How Much Do You Really Need For Retirement in Singapore?

Retirement Planning

How Much Do You Really Need For Retirement in Singapore?

Thanks to the popularity of the F.I.R.E. movement ¹, the current generation of youth, from Gen Zs to Millennials, is envisioning somewhat different retirement concepts from our parents. The same question is - how much do we need to retire the way we want to?

[¹Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality and extreme savings and investment.]

Whether you’re 20 or 60, we’ve all pictured our blissful retirement years going a certain way. From ticking off far-flung destinations on your bucket list to simply enjoying more experiences with loved ones, it requires one to be financially prepared, regardless of how you intend to live out your golden years. 

When the topic of retirement comes up in Singapore, you cannot avoid mentioning CPF savings. Before January 2023, CPF members who turn 65 will see their Ordinary and Special Accounts merged into a Retirement Account up to their cohort's full retirement sum. 

As of January 2023, CPF members can decide to transfer the funds any time between 65 and 70 years old when they start their monthly payouts, instead of once they are eligible to start their payouts. Those who opt to defer their payouts can earn up to 7% interest for each year deferred.  

Table of contents

● What is the official retirement age in Singapore?

● How much do you need to retire in Singapore? 

● Defining your retirement lifestyle 

● The joy of alternatives

● 4 tips to get there

What is the retirement age in Singapore?

Since 1 July 2022, the official retirement age in Singapore has changed to 63. The average life expectancy for men is 83 years old and 87 years old for women. That’s a good 20 years of estimated time frame without an income stream.

With the rising costs of living, there is a good chance that many of us may continue working well beyond the age of 63. 

According to The Action Plan for Successful Ageing, in 1970, 1 in 31 Singaporeans was aged 65 or older. 

In 2015, it was 1 in 8. 

By 2030, it will be 1 in 4, bringing the number of senior citizens in Singapore to 900,000. 

How much S$G$D$ do you need to retire in Singapore?

When planning for financial adequacy in retirement, you can never fully prepare for the road ahead. 

Mindset-wise, you could take a cue from billionaire investor and author Ray Dalio, who mentioned in a recent podcast with Jay Shetty, that his approach towards money was based on the principle of “self-sufficiency plus”. It refers to not having to rely on external sources for income and also being able to help others.  

Closer to home, in 2019, the School of Public Policy stated in a report, What older people need in Singapore: a household budgets study, that the baseline amount Singaporean single retirees would need per month for basic needs is S$1,379, while elderly couples need around S$2,351. 

Based on that alone, it's quite clear that the retirement schemes under CPF Life are meant to complement and not be the sole source of your retirement income. 

Below are the retirement schemes available to Singaporeans and for those who are reaching their 55th birthday in the year 2022: 

Retirement Scheme•Minimum Sum• Monthly Payout :

-Basic Retirement•S$96,000•S$730 – S$1,080 ,

-Full Retirement (2 x BRS)•S$192,000• S$1,390 – S$1,860 ,

-Enhanced Retirement (3 x BRS)•S$288,000• S$2,030 – S$2,660

Apart from your CPF funds, you’ll also need to consider:  

●How much (and where) to save to meet your goals 

●How to budget for your retirement contributions

Define your retirement lifestyle 

Most of us work hard to play hard, whether it's as youth or as seniors. How we plan to achieve our goals is what will eventually determine our quality of retirement.  

The results from the OCBC Financial Wellness Index 2022 showed that more Singaporeans starting to make retirement plans (68% in 2022 compared to 66% in 2021). However, many are still underestimating the amount needed for retirement.

In the survey, participants were asked to choose from 3 tiers of retirement lifestyles.

Retirement Lifestyle A

● Owns & lives in a HDB property

● Commutes via public masstransport

● Medical consultation/ treatment at a polyclinics and government hospitals

● No domestic helper

● Regional holidays 2 times a year e.g., Thailand, Hong Kong.

