Retirement Planning - Is CPF Life sufficient and What’s Considered “Enough”?

In a recent Manulife survey, 63% of survey respondents indicated retirement planning as a key priority. Yet only 35% have a retirement plan. What’s causing the discrepancy between expectations vs reality?

Big rocks vs small rocks. Retirement dreams vs realities. What gives?

With core inflation in Singapore at record highs since 2008, thinking about retirement is about as enticing as getting to an 8am meeting with a hangover. Still, no one would argue that it's better to start as early as possible. 

From the results of the *latest Manulife Asia Care Survey 2023 released in late March 2023, it seems that some Singaporeans could be experiencing an incongruence with their financial priorities and goals. 

The group comprises 1,037 Singapore respondents aged 25 to 60-year-old insurance holders and those who were considering insurance purchases.

The largest group was aged 45 and above (45%), followed by 35-44 (29%). The 25-34 year-old group formed 26%. 

In general, the survey respondents expect to retire at the age of 62. With the average life expectancy in Singapore at 83.5 years, that's about 20 years of retirement.

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How much do we need for retirement?

If you've been putting off retirement planning due to perceived astronomical sums required, you're definitely not alone.

52% of the survey respondents said they are confident of saving for a rainy day and maintaining their current lifestyles (51%), while 43% are confident in saving fully for retirement and medical needs (41%).

Based on a 2019 study by Singaporean researchers, the minimum income standard (MIS) is reflected below for the different groups of retirees:

• $1,379 per month for single elderly households
• $2,351 per month for coupled elderly households
• $1,721 per month for single persons aged 55-64

These amounts are derived based on the assumption of living in a two-room HDB flat, with the following basic needs: personal care items and clothing, food, transport, leisure and cultural activities, and healthcare.

Their discussions shed light on how things such as travel, gifts, and special-occasion clothing matter for quality of life, independence and autonomy, and social connections.

Using Great Eastern's retirement calculator, we calculated how much a 40-year-old would need if he or she is planning to retire at age 65 (with life expectancy set at 85) with a moderate retirement income that includes creature comforts such as travelling.

As you can see from the screenshot below, the calculations will vary according to your lifestyle choices and preference.

Buffering in 3% inflation, the future value of the monthly amount is around S$6,000. With a 4% investment return, the amount required for a moderate level of retirement is around S$1.3 million. 

Source: Great Eastern

For a broader reference, let’s look at our national endowment - CPF LIFE.

The CPF Lifelong Income For the Elderly (CPF LIFE)

According to the CPF Board website, "CPF Lifelong Income For the Elderly (CPF LIFE) is a national longevity insurance annuity scheme that provides you with monthly payouts no matter how long you live, so you never have to worry." 

Under CPF Life, there are three plans which you can draw from based on your Retirement Sum:

1. Basic: Progressively lower payouts in the future when your CPF balances fall below $60,000
2. Standard: A fixed monthly payout 
3. Escalating: Increasing payouts by 2% every year, the Escalating Plan can generally help you keep your lifestyle even as prices of items increase

All Singaporeans are automatically included in the Standard Plan if you have at least S$60,000 in your CPF Retirement Account (RA) before you reach 65 years old. Below are the retirement sums applicable to those turning 55

Source: CPF Board

How are the Retirement Sums derived? The Basic Retirement Sum (BRS) takes reference from a person's expenditure from a lower-middle retiree household, according to the latest Household Expenditure Survey (HES).

The assumption is that as a homeowner, the CPF member can stay rent-free till 95 before the lease is up. The Full Retirement Sum and Enhanced Retirement Sum are two and three times of the BRS respectively.

Related to this topic: What Is CPF LIFE and How Can You Increase Your CPF LIFE Plan Payouts?

The reason Singaporeans are not saving up for retirement?

From the survey, the top reasons for the low percentage of those who had saved up for retirement are:

• Saving for a rainy day (44%)
• Maintaining their current lifestyle (34%)
• Medical needs (26%)

Against market uncertainty, it is not surprising that more people are opting for safer options to park their savings. The other question would probably be the sustainability of this plan and its effectiveness in hedging against inflation.  

Meanwhile, more younger Singaporeans without children (46%) are prioritising saving for a home purchase, against the national average of 21%. When juxtaposed against the earlier context on home ownership, this is understandable. 

For those who do have a retirement plan, 44% were age 45 and above, followed by 31% in the 25-35 age band. 25% were in the 25-34 age group

To depend entirely on CPF Life payouts for retirement may not be sufficient, due to the inevitable rising costs of living.

Apart from getting the core insurance protection (life, health, and critical illness), investing judiciously is also key to leverage the power of compounding. 

What are we doing instead

Source: Manulife

In Singapore, cash and bank accounts (63%) are the main instruments for retirement savings, against the regional average of 53%.

Savings or endowment insurance along with returns and recurring income from non-fund investments (both 20%) are a distant 2nd to cash.

That mindset could be one of the reasons for the gap between the percentage of respondents who have a retirement plan and those who want to but don't. 

“Most of the respondents in Singapore recognise the importance of saving for retirement, but their other financial needs can get in the way, reflecting the priorities they have to juggle,” said Dr. Khoo Kah Siang, Chief Executive Officer, Manulife Singapore.

Related to this topic: Best Savings Accounts in Singapore to Park Your Money (2023)

Health is true wealth

Based on the survey results, it's heartening that most respondents agree with the adage that the real wealth lies in being healthy.

And most actually do walk the talk, with 65% of respondents declaring that they are exercising more. Yet some concerns persist, with rising healthcare costs a major concern in Singapore. 

Source: Manulife

53% of the respondents believe healthcare costs pose a risk to their financial goals, more than 10 percentage points higher than the region (42%).

Strangely, despite the high number of physically active respondents, they do not think of themselves as being in particularly good physical and mental health.

Only about one in 10 considers themselves to be in good physical and mental health.

What's more, most respondents (94%) said they feel anxious or frustrated in managing their health. Their main concerns centre around money such as the potential cost of treatment (49%) and potential loss of income or job (42%).

Start with building emergency savings 

Apart from healthcare costs, macroeconomic factors such as inflation and economic slowdown also contributed to a lack of confidence in achieving their financial goals.

While these factors may not be within our control, a high-yield savings account will provide a solid foundation for anyone's personal finance journey. Compare and find the best savings account suited for your finance needs. 

*In December 2022 and January 2023, Manulife Asia Care Survey 2023 was conducted in seven Asian markets - Mainland China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, and Vietnam. A total of 7,224 people, aged 25 to 60 years old, were surveyed via online self-completed questionnaires. The respondents were composed of insurance owners and individuals who did not have insurance but had the intention to purchase insurance over the next 12 to 24 months.

Read these next:

CPF Special Account (SA) Shielding: How You Can Perform This Retirement ‘Cheat Code’

How To Build Sustainable Retirement Income With Your CPF Money

How to Plan For Your Retirement & Get Financially Fit

Retirement Planning in Singapore: Does The 4% Withdrawal Rule Still Make Sense?

Beginner’s Guide To CPF Retirement Sums And How To Get There (2023)