What You Should Know About Retirement Investing in Singapore

Admit it. Whether you’re in your 20s, 30s or 40s, investing for retirement has most probably never been your top priority. Yes, you have investment products and savings meant for a retirement plan in Singapore, or maybe even overseas, but you have more active financial goals that you’re working towards. Such as buying a house or building your emergency fund.

For some of us, retirement might seem a distant notion and possibly a goal that is nearly unachievable. You might be thinking to yourself, how can I ever reach seven digits in my lifetime if I’m not earning big money? However, in a city where the cost of living is continually rising, and inflation erodes purchasing power, a retirement plan isn’t just a good idea, it is absolutely essential.

While CPF LIFE (Lifelong Income for the Elderly) can help, relying on it alone is not ideal if you want to maintain quality of life in your golden years. The reality is, delaying your retirement plan in Singapore can lead to significant financial strain later on. The earlier you start, the more you can rely on the power of compound interest to grow your investments exponentially over time and build a substantial nest egg.

Learn how to plan and start investing for retirement with this guide today.

Figuring out "how much is enough" is a common question when considering your retirement plan in Singapore. While many financial advisors recommend saving 10% to 15% of your monthly income, this is a general guideline, and your ideal target will depend heavily on your individual retirement aspirations. Do you envision a comfortable lifestyle with local travel, or a more luxurious one with frequent overseas trips? Your desired lifestyle directly influences the amount you'll need to save.

Set savings targets that align with your specific retirement goals. Consider factors like your desired retirement age, anticipated living expenses, and potential healthcare costs. Ideally, you’ll come up with a projected figure and work towards that goal.

Singaporeans have the benefit of CPF LIFE which provides a monthly payout and can serve as a foundational component of your income once you hit retirement age. However, it may not be sufficient enough to cover all your desired expenses. Therefore, supplementing CPF LIFE with retirement investments is often recommended to achieve your desired lifestyle. 

To build a truly robust retirement fund, you need to invest beyond your CPF contributions. It is generally recommended to have diversified, long-term investments across various asset classes to minimise risk. While investments are deeply personal and ultimately come down to your risk tolerance and time horizon, here are some instruments you can look at when investing for retirement.

Target-date funds (TDFs) are professionally managed funds that automatically adjust their asset allocation as you approach your target retirement date. These funds gradually shift from higher-risk assets like stocks to lower-risk assets like bonds, ensuring your portfolio becomes more conservative as you age. TDFs are available through various financial institutions in Singapore, including major banks and investment platforms.

Exchange-Traded Funds (ETFs)

ETFs are investment funds traded on stock exchanges, offering diversified exposure to specific market sectors or indices. By packaging a basket of securities that mirror a chosen index or sector, ETFs allow Singaporean investors to achieve broad market diversification at a lower cost than purchasing each security individually.

Index Funds

Index funds track a specific market index, such as the Straits Times Index (STI). They offer broad market exposure at a low cost, making them a popular choice for long-term retirement planning in Singapore. By replicating the index's performance, index funds aim to match, rather than outperform, the market, resulting in lower management fees.

Mutual Funds

Mutual funds are professionally managed investment funds that pool money from multiple investors. They offer diversification and access to a range of asset classes, including Singaporean and international markets. Professional fund managers actively select and manage the assets within mutual funds, aiming to generate returns that exceed benchmark indices, though this often comes with higher expense ratios.

Investing in individual stocks and bonds can also be an option for retirement investments. Stocks have the potential for long-term capital growth that outpaces inflation, especially if you are investing in established local or international companies. There are also dividend stocks which can potentially generate a steady stream of passive income, supplementing retirement funds. However, they may be susceptible to price volatility and company-specific risks such as poor management or industry disruptions.

Conversely, Singapore government bonds provide stability and a lower-risk investment for investors looking to preserve capital when approaching retirement years. Many investors use bonds to act as a buffer against market volatility, balancing the riskier stock component of their portfolio. 

If you’re completely new to stock or bond investing, you can consider investing with a robo-advisor. These are digital platforms that offer automated portfolio management based on your risk profile and goals, making investing simple and accessible, even with limited experience.

Annuities provide a guaranteed stream of income, offering financial security during retirement. CPF LIFE is Singapore's national annuity scheme, providing lifelong monthly payouts. Private annuities, offered by insurance companies in Singapore, can supplement CPF LIFE, offering additional guaranteed income.

If you feel overwhelmed by the complexities of retirement planning and investing, consider seeking professional help by consulting a financial advisor. 

MoneyOwl’s comprehensive financial planning service focuses on designing a holistic financial plan, covering key life aspects such as growing your income, being sufficiently insured and planning for retirement.

Aside from the long-term goal of retirement, it helps you be in control of your daily financial situation and helps you to identify and work towards your other financial goals.