●《$2,550》Per person basis In today's value

Retirement Lifestyle B

□Owns & lives in a HDB property

□Commutes via taxi or owns a midrange car

□Medical consultation/ treatment at General Practitioner and government hospitals

□Employs part-time domestic helper

□Regional holidays 3 times a year e.g., Thailand, Hong Kong, Korea

□《$3,210》Per person basis. In today's value

Retirement Lifestyle C

◆Owns and lives in private property

◆Owns a high-end car

◆Medical consultation / treatmentat General Practitioners and private hospitals

◆Employs a full-time domestic helper

◆International holidays 2 times a year e.g.. Europe, America

◆Enjoys lifestyle & wellness experiences

《$5,760》Per person basis. In today's value.

This year, the percentage of people who picked the more lavish Lifestyle B went up by 6 percentage points to form the majority (41%), compared to 2021.   

On average, Singaporeans indicated they would need $2,372 for Lifestyle B, but the actual cost of that lifestyle in today’s value is 35% higher than their estimations ($3,210). source: OCBC.

Less than half of the Singaporeans surveyed are on track to achieve their retirement goals (42% compared to 49% in 2021).

Despite the pandemic having put the brakes on spending among Singaporeans in 2021, this year painted a rather different picture. Across key savings categories, Singaporeans were spending lesser compared to 2021, with the exception of travel.

OCBC Financial Wellness IndexOn average, Singaporeans indicated they would need $2,372 for Lifestyle B, but the actual cost of that lifestyle in today’s value is 35% higher than their estimations ($3,210). Source: OCBC

What are Singaporeans saving for 

 24% 24% 

● Contingency Funds:

68% (2021); 61% (2022)

● Retirement:

54% (2021); 50% (2022)

●Travel:

39% (2021);   36% (2022)

●Investments: 

35% (2021); 32% (2022)

●Financial Support for dependents:

24% (2021); 24% (2022)

With increasing advances in technology and healthcare, we are likely to live longer than our grandparents’ or parents’ generation. Many people underestimate how long they will live and find their savings depleted too early. As such, it is important to have a perpetual income stream ² during our retirement. (² Read below)

That is where CPF LIFE comes in. As a national longevity insurance annuity scheme, CPF LIFE insures you against the risk of having nothing to live on when you are old, by providing you with a monthly payout for as long as you live. 

There are 3 different types of CPF LIFE plans available. Deciding the kind of retirement lifestyle you want is key to choosing the right plan for you. 

If you are worried about inflation, you might need monthly payouts that increase yearly. The Escalating Plan has this feature. If you prefer to keep within a fixed budget, you can consider the Standard Plan. If you don’t mind starting with lower monthly payouts which will progressively be lower later on, then the Basic Plan is good enough.

Standard Plan Escalating Plan Basic Plan

Higher level monthly payouts Monthly payouts that start lower but increase by 2% annually Lower monthly payouts 

Based on the type of retirement income you wish to have, you can then choose the type of plan that suits your needs.

Other important things to consider would be:

1. How much retirement income do you wish to receive?

2. How much retirement savings should you set aside in order to receive this income every month in retirement?

3. What should you do if the retirement savings you currently have do not meet the above sum?

But before that, let’s look at the retirement lifestyles you could be envisioning and estimate how much that would cost.

The joy of having alternatives

#1. The Jetsetter

This lifestyle is for you if you dream of seeing the world in your golden years. With more time on your hands, you plan to travel up to 3 times a year after retiring. 

How much you need to fund this lifestyle:

Based on the 2017/18 Household Expenditure Survey conducted by the Department of Statistics, the second quintile (20th to 40th percentile, or lower-middle segment) spends about $600 per month in their retirement while the 4th quintile (or upper-middle segment) of retiree households spends about $1,130 a month. 

For the sake of this example, let’s calculate using the upper-middle household expenditure of $1,130 a month. To factor in your travel expenses, we’ll also refer to the Household Expenditure Survey’s household overseas travel spending of $340 a month.

