For middle-aged Singaporeans, retirement is not just about ensuring a comfortable life after work; it’s also about planning a legacy for future generations. While CPF Life provides a basic income stream for retirees, rising inflation and the high cost of living in Singapore can put pressure on financial resources.
Furthermore, with a significant portion of CPF savings often tied up in property, there’s a need to explore comprehensive solutions that cover both retirement needs and legacy planning.
This article explains how a combination legacy-retirement plan can help middle-aged Singaporeans secure a comfortable retirement while leaving behind financial security for their loved ones.
CPF Life and Its Limitations
CPF Life Payouts
CPF Life provides Singaporeans with a monthly payout starting from age 65. The amount depends on the Retirement Sum set aside in the CPF Retirement Account.
While CPF Life offers lifelong payouts, it may not be sufficient to meet the needs of retirees in Singapore, given rising living costs and inflation.
Inflation and Rising Cost of Living
According to the Singapore Department of Statistics, the cost of living has steadily increased in recent years, with inflation rates hovering between 4% and 5% annually.
This increase means that the purchasing power of CPF Life payouts may decline over time, and retirees could face challenges in maintaining their standard of living.
Increasing Retirement Age and Elderly Workforce
Rising Retirement Age
The official retirement age in Singapore is gradually increasing, with plans to raise it from 63 to 65 by 2030. This reflects the government’s recognition of longer life expectancy and the need for older Singaporeans to remain economically active for longer.
Elderly Workforce Participation
A significant number of older Singaporeans continue to work well into their retirement years. According to recent statistics, approximately 27% of Singaporeans aged 65 and above are still working, either out of necessity or personal choice.
These numbers highlight the growing challenge of financial insufficiency during retirement and the importance of comprehensive retirement planning.
Legacy-Retirement Combination Plan
For middle-aged Singaporeans looking to retire comfortably while ensuring a legacy for their loved ones, a combination plan that integrates both retirement income and legacy protection is essential.
What Is a Legacy-Retirement Combination Plan?
A legacy-retirement combination plan allows individuals to build wealth for retirement while simultaneously preparing for wealth transfer to their beneficiaries.
Such plans typically involve life insurance with a cash value component or investment-linked policies (ILPs) that grow your capital over time and provide insurance coverage for beneficiaries upon the policyholder’s passing.
Benefits of Legacy-Retirement Plans
Regular Income: The retirement portion of the plan provides regular income through payouts, ensuring that retirees have sufficient cash flow during their golden years.
Wealth Transfer: Upon passing, the legacy component ensures that a lump sum or substantial amount is passed on to loved ones, helping to secure their financial future.
Protection Against Inflation: Many legacy-retirement plans include investment components that allow the capital to grow, offering protection against inflation and the rising cost of living.
Liquidity Beyond Property: Unlike CPF savings tied up in property, these plans provide liquid assets that can be easily accessed or passed on to beneficiaries.
Addressing the Property CPF Lock-In
CPF and Property
Many Singaporeans use their CPF savings to finance their homes, which limits the amount available for retirement. While owning a property is an important asset, it is not a liquid one and cannot easily be converted into cash during retirement.
Property Monetisation Options
Options such as the Lease Buyback Scheme (LBS) or renting out spare rooms can provide additional income during retirement. However, these solutions may not suit everyone, especially if they want to maintain full control of their property.
Supplementing with Legacy Plans
Legacy-retirement plans offer a way to supplement CPF payouts, providing a financial buffer that is not dependent on property ownership. This ensures retirees have liquid assets available for daily living and emergencies.
Planning for Healthcare Costs
Healthcare Costs for Retirees
Healthcare is one of the most significant expenses for retirees. According to the Ministry of Health, the median hospitalisation cost in a public hospital for Singaporean citizens ranges from SGD 1,200 to SGD 4,000, depending on the type of ward.
Insurance coverage through Medisave, MediShield Life, and additional health insurance riders can help manage these costs, but out-of-pocket expenses can still be substantial.
Including Healthcare in Your Plan
A comprehensive legacy-retirement plan should account for potential healthcare expenses. Some plans offer long-term care or critical illness riders that provide additional payouts in case of severe health conditions.
Steps to Get Started
Assess Your Current Financial Situation
Take stock of your existing CPF balances, savings, investments, and insurance coverage. Consider how much of your CPF is tied up in property and how that impacts your liquidity in retirement.
Consult a Financial Advisor
Retirement and legacy planning can be complex. Working with a financial advisor can help you tailor a plan that meets both your retirement income needs and your desire to leave a legacy.
Review Regularly
As you age, your financial needs and goals may change. Regularly reviewing and adjusting your legacy-retirement plan ensures that it remains aligned with your objectives.
Conclusion
For middle-aged Singaporeans, planning for both retirement and legacy is a crucial part of financial security. With CPF Life providing a foundation but not a complete solution, a legacy-retirement combination plan offers a holistic approach to ensuring a comfortable retirement while leaving behind a financial safety net for loved ones.
By taking proactive steps today, you can safeguard your future and create a lasting legacy that benefits the next generation.
