Monday, 9 June 2014

Retirement is a journey, not a destination

By Neal Armstrong, Published TODAY, 5 Jun 2014

With increasing life expectancy and low birth rates, Singapore faces the prospect of a shrinking and ageing population and workforce. The number of elderly citizens will triple to 900,000 by 2030 and they will be supported by a smaller base of working-age citizens. There are currently about 6.3 citizens in the working ages of 20 to 64 years for each citizen aged 65 and above. By 2030, this ratio will go down to only 2.1.

The Government has tried to tackle the challenge with policies such as MediShield Life and increasing the minimum sum requirement in the Central Provident Fund. Singaporeans, however, should do their part in planning well and responsibly for their retirement.

To be sure, more elderly people close to retirement age today are keen to explore new work opportunities or carry on with their careers. Most want to keep their minds engaged and continue having a source of income. Some factors contributing to this include the fact we are living longer and healthier lives.


Take proactive steps to build a comprehensive savings plan for your future financial needs so that you can look forward to a better retirement. Discussing your long-term savings and investment options with a financial adviser will help you decide what product is right for you, as it is important that it is tailored to your unique future needs.

Based on our global experience as a leading savings and investment provider, there are four different stages of a typical retirement journey cycle.

1. Ages 20 to 55: Save it

The most common pitfalls people make in planning for retirement and future needs is not saving enough; starting too late; and underestimating the effects of inflation. There is no perfect time to start saving, but the key is to start early. Putting a little aside each month can make a big difference later in life. Your money will have more time to grow and this will help you cultivate fiscal discipline, a good habit that will put you on the right path towards saving for your future retirement and financial needs. You will also be able to put in less each month compared with someone who starts later.

2. Ages 55 to 70: Review it

As you get closer to your retirement age, it is important to review how your savings plans for retirement and future needs to make sure you are on the right track. You can start by first finding out what your current savings plan is worth. You will also need to take into consideration your current contributions. You can boost your plan by increasing your contributions and/or paying in a lump sum.

Secondly, you have to take into account retirement income. Asking yourself questions such as: “Will I be able to enjoy the life I want on the income that I will likely receive?” This will help you decide whether you should allocate more money to your savings plans.

Lastly, you should examine the risk profile of your investment portfolio. As you near retirement age, it is crucial to assess the different asset classes in which your savings plan is invested to make sure you are comfortable with the level of risk.

3. Ages 70-80: Spend it

Your retirement and savings plan is there to provide an income for the rest of your life, so now is the time to decide how to spend it wisely. On retirement, you can take a cash lump sum or, depending on your circumstances, invest in other appropriate savings plans.

4. Ages 80+: Share it

Once you have looked after your retirement needs, you may want to think about sharing your wealth with the people you love. You should review your financial situation, assess your will, get your family affairs in order, and minimise your liabilities.

As we can expect to spend more than 20 years in retirement, it is important to plan carefully ahead. Having a plan in place for retirement and future needs can help us secure the lifestyle we want. It’s not just about putting money into a savings plan and forgetting about it — we need to be proactive and take responsibility for our planning.

Neal Armstrong is CEO and Principal Officer of Standard Life Singapore, which provides long-term savings and investments solutions.

CPF just one part of retirement financing
By James Chia, Published TODAY, 10 Jun 2014

Much has been written on the Central Provident Fund (CPF). With rising costs of living, Singaporeans need reassurance that retirement security is not a pipe dream.

Prime Minister Lee Hsien Loong has announced that the Government will study how to improve the CPF LIFE annuity scheme’s payouts to keep pace with inflation. This is welcome, given Singaporeans’ greater life expectancy, particularly among women. It is especially important for lower-income workers, for whom the CPF may be their only retirement fund. Similarly welcome are the committed support measures for MediShield Life that seek to keep healthcare insurance affordable for Singaporeans, and the Pioneer Generation Package, which provides financial support for our pioneer generation for life.

More fundamentally, how do we help Singaporeans maintain a healthy balance in their CPF for retirement? A simple answer is to raise incomes, especially for the lower-skilled and lower-income workers. This can be done by expanding the use of CPF monies for education purposes to upgrade workers’ skills and improve their employability.


At present, the CPF Education Scheme allows full-time students to use their CPF funds or that of their parents or spouses to finance tertiary education at approved institutions, subject to withdrawal limits.