Keeping the above figure in mind, as well as the spending required to fly to nearby countries 3 times a year, the amount you need every month: $1,130 + ($340 x 3 trips) = $2,150 a month

To make things easier, we’ll round it off to $2,100 a month.

Based on the calculator from CPF’s Be Ready microsite, you’ll need to set aside $413,600 in your Retirement Account (RA) by age 65 to receive this amount. A much lower sum of $260,800 is required if you set aside the amount in your RA by age 55.

WEBULL_$140_BLOGARTICLE_800x250 (2)

SingSaver's Exclusive Offer: Receive S$70 Cash via PayNow or S$90 Grab Vouchers when you sign up for a Wellbull account and fund a minimum of S$700 within the promotion period. Get an additional S$100 Cash (S$170 total) or S$140 Grab Vouchers when you fund at least S$2,000. Valid till 3 March 2024. T&C's apply.

Plus, get free shares worth up to S$2,500 when you fund at least S$2,000 by 29 February 2024 and fulfil the requirements. Valid till 29 February 2024. T&Cs apply.

Also, get up to S$3,000 worth of free shares 

#2. The Happy-Go-Lucky Grandparent

You’re the sole breadwinner who looks forward to spending quality time with your family. You want to retire comfortably at age 65 and at a sustainable pace, with both you and your spouse’s basic needs covered. You also want to plan family outings and dine out occasionally. 

How much you need to fund this lifestyle:

Let’s calculate using the upper-middle household expenditure of $1,130 a month. As you’ll be out and about with more of your budget going towards dining and entertainment, we’ll estimate your additional spending to add up to $200 a month, assuming that you’ll spend $50 every weekend on dining out.

As such, you will probably need: $1,130 + $200 dining out expenses = $1,330 a month

For simplicity's sake, let’s round this off to $1,400 a month.

Similarly, using the calculator from CPF’s Be Ready microsite, you’ll need to set aside $270,700 in your RA by age 65 to receive this amount. A much lower sum of $168,000 is required if you set aside the amount by age 55.

#3. The Lifelong Learner

Now that you’re essentially time-rich in retirement, it’s time to pick up those hobbies you’ve left on the backburner. 

How much you need to fund this lifestyle: Let’s say you’ve elected to pick up a coding course, which we estimate to cost around $450. Assuming you’ll enrol in a similar course twice a year, your expenditure on courses will be: ($450 x 2 courses) / 12 months = $75 a month

To ensure you’ll also have enough savings for your basic needs, we’ll take into account the Household Expenditure Survey’s lower-middle retiree monthly spending of $550 a month.

All in, you will probably need: $75 + $550 = $625 a month

Now, let’s round this off to $700 a month.

Once again, we’ll use the calculator from CPF’s Be Ready microsite. To receive this amount, you’ll need to set aside $128,500 in your RA by age 65. A much lower sum of $75,600 is required if you set aside the amount by age 65.

Note: The estimated required amounts in the examples above are based on the CPF LIFE Standard Plan.

During our golden years, we may or may not be actively working, or have alternate sources of income. Using the figures above as rough examples, you should find out the amount needed to support your desired retirement lifestyle and work towards that. To get some help in figuring out the details, try out the CPF Planner.

Learn how you grow your CPF savings to achieve your desired retirement lifestyle with the 4 tips below!

4 tips on boosting your CPF Life savings 

Here are some ways you can bump up and achieve your desired CPF LIFE monthly payouts for the time when you hit age 65 and beyond.

#1. Make cash top-ups to your CPF Special Account (SA)

This is especially wise for those who have a considerable amount of cash sitting idle in the bank. Before the urge to spend compels you to add those enticing sale items to cart, why not seize the opportunity to earn higher interest rates of up to 5% p.a.* by parking the extra monies in your CPF SA instead? 