Comprehensive financial planning comprises three steps:

• Fill in your information digitally on MoneyOwl’s website

• Receive your digital, comprehensive and personalised report

• If you would like further advice, arrange a 2-hour consultation at your convenience with MoneyOwl’s fully salaried Client Advisor

When figuring out how to plan for retirement in Singapore, it’s important to view your investment choices within the broader context of your overall portfolio. Consider your retirement goals, risk tolerance, and time horizon to collectively determine the optimal asset allocation for your entire investment portfolio, including your CPF savings, SRS funds, and any other investment accounts.

Asset allocation strategies Singaporean investors

Your asset allocation for investments will change depending on your life stage. Here’s a general framework you can consider:

• Early Stage (20s-30s): With a longer time horizon, you can afford to take on more risk. A higher allocation towards growth assets like equities (70-80%) and a smaller portion in lower-risk assets like bonds (20-30%) is typically recommended. Within your CPF, consider exploring options like the CPF Investment Scheme (CPFIS) to invest in a diversified portfolio of equities, bonds, and other assets.

• Mid-Stage (40s-50s): As you approach retirement, gradually reduce your equity exposure (60-70%) and increase your allocation to more conservative assets like bonds and dividend-paying stocks (30-40%). This helps to protect your accumulated wealth while still allowing for potential growth. Consider diversifying your CPF savings further by utilising the Supplementary Retirement Scheme (SRS) to enjoy tax benefits and invest in a wider range of retirement-focused products.

• Late Stage (60s and beyond): Prioritise capital preservation with a larger allocation towards lower-risk assets like bonds (70-80%) and a smaller portion in equities (20-30%). Ensure a significant portion of your portfolio is invested in stable income-generating assets like Singapore Savings Bonds (SSBs) and annuities to provide a steady stream of income during retirement. CPF LIFE will also form a crucial part of your retirement income strategy at this stage.

Portfolio rebalancing and diversification

Remember, your retirement portfolio isn't static. Adjust it over time, becoming more conservative as you near retirement. Rebalance your portfolio periodically to maintain your desired asset allocation and ensure it aligns with your evolving risk tolerance and retirement plan in Singapore.

Diversification is a cornerstone of sound investing. It minimises the risk of one asset class derailing your entire portfolio. You can diversify your portfolio in a number of ways:

• Active and passive: Combine actively managed funds (like some mutual funds) with passively managed index funds and ETFs.

• Industry: Invest in companies across different sectors to mitigate the impact of economic cycles on specific industries.

• Size: Include a mix of large-cap, mid-cap, and small-cap companies for balanced exposure.

• Growth and value: Blend growth and value stocks to capture different market dynamics.

• Geography: Diversify across both Singapore and international markets to capitalise on global growth opportunities.

Besides diversification, consider incorporating dollar-cost averaging into your investment strategy, especially if you are saving for retirement. 

New to investing in Singapore? Read our guide on investing 101.

Singaporeans have access to a variety of accounts designed to help your finances during retirement.

The Central Provident Fund (CPF) is a mandatory social security savings scheme for Singaporeans and permanent residents. CPF LIFE is a national annuity scheme that provides a lifelong monthly payout upon reaching your eligible retirement age, which is currently 65. 

• Payout Schemes: You can choose from three different CPF LIFE plans: 

  • CPF LIFE Escalating Plan: Provides payouts that increase by 2% each year to help cope with inflation.

  • CPF LIFE Standard Plan: Offers higher initial payouts than the Escalating Plan but with a constant payout amount throughout retirement.

  • CPF LIFE Basic Plan: Provides the highest initial payouts but with decreasing payouts over time.

• Withdrawal Age: You can start receiving your CPF LIFE payouts from age 65.

• Minimum Sum: To be eligible for CPF LIFE, you need to set aside a minimum sum of money in your Retirement Account (RA) by age 55. This sum ensures you have a sufficient foundation for your retirement payouts. For members turning 55 in 2024, the minimum sums are:

  • Basic retirement sum (S$102,900)

  • Full retirement sum (S$205,800)

  • Enhanced retirement sum (S$308,700)

The Supplementary Retirement Scheme (SRS) is a voluntary scheme in Singapore designed to complement your CPF savings for retirement. It offers tax benefits and a wider range of investment options to help you boost your retirement nest egg.

SRS accounts are managed by the three domestic banks (DBS, OCBC, and UOB), although investments can be made via brokers or asset managers. Here are the key things you need to know about SRS:

• Maximum Contribution Limit: S$15,300 for Singaporeans and Permanent Residents. This is the maximum amount you can contribute to your SRS account annually.

• Tax Relief: For Singaporeans and permanent residents, all SRS contributions are eligible for dollar-to-dollar tax relief capped at S$80,000.

• Tax-Free Returns: Investment returns are tax-free while the funds are held in the SRS account.

• Withdrawal Age: You can start withdrawing your SRS savings at the statutory retirement age, which is currently 63.

• Tax on Withdrawals: Only 50% of your SRS withdrawals at retirement are taxable. This means you only pay tax on half of the amount you withdraw.

• Early Withdrawal Penalty: If you withdraw your SRS savings before age 63, a 5% penalty applies, and your full withdrawal amount becomes taxable.