But part-time students are excluded from the scheme and the Government has reasoned that part-time courses are generally tailored for working adults who are in a better position to pay their tuition fees as they have incomes of their own.

“If they do not have sufficient savings for a part-time course, they can defer it and build up enough personal savings to pay for their course fees later,” says the CPF Board’s website. “Part-time students can therefore plan ahead with greater flexibility to ensure that they can meet the tuition fees.”

The Government has also reasoned that subsidies and financial assistance are already available for part-time students. This is true, but the fact is that full-time students similarly benefit from these. So the playing field remains unlevel and stacked against part-time students, who already have the additional burden of work commitments. ​This seems to run counter to the Government’s rhetoric about the many pathways to success and the need for workers to constantly upgrade themselves.

Many part-time students are adult learners who did not have the chance for full-time tertiary education when younger. We should increase education financing options for them by allowing them to tap into their CPF monies to pay for their studies.

Taking the argument further, the Government should consider allowing CPF monies to be used for skills-upgrading courses under the Workforce Development Authority’s Workforce Skills Qualifications Framework. Existing CPF withdrawal limits and a requirement to have courses signed off by the workers’ (part-time student) employer can prevent abuse and ensure that the courses financed are relevant.

A more inclusive CPF Education Scheme can help more Singaporeans to upgrade skills and improve their chances of securing higher-paying jobs so that they can enjoy greater CPF savings for retirement.


Singaporeans’ concern over the rising Minimum Sum requirement could be due to confusion over real and nominal dollar amounts. Inflation erodes our purchasing power; what S$1 can buy in the future would be less than what S$1 buys today.

To meet rising future prices, we must set aside more of current dollars so that this can be enough for retirement. In fact, retirement adequacy for most of us requires much more money. The Minimum Sum, as its name implies, is simply a base.

We need to effectively educate Singaporeans to understand the CPF and its role in personal financial management and retirement planning. Except for the lowest-income (who need targeted financial assistance), most Singaporeans should recognise the CPF as merely one component of retirement financing.

At the individual level, financial literacy and good money management matter.

Singaporeans must utilise the CPF Investment Scheme (CPFIS) more prudently. The CPF currently offers a risk-free annual return of 2.5 to 4 per cent, meaning the opportunity cost of using CPF funds to invest in other financial instruments is very high.

CPFIS investments have to beat the CPF’s 2.5 to 4 per cent return, after transaction costs, to make the investment worthwhile. While some are able to make sound investments that beat the fund’s returns, this may not be true for the majority, certainly not on a long-term basis.

In fact, the less-than-impressive results of CPFIS-Ordinary Account investments from 2004 to 2013 suggest that most CPFIS investors are unable to beat the CPF’s returns and are better off keeping their CPF funds untouched.

From a total-portfolio perspective, it may be useful to view the CPF as one’s “risk-free” investment pot. A larger CPF sum subsequently translates into larger CPF LIFE annuity payouts, which continue for the rest of one’s life — a good guard against longevity risk.

It is much better to use funds with lower opportunity costs (cash or bank deposits that pay significantly less than the CPF) to invest. But before investing, one needs good financial education to make investments that are appropriate for one’s financial standing and goals. For example, younger individuals have more time to ride the market’s ups and downs before reaching retirement, and a greater proportion could be allocated to riskier instruments such as equities that usually give greater returns over the long-term. Older individuals have a shorter investment horizon and it may be wiser to allocate more to lower-risk financial instruments such as government bonds.

For an important and complex scheme such as the CPF, timely and clear communication is key. Notwithstanding the commendable efforts by the Government through online platforms such as Factually, MoneySENSE and CPF Board’s Member education schemes (IM$avvy etc), more can be done in public education.

For the older generation, it would be useful to adopt the communication strategy used in explaining the Pioneer Generation Package (e.g. spreading the message using dialects).

For young working adults, digital delivery of messages — through social media, mobile apps and gamification would be more effective. Greater efforts have to be invested in tailoring messages for different age groups. The recent modification of the CPF website, including FAQs on its homepage, is a commendable first step.

At the macro level, the Government and policymakers need to fulfil their end of the bargain, through effective and prudent policy that generates economic growth and keeps inflation in check.

The aim should be to help the majority of Singaporeans to retire securely. For those who may fall by the wayside, the Government, together with the community, can work together to help them.

James Chia is the co-founder of Innervative, a financial education firm. A Singaporean, he was previously a portfolio manager.

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