: I’m not a financial consultant. In fact, I’m learning about retirement planning myself and trying my best to understand complicated government acronyms. If you spot any errors or have advice to add, please enlighten me.
- What’s the retirement age in Singapore?
- Retirement in Singapore – what’s the cost of living like?
- Can’t I just withdraw money from my CPF Retirement Account?
- How do the CPF Retirement Scheme and CPF Life work?
- Will I have enough money for my CPF Retirement Sum?
- How else can you plan for retirement in Singapore?
What’s the official Singapore retirement age?
Well… depends on whether you’re asking MOM or CPF.
|Singapore retirement age||Implications|
|55 years old||You can start withdrawing $$$ from CPF Retirement Account|
|62 years old||MOM’s stipulated retirement age. Employers cannot legally ask you to “retire” before this age.|
|65 years old||You can start getting monthly payouts if you meet the CPF Retirement Sum|
|67 years old||If you work past MOM retirement age, you can re-contract with your employer until this age|
According to the Ministry of Manpower, the official Singapore retirement age is now 62 years old (it will go up to 63 in 2022, and gradually increase to 65 by 2030).
This number is primarily meant to regulate employers, not workers. Should your employer suggest you “retire early to spend time with your grandkids” before age 62, you may have a case against them for unfair dismissal and can appeal to MOM.
Of course, employers always try to get rid of older employees by throwing around words like “restructuring”, “streamlining”, or “focusing on core competencies”, so it’s not easy to get support for your case.
If you’re lucky to be with a good employer who doesn’t mind your age, you are free to continue working after you’ve passed retirement age. MOM sanctions this up to age 67. This is also known as the re-employment age, and, like the retirement age, it will increase to 68 in 2022, and eventually become 70 by 2030.
On the other hand, if you want the government to #returnyourCPF, your retirement funds will only be available to you from age 55. That’s a whole different “retirement age”.
Assuming you haven’t liquidated all your CPF funds and run off to retire in Batam, you need to wait another 10 years before you can smell your first CPF monthly payout, at age 65 (or later, if you choose).
Retirement in Singapore – what’s the cost of living like here?
As everyone already knows, the cost of living in Singapore is pretty high. Just ‘cause you’ve retired doesn’t mean it’ll go down magically.
In fact, your cost of living might even increase, because (1) getting old usually means more medical bills and (2) free time costs money to fill up.
So, how do you figure out how much your expenses will be when you retire? My (totally personal, completely unscientific) formula goes like this: normal living expenses + old age contingency costs + emergency buffer.
Let me explain.
Normal living expenses: Assuming you’ve paid off all your outstanding loans by retirement, your baseline should be your existing (not imaginary) living expenses. This would include food, transport, utilities, etc. plus the recreation you regard as essential to your quality of life.
Old age contingency costs: Admit it, you will be less healthy than you are right now, so you need some kind of plan for healthcare, elderly care and even disability-related costs. Your best bet is to provide for these costs with health insurance, then set aside a sufficient amount after researching the elderly care options.
Emergency buffer: All kinds of emergencies can happen. A bad fall. Your house gets flooded. Family drama. You get depressed and want to seek help. Since you can’t exactly ask CPF for an advance paycheck after you’ve retired, it’s good to have a bit of extra money as buffer.
How’s that magic number looking? Much higher than you thought, huh?
If you’re wondering how you compare to other Singaporeans, a recent survey commissioned by NTUC Income put the average desired retirement income at $3,314 a month.
It’s worth remembering that this number is subject to inflation as well. This is typically 3% a year. But if you have an atas lifestyle, budget for 4% to 5% a year as luxury goods appreciate faster.
Can’t I just withdraw money from my CPF Retirement Account?
I don’t think I’m the first Singaporean to have the impression that I’d be able to cash out ALL my CPF savings one day.
Guess what? … Cannot lah!
It turns out that you can only drain your CPF savings if you have less than $5,000 in your CPF account (Ordinary and Special Accounts combined) at age 55.
In such a scenario, CPF won’t even bother to set up a Retirement Account for you. Your funds are all unlocked.
However, if your OA + SA balance is more than $5,000 when you reach age 55, CPF will merge the two to form your CPF Retirement Account (RA).
You can withdraw money, but there’s a minimum balance that you cannot touch. This amount is pegged to either the Basic Retirement Sum or Full Retirement Sum, both of which change yearly. We’ll use the current numbers, which apply to those who turn 55 in 2019.
|CPF balance at age 55||Minimum balance (for property owners)||Minimum balance (for non-property owners)|
|Less than $5,000||No limits apply. Can withdraw everything|
|$5,000 to $176,000 (Full Retirement Sum)||$88,000 (Basic Retirement Sum)||Only allowed to withdraw up to $5,000|
|Over $176,000 (Full Retirement Sum)||$88,000 (Basic Retirement Sum)||$176,000 (Full Retirement Sum)|
As you can see, the scenario is different depending on whether you own a property or not. But there are certain terms & conditions around property ownership.
To qualify as a “property owner”, you need to able to top up your CPF to the Full Retirement Sum if you sell your property. For the full details, you can read page 17 of this CPF Retirement guidebook. Have fun.
How do the CPF Retirement Scheme and CPF Life work?
So, we’ve established that you can’t just demand that the authorities return your CPF in full once you’re 55. There goes my dream of buying a boat and living out the rest of my days at sea.
