When it comes to deciding the best retirement plan in Singapore, there are several factors to consider before knowing what best matches our needs.
There are many tools which you can (and should) use together to make your retirement more secure.
These would include:
- CPF Accounts (Including CPF Investments)
- Using Life Insurance For Retirement
- Insurance Savings Plans / Endowment Insurance Policies
- Retirement Insurance Plans / Annuities
- Cash Savings / Fixed Deposits
- Other Income (Rental, Part-time work etc.)
Understanding how each of the individual instruments work allow you to allocate your financial resources effectively and achieve your long term goals.
There is always a trade-off when it comes to deciding which instrument best suits your needs at that point in time. For example, a person may prefer higher returns and the flexibility (or liquidity) to withdraw from their investment if the need should arise. In doing so, they sacrifice the certainty of never losing the capital that they have set aside.
The only variable that works for us is time. The more time we have to accumulate our wealth, the higher the likelihood of larger returns.
How Much Do I Need For Retirement?
Before deciding what may be the appropriate financial instrument(s), it is best to figure out how much you would need to support your retirement lifestyle. This is dependent on a few variables.
- Intended Retirement Age – The earlier you plan to retire, means one needs to have more at that age, and a shorter time to accumulate your wealth. This could also require one to take on higher risks to achieve that goal.
- Inflation (Pre and During Retirement)
- Life Expectancies – At present (2021), males have a life expectancy of 81.5 years, while females have it at 86.1 years. This represents the average years one is expected to live, and it would be wise to plan in a manner that considers one living beyond this age.
- Expected Returns (Pre and During Retirement) – Simulating different scenarios and returns would help one decide what may be an achievable expected return. This would also depend on your risk tolerance.
- Expected Expenses – There are 3 benchmarks that one may wish to use, (i) Based on current expenses, (ii) Desired monthly income or (iii) a percentage (usually 70%) of one’s last drawn income pre-retirement.
Consider Jane, who is currently 30 and wants to retire by 65. Her priority would be to ensure that her savings sustain her till the current life expectancy, and then to focus on creating a buffer of 8 years.
With the assumptions, she would have to set aside $9,792.86/yr to have her savings sustain her till 86, and $13,026.71/yr to last her till 94 instead.
3 Types of Insurance For Retirement Planning
When it comes to deciding what is the best retirement plan in Singapore, you would first have to determine the type of payout structure you prefer.
- Regular payouts with a lump sum at maturity
- Regular payouts with no lump sum at maturity
- Lifetime regular payouts
Retirement insurance plans that have a structure such as scenarios 1 and 2 pay out for a fixed number of years, after which the policy terminates.
Under scenario 1, we can expect a guaranteed monthly income with a maturity bonus that would be made up mostly with a non-guaranteed component. Under scenarios 2 and 3, we can expect a guaranteed income stream coupled together with a non-guaranteed component.
Scenario 2 type of policies would also pay the most given that the payout period would most likely be shorter (compared to scenario 3), and there is no lump sum payout at maturity.
An alternative strategy that might be employed before insurance for retirement planning were popular, is to have a traditional endowment policy maturing at regular intervals to fund your retirement lifestyle.
Factors to Consider
- Years To Retirement– After figuring out how much you need for your retirement, it would be easier to figure when would be an attainable age for it to happen. This would allow you to decide how long you can set your money aside for wealth accumulation.
- Payout Structure – You want to decide how long you want to receive a payout for, and which payout structure would you ideally prefer. Each structure has it’s pros and cons and you would have to decide what is more important to you.
- Payout Frequency – Some policies payout to you a monthly income, while others payout only in a yearly frequency. Which would be your preferred frequency and would that help you manage your expenses better during retirement?
- Premium Waivers – Does the policy allow your premiums to be waived off in the event of a critical illness? Or do you still have to continue setting money aside?
- Long-Term Care Benefits – While we want to be in good health during our golden years, it has been mentioned that 1 in 2 of the population above 65 may become severely disabled during their lifetime. Some policies may have embedded long-term care benefits where the guaranteed income is increased in the event of a severely disability during retirement.
Once you have decided on the above points, you would be able to find the best retirement insurance plan that matches your needs.
Retirement planning is an ongoing process which requires regular reviews to keep you on track towards your goals. This would include decreasing your exposure to higher-risk instruments as you are closer to retirement, and to create a stable cashflow during your retirement years.
While planning for your insurance needs would be more straightforward, planning for your golden years is not as your lifestyle and circumstances may changes along the way.
Lifestyle inflation is a point not mentioned above and is an important consideration, especially if your cost of living increases faster than that of inflation. This happens when one’s lifestyle matches their salary increments. This could result in the situation where one will not have sufficient money set aside for their future needs.
Current life insurance for retirement income in the market which I am partnered with and am able to do a comparison for you include:
- Aviva MyRetirementChoice III
- Aviva MyLifeIncome III
- China Life Lifetime Income Series 3
- eTiQa ePREMIER Retirement
- Manulife RetireReady Plus III
- NTUC Income Gro Retire Flex