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Planning for the Ideal Retirement

Retirement planning is not quite what it used to be. Advancements in medical science and the economic demands of modern society signify that not only are people living longer, they may also need to work longer. We explore how proper retirement planning can make a world of difference to achieving a comfortable retirement.

Retirement has undergone a facelift in recent years. Confronted with a rapidly greying population, developed nations around the world, including Singapore are recognising the urgency with which it has to address. Better health and nutrition, together with the breakthroughs in medical science, have prolong the lifespan of people living in developed nations. In Singapore, the life expectancy at birth is 79.6 years (based on 2005 figures from the Department of Statistics, Singapore). With the rise in life expectancy, there are several issues which are raised. These include retraining and upgrading the skill sets of older workers to prolong their lifespan in the workforce, to possibly raising the statutory retirement age from the current 62 years of age. It is conceivable taht the retirement age cap will be lifted upwards in the foreseeable future.

Such is the attention the Sinagpore government places on tackling the issue of greying population that it has even formed a Committee on Ageing to address the manifold issues that would arise from having an ageing population. In October 2003, the Singapore government launched the MONEYSENSE national financial education programme, with the primary aim of enhancing the basic financial literacy of Singaporeans. At the same time, the government recognised that there was a need for the public sector to be actively involved in the financial education of Singaporeans. One of the main driving forces behind the implementation of this programme, as cited in the report, is that "many Singaporeans have taken for granted that their Central Provident Fund (CPF) savings will be sufficient for their old age, when they may not be. Singaporeans need to have the skills and knowledge to manage their day-to-day finances, make prudent investments and plan for their longer-term needs.

This observation is confirmed by various studies, including a joint study conducted in 2005 by Singapore Management University (SMU) and Overseas Chinese Banking Corporation (OCBC) on the money management behaviour of Singaporeans. The study revealed that Singaporeans age 55 and above only have about S$120,000 on average in liquid assets, including CPF monies. This amount, as we shall observe later on, is regarded as inadequate for retirement. Unless we would be content with a spartan lifestyle once we hot our retirement years, and are prepared to re-enter the workforce at the age of 62 years and beyond, it is necessary to supplment our CPF monies with our own savings. this is a common problem faced by many Singaporeans, as they often underestimate the funds needed during their retirement, which forces them to pro-long their working years to supplement their monthly expenses. And there are more retirees re-joining the workforce, most noticeably in the Food & Beverage (F&B) industries. A recent Channel NewsAsia report (11 February 2007) said that the government is looking to createa 'silver industry', where older Singaporeans will be encourgaed to work for as long as they can. The same report also highlighted that by 2030, 20% of Singapore's population would be 65 years and older. What this portends is that there will be a paradigm shift in the way people lead their 'golden years', and also how people view retirement. Out of economic necessity, retirees, instead of leaving the workforce after the current retirement age of 62, will find themselves actively employed in the workforce even after their 62nd birthday.

With this mindset shift, more people may lapse into thinking taht since their lifespan in the workforce will be prolonged by choice or otherwise, retirement planning can take a backseat even more so than before since they will still be drawing a salary in their supposed 'retirement years'. However, in truth, it would be difficult for most individuals to gauge teh monthly income that they would have in their advanced years without proper planning. Rather than risk the prospect of having to slog hard to make ends meet, porper retirement planning would be a much safer bet. Demographic trends aside, to avoid the situation of having to work well past our retirement age, there is an urgent need to plan for our retirement. Otherwise, we may be faced with the stark reality of working till we are 70, or even 80 years of age!

Retirement Planning low on the pecking order of things
The irony is that although people are aware of the need for some form of retriement planning, it is often low on the 'to-do-list' of many Singaporeans. In a recent article on The Straits Times, "Rteirement Planning low on Singaporeans' priority list", dated 27 January 2007, it said that "only 40% of those surveyed by insurer AIA and SPH say they are building a retirement fund of at least 10 times their annual income." The same survey also found out that "most Singaporeans are prepared for short-term financial emergencies and big expenses such as their mortgage and children's education. However, such planning falls well short in other areas like retirement." The survey polled about 18,000 people aged 20 and above, with a random sample of 1000 responses selected for analysis.

This begs the question: Why do people often underestimate the importance of retirement planning? Apart from the common misconception that retirement planning can wait, the lack of peoper planning is another reason why many people tend to give retirement planning a miss in their most productive years. We hear it often enough - 'It's never too early to start planning' - and that applies to retirement planning as well. More often than not, we never truly appreciate the importance of planning for our retirement in the early and mid-career stages of our lives. The realisation often sinks in when we are well into our 50s, which means that we have a much shorter time-frame to plan for our retirement, which only makes it seem like an even more uphill task. "Many people think that there's still a long way to go before they retire, and as a result they start their retirement planning too late. the later they start, not only is more money needed to be set aside, but with the shorter investment horizon they have, they may have to take more risks on their investments to achieve higher returns, and meet the target amount needed for their retirement funds," observes Joseph Ng, Senior Financial Service Partner at IPP Financial Advisers Pte Ltd.

By iFast Insight, iFast Financial Editorial Team. www.ifastfinancial.com