The alternative is the CPF Retirement Scheme or CPF Life. It’s sort of like a pension scheme, except your “pension” comes from your own money rather than from a collective pool of taxpayer money.
For Singaporeans born in 1958 and after, you’ll be automatically enrolled in the new & improved version of the CPF Retirement Scheme, called CPF Life. The main difference is that those on CPF Retirement Scheme get payouts until age 95, while CPF Life get payouts all the way until you die. (Don’t worry if you’re not auto-enrolled, you can still opt in for CPF Life.)
CPF Life has 3 tiers, and when it’s time to retire, you can choose the tier you want depending on your desired retirement income. Here are the current tiers for people turning 55 in 2019:
|Amount||Monthly payouts (standard plan)|
|Basic Retirement Sum (BRS)||$88,000||$730 to $790|
|Full Retirement Sum (BRS x 2)||$176,000||$1,350 to $1,450|
|Enhanced Retirement Sum (BRS x 3)||$264,000||$1,960 to $2,110|
In the previous section, I talked about how most Singaporeans will need to keep the BRS in your CPF Retirement Account. If not, you cannot qualify for the CPF Retirement Scheme or CPF Life.
But if you look at the monthly payouts, you’ll realise that BRS gives you very little month to month. (Given that my cai png cost almost $5 the other day, it might not even be enough to sustain the cai png life.)
To live more comfortably, you can choose to keep the Full Retirement Sum (which is always BRS x 2) or the Enhanced Retirement Sum to get a larger income.
Whichever CPF Retirement Sum you choose, the amount needs to be in your CPF Retirement Account 6 months before you turn 65. You can top it up if you want.
Read this article for more on the intricacies of CPF Retirement Sum.
Will I have enough money for my CPF Retirement Sum?
Just like Amazon share price, the CPF Basic Retirement Sum increases all the time. Over the past years, it’s been increasing at about 3.15% per year. For those turning 55 in 2019, the current BRS is $88,000, about a 3% jump from last year’s $85,500.
First of all, this moving benchmark isn’t a bad thing. Assuming that they correspond to a similar increase in monthly payouts, an ever-increasing BRS would show that the CPF retirement scheme is responsive to inflation.
But it’s important to understand that, while the current CPF Retirement Sum may seem like a reasonable savings target, the number might be wildly different by the time you retire. CPF only publishes Retirement Sums up to 2020. So if you’re retiring after 2020, you need to do a projection.
I’ll use myself as an example. I’m 33 this year, which means I’ll turn 55 in 2041. Assuming the CPF Retirement Sum continues to increase by 3.15% every year, I’m looking at about a 70% jump from the current sums.
|Amount in 2019||Projected amount in 2041|
|Basic Retirement Sum||$88,000||$149,600|
|Full Retirement Sum||$176,000||$299,200|
|Enhanced Retirement Sum||$264,000||$448,800|
Holy crap. I’m pretty sure that I’m not the only Singaporean who finds the projected Full or Enhanced Retirement Sum a bit daunting.
One common problem is that a lot of us have a big chunk of CPF funds locked up in housing. I mean, my CPF OA balance is so kosong, HPB called to ask if it can be featured in their latest anti-diabetes campaign.
Should too much of your funds be locked up in housing, there are a couple of HDB schemes to help you liquidate your home while still having a place to stay, so you don’t have to eat concrete screed when you’re old. We’ll leave it to you to decide if they’re worthwhile.
But that’s not really going to help the large population segment – homemakers, casual job workers, freelancers – who simply don’t have enough sufficient CPF savings in the first place to enjoy the CPF Retirement Scheme.
How else can you do retirement planning in Singapore?
The CPF Retirement Scheme needn’t (and shouldn’t) be your only retirement plan.
- Don’t have enough CPF savings to get the Retirement Sum you want
- Don’t trust the government to provide for your retirement
- Don’t think CPF Retirement Scheme / CPF Life can beat inflation
- Want a higher retirement income than the CPF Retirement Scheme / CPF Life can provide
- Want to diversify risk by putting your retirement eggs in more baskets
- Want more information on and control over your payouts
… Then it’s a very good idea to diversify your retirement portfolio.
Many Singaporeans supplement the CPF Retirement Scheme with a retirement plan from a bank or insurer. These pre-packaged products are offered by most financial institutions, such as NTUC Income, Aviva and Manulife.
You simply pay premiums ($X) while you’re working in exchange for receiving an income ($Y) during your retirement years. The plan may or may not have an insurance component built in. Do take the time to understand what you’re getting into, because if you thought that CPF Life was confusing… oh boy, you’re not gonna enjoy reading insurance policy documents.
Alternatively, you can also start building your passive income stream with some investments you might already be familiar with, such as:
- Renting out spare rooms in your home
- Investing in dividend-yielding stocks or REITs
- Purchasing an endowment plan if you need the insurance coverage
In my opinion, which actual investment vehicle you choose doesn’t matter all that much… as long as you’re doing SOMETHING. Pick what you understand and feel comfortable with, and start in that direction.
Of course, your retirement investment plan is for the long term, so please don’t try and bank on less predictable instruments, like forex or cryptocurrency speculation.
You may also want to consider opening a Supplementary Retirement Scheme account and using it for your investments.
Singaporeans and PRs can contribute $15,300 a year to the account, and the funds (as well as investment returns) are eligible for tax relief. However, you’ll be charged a penalty if you withdraw the funds before retirement age.
What are your plans for retirement? Share them with us in the comments!