Not only does it accelerate the growth of your monies by letting compound interest do its magic, the interest rate alone puts ‘high-yield’ savings accounts to shame. To top it all off, you can also enjoy tax relief of up to $7,000 per year. Find out more about the Retirement Sum Topping-Up Scheme (RSTU) here. 

#2. Transfer Ordinary Account (OA) balance to SA

Our OA (mainly used for housing) earns an interest rate of up to 3.5% p.a.* while SA (used for retirement) earns a higher interest rate of up to 5% p.a.*

While transferring money from your OA to grow our monies in SA is a no-brainer at first glance, it gets a bit more complicated if you own or plan to buy a property, as you can no longer use the OA savings for housing once you have transferred it to your SA. Instead, you’d need to fork out payments for your home in cash. That is why this tip is best for those who no longer need to use OA for housing payments. 

Note that transferring your OA is only allowed if you’re below 55 and have less than the current Full Retirement Sum (FRS) in your SA.

#3. Choose not to withdraw at 55 

Once you hit age 55, you can withdraw up to $5,000 from your CPF savings (OA and/or SA), or anything above your FRS, whichever is higher. The FRS can be set aside fully with cash, or with cash (i.e. at least the Basic Retirement Sum) and property.

However, if you have no urgent need for these monies, you do not have to withdraw them. These savings will continue to grow with the attractive interest earned in your accounts, if you choose not to withdraw.

#4. Defer your payouts up to age 70  

While you can start receiving your CPF LIFE payouts at age 65, it doesn’t mean that it’s a must for you to do so, especially if you can rely on other income streams for financial support. The compounding effect plays a key role here, as the longer your CPF savings earn interests, the more your retirement savings will grow and the higher your CPF LIFE payouts will be. For each year you defer, your payouts can grow by up to 7%! This will give you up to 35% increase in payouts if you choose to start your payouts at 70.

*Includes extra interest. Members who are below 55 years old are paid an extra interest of 1% p.a. on the first $60,000 of their combined balances (capped at $20,000 for OA). Members who are 55 years old and above are paid an extra interest of 2% p.a. on the first $30,000 and 1% per annum on the next $30,000 of the combined balances (capped at $20,000 for OA).

² CPF Life vs Private Annuity Plans: Which Is Better For Retirement in Singapore?

(pros and cons of a private annuity plan vs cpf life)

If you're thinking about building your retirement funds, chances are you've probably thought about purchasing an annuity plan. But how is an annuity plan different from CPF LIFE and should you consider choosing one over the other?

When it comes to retirement funds, the first thing that comes to mind is probably your CPF Retirement Account (RA) savings.

However, with inflation reaching record levels and the cost of living inching upwards, there's been growing concern about whether our CPF RA savings would be enough to support our retirement needs.

As such, you may be looking at other means to increase your retirement funds. One of those ways is through an annuity plan.

But what is a private annuity plan, and is it better than CPF LIFE?

What is a private retirement annuity plan, and how is it different to CPF LIFE?

As the name suggests, a retirement annuity plan is an insurance plan designed to supplement your retirement years by providing you with regular payouts when you retire.

Basically, you fund an annuity plan by paying either a monthly or lump-sum premium during your working years. 

In exchange, you’ll receive regular payouts for a fixed period of time or for the rest of your life when you retire. 

At first glance, this may sound similar to our national retirement plan, the CPF Lifelong Income For The Elderly (CPF LIFE). Indeed, CPF LIFE is an example of an annuity plan; it provides CPF members with lifelong monthly payouts to support their retirement years.  

However, there are differences between both, and each has its merits. We’ll explain their differences below and how they compare against each other.

Private annuity plan vs CPF LIFE: what’s the difference?

Type of annuity plan ● Private annuity plan ● CPF LIFE

□ Source of funds ● Cash or other assets ● CPF Retirement Account (RA) savings

■Payout duration ● Can be for a fixed period or throughout your life ● From age 65 onwards until the rest of your life

♤Payout amount ● Based on the policy ●

Based on the amount of savings you have in your CPF RA, your gender and age, and which CPF LIFE plan you choose.

