Do you know your parents' retirement dream?

Transitioning from saving to spending in retirement can seem psychologically daunting. This is particularly true for Asian parents, who hold frugality as a core value and as their very identity. 

After years of hard work, allowing themselves the freedom to spend money needs a great deal of mental effort. Even before this, just talking about money issues doesn’t seem as easy.

Singaporeans' two CPF milestones

There are two key milestones that Singaporeans look forward to when it comes to CPF: the first at 55 years old, when your Retirement Account (RA) is set up and the first-ever withdrawal starts, and next comes your monthly payouts at 65 years old.

If your parents are a few years, or even months, away from turning 55 or 65, you might start to have a few questions about their retirement: 

Should they withdraw their CPF? How much should they withdraw? Will their monthly CPF LIFE payouts be enough to grant them a comfortable retirement?

You’re not alone in this – it can be challenging to navigate retirement, much less having a conversation about it with your ageing parents. Retirement planning is highly personal, and you’re unlikely to find someone in the exact same position as your parents, or even yourself.

However, there are still blueprints that can offer you some direction and support. We spoke to some of our colleagues at Endowus to give their best tips on how they approach and support their parents in their retirement planning.

Having “the talk”: Money, old-age and death

Talking to ageing parents about retirement planning means it will involve sensitive conversations about ageing, finances, and end-of-life matters. Here are four tips to get you through this delicate task. 

Right time, right place: It’s important for the conversation to start on the right note, by choosing a private setting where your parents feel comfortable to speak openly, and aren’t distracted by things going on around them. 

Be transparent about your intentions: Not everybody is comfortable disclosing their finances, even between a parent and a child. To have an open talk with your parents, make it clear that you’re coming from a place of genuine concern.

Respect their boundaries: Encourage your parents to share their goals, plans and even fears, but remember that trust is built and it is not always the case that they are willing to share more. 

Be prepared, but you don’t have to know everything: Learn what you can about retirement planning options, CPF milestones, and other relevant financial information so that you know what questions to ask, and be able to share what you know with your parents. It’s okay to not be able to answer all their questions; instead, you can offer to reach out for support on their behalf, such as speaking with a financial advisor, to alleviate any anxiety they might have about the process.

Understand our parents' relationship with money

Every individual has unique attitudes towards money, shaped by their experiences and economic conditions. A study has shown that individuals who experience economic downturns during their formative years are more likely to exhibit risk-averse financial behaviours in adulthood. This could mean that they prefer low-risk investments and prioritise saving over spending.

The same might be said for our parents, whose financial situations in their formative years and experience of key economic events could have shaped their attitudes towards investing. 

It could have been the 2007-2008 Global Financial Crisis, or even something as recent as the Hyflux crisis that shook up investors’ expectations of a sure-gain when they bought into the high-growth company’s shares.

Either way, one can only try to be understanding of our parents' relationship with money, than try to change their opinions, which allows us to approach money conversations with the right amount of empathy and sensitivity. 

For instance, if a parent is hesitant to invest in the stock market due to past losses, acknowledging their concerns and providing information on low-risk investment options can help build trust and confidence. 

Similarly, if a parent is more comfortable with traditional savings methods, you can explore ways to optimise their savings while respecting their preferences. 

Every Singaporean’s retirement toolkit: CPF and SRS

There are two key components of retirement in Singapore: first and primarily, the Central Provident Fund (CPF) which many are familiar with. The second is the Supplementary Retirement Scheme (SRS), which acts as a complementary scheme, offering additional avenues for retirement savings with tax benefits. 

CPF withdrawal and CPF LIFE payouts

As our parents approach 55 or 65, they will be making several important decisions regarding their CPF. At 55, they will have to decide whether they want to withdraw part of their CPF savings. 

They can withdraw up to $5,000 from their Retirement Account (RA) regardless of the amount in their RA, or any amount above their Full Retirement Sum (FRS) if they have set aside the required amount. This decision requires careful consideration of their long-term financial needs and the benefits of leaving the money in the CPF to continue earning interest.

At 65, they will need to assess whether they are close to the monthly payouts they need for their retirement. CPF LIFE provides lifelong monthly payouts, and the amount depends on the savings in their RA and the CPF LIFE plan they choose. 

They also have the option to delay the start of their payouts until age 70, which can lead to higher monthly payouts due to the additional interest accrued. Deciding when to start the payouts will impact the financial stability and quality of life during their retirement years.

Read more: Helping your parents manage their CPF? Here are four things to know

SRS tax relief and investing

SRS is a voluntary scheme that complements the CPF, offering additional avenues for retirement savings. Individuals can make contributions to their SRS up to the annual cap, which is eligible for tax relief. Funds in the SRS can subsequently be invested in a wide range of financial products, including stocks, bonds, unit trusts, and insurance products. 

For those who are 55 or younger, the SRS can be a useful tool for enhancing their retirement savings. At this age, they may still have a number of working years ahead, allowing them to contribute to their SRS accounts and enjoy tax relief on their contributions. You can calculate the amount of tax relief using our SRS calculator.

On the other hand, parents who have retired or are retiring soon may not find SRS relevant.  Their focus is likely to have shifted towards liquidating their funds, or investing in stable, low-risk products that are more liquid (eg. short-term bonds, money market funds). 

For those who had already contributed to their SRS accounts before, withdrawals made after the statutory retirement age are subject to a 50% tax concession, meaning only half of the amount withdrawn is taxable, which can be advantageous for managing tax liabilities in retirement.

Read more: Your guide to SRS

Playing the supporting role: What can you do?

Voluntary CPF top-ups

One of the most effective ways to bolster your parents' retirement savings is through voluntary CPF top-ups. By topping up their Special Account (SA) or Retirement Account (RA), you can help them earn higher interest rates of up to 6% per annum. 

Under the Matched Retirement Savings Scheme (MRSS), the government will match every dollar of cash top-ups made to the Retirement Account of eligible members, up to $600 per year. From 1 January 2025, this will be increased to $2,000, with a $20,000 cap over an eligible member’s lifetime.

Up to $8,000 of cash top-ups are eligible for tax reliefs on your assessable income. However, from 1 January 2025, if you are making cash top-ups to a recipient who qualifies for MRSS, the first $2,000 that is matched by the government is not eligible for tax relief.

SRS to grow spare cash

If your parents are still working and have a substantial time horizon before retirement and spare cash, you may consider introducing SRS to them for its tax relief benefits. SRS funds can be invested to grow their retirement savings and potentially achieve better investment returns. Here are ways to invest your SRS account to gain a potential return better than the meagre 0.05% at banks. 

Beat inflation with cash management products

Inflation erodes the value of idle cash. Endowus Cash Smart is a cash management solution that targets higher cash yields at low risk (but not risk-free). It is also highly liquid, ideal for our parents nearing or at retirement.

It’s okay to ask for professional help

Navigating the intricacies of retirement planning can be overwhelming. It's perfectly normal to feel stuck at times because it is such a vast and complex topic, and you want to ensure that you are making the best decisions for your parents' financial future.

Having some guidance can provide reassurance and confidence along the way. To help you find the right professional financial advisor, Endowus has compiled a list of 7 questions to ask your financial advisor. These questions can help you evaluate their expertise and compatibility with your parents’ financial goals and preferences.

We have a team of MAS-licensed client advisors who can provide personalised advice tailored to your parents' unique financial situation. Our advisors are equipped to guide you through the complexities of retirement planning – schedule a call with us here.