We all know it’s prudent and sensible to get our finances in order before we retire. But in reality, many procrastinate on this matter.
About 39% of Singaporeans are not confident that they will have sufficient funds for retirement, a survey by YouGov Singapore and Endowus found. Yet, 45% of Singaporeans have not planned for retirement at all — a finding more apparent among younger adults.
It pays to plan and save for retirement early, so that we avoid being financially insecure and having to work in old age.
Want a comfortable retirement? Here are four things to check off to prepare for your golden years, if you have not already started.
Set your monthly expenses in retirement
There are two categories of spending you should make a list for. The first category consists of essentials and necessities, such as food, housing, transportation, utilities, healthcare, and so on.
The second category is your discretionary spending — think travel, hobbies, and other activities that you would want to pursue after retiring. What type of lifestyle do you want in retirement?
Once you have estimated your total expenses, you will have a realistic sense of how much you need to save up, as well as how much wiggle room you should leave for adjustments to any expenditures if necessary.
Don’t forget to account for inflation in your calculations. Inflation eats away at our purchasing power.
Consider the sources of your retirement income
In general, income in your retirement years in Singapore may come from your investment portfolio, CPF LIFE payouts, rental income if you own a property, private annuity plans, and insurance plans.
Your investment portfolio should ideally comprise a variety of assets, which may include stocks, bonds, real estate, and alternative assets. It is important to diversify your portfolio to manage the risks, and to review the allocation and performance regularly should you need to rebalance it to keep up with market changes or any changes in your financial situation and goals.
CPF LIFE is Singapore’s national longevity insurance annuity scheme that provides lifelong monthly payouts for Singaporeans and permanent residents, from age 65. The monthly payout amount depends on how much you have in your CPF Retirement Account (RA) and the CPF LIFE plan that you choose.
If you own an investment property, note that you have to pay taxes on the rental income earned from leasing it out.
Protect against unexpected expenses
Your next step is to be prepared for potential unforeseen circumstances, where possible.
If you are the sole breadwinner for your family, you can purchase insurance to provide them with financial security should you pass away, become permanently disabled, or become unable to work due to an illness. A life insurance plan, disability income insurance, and critical illness insurance can address those concerns respectively.
Healthcare costs in Singapore have been rising over the years. In addition to MediShield Life, which is a basic health insurance plan administered by the CPF Board, you can consider purchasing additional private insurance coverage run by insurance companies.
Don't forget legacy planning
Last but not least, legacy planning is key if you wish to bequeath your assets to your loved ones after your death. It involves thinking about how to preserve your wealth and how to pass it to your loved ones.
You will need to make important decisions such as who to appoint for the lasting power of attorney, who to nominate to receive your remaining CPF balance, how your overall assets will be distributed, and your preferences for medical care if you become terminally ill or incapacitated.
Ensure that your will is updated with clear instructions, and that your documents will be accessible in case of emergency. We dive deeper into this topic here.
Planning for retirement with this simple checklist can help to provide peace of mind in your later years. Find out more about how to build passive income or learn about your income building options with the Endowus Income Portfolios.
To get started with Endowus, click here.
Next on the Endowus Fin.Lit Academy
Read the next article in the curriculum: Why decumulation is useful as a retirement strategy
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