♠︎Termination of policy ● Can cancel anytime, but early withdrawals might result in lower surrender value than the total premiums that you’ve paid ●Can only be terminated if you’re leaving Singapore or West Malaysia permanently, or if you have a pension/private annuity plan.

1. Source of funds

Your CPF LIFE payouts are from your CPF RA savings. The more savings that you have, the higher your CPF LIFE payouts.

When you reach 55 years of age, you'll be able to withdraw up to S$5,000 of your CPF savings once you've hit the Full Retirement Sum (FRS). You'll then receive monthly payouts from CPF LIFE when you turn 65.

In a private annuity plan, you pay the premiums with cash or from other assets (including under the CPF Investment Scheme (CPFIS)). The premiums that you pay are pooled together along with other policyholders into a fund. The money will then be reinvested into other assets for higher returns.  

2. Payout duration

As previously mentioned, you'll start receiving your CPF LIFE payouts when you reach 65 years old and this will continue throughout your life. You can, however, choose to delay your CPF LIFE payouts until you’re 70 years old to receive up to 7% more p.a.

Regardless, CPF LIFE guarantees that you'll have a steady stream of income for the rest of your life, so you don't have to worry about outliving your savings.

On the other hand, a private annuity plan pays you for a fixed period (e.g. 10, 15, or 20 years). That said, there are some private annuity plans that provide lifetime payouts.

The benefit of having a private annuity plan is you have the option to choose when you want to start receiving your payouts. For instance, you can opt to receive your payouts during the early stages of your retirement years when you're healthier and therefore may spend more on expenses such as travel or hobbies.

On the other hand, you can also choose to defer your payout age till later. This gives you more money to cope with inflation or other healthcare needs as you get older.  

Aside from that, You can even choose how often you want to receive payouts. For instance, whether you want to receive them monthly, quarterly, half-yearly, or yearly.

3. Payout amount

The amount of payout that you receive from CPF LIFE is determined by the amount of savings you have in your CPF RA, the CPF LIFE plan that you choose, and your age and gender. 

Remember also that you earn a risk-free return of 4% to 6% p.a. based on your CPF RA savings. Once you've formed your CPF RA, you have a sense of how much you will be getting from CPF LIFE by the time you reach your retirement payout age. 

In fact, the payouts from CPF LIFE are higher than a private annuity plan if you put in the same amount of savings. The reason is that your CPF monies are invested in Special Singapore Government Securities (SSGS), which provide stable risk-free returns that are higher than what is available in the market.

On the other hand, the returns from your private annuity plan are based on the guaranteed as well as the non-guaranteed component of your policy. 

The guaranteed component is the sum that you’ll receive when your policy matures, while the non-guaranteed component may include bonuses and cash dividends you’ll receive based on the fund’s performance. 

Provided that you don’t surrender your policy, the guaranteed returns would be higher than the premiums that you would've paid. The returns from the non-guaranteed component, on the other hand, will depend on the performance of your fund.

So while the guaranteed payouts would usually be higher than the total premium you would have paid, the overall returns may be lower than what you would receive from CPF LIFE if the non-guaranteed component underperforms. 

4. Termination of policy

You can apply to be exempted from CPF LIFE and make a full withdrawal provided that you're 55 years and above, and have a pension or an annuity plan which provides the same or higher monthly payouts for life.  

If the payments from your annuity plan are lower than CPF LIFE, you can still apply for a partial withdrawal. 

Note that if make a withdrawal from CPF LIFE and surrender/terminate your annuity plan in the future, the surrender value of your annuity plan must be returned to your CPF RA, up to the FRS.

If you've joined CPF LIFE and want to cancel your plan, you can only do so if you plan on leaving Singapore/West Malaysia permanently, or if you're fully exempted from setting aside a retirement sum in your RA because you're receiving monthly payments from your annuity plan. 

For a private annuity plan, you can cancel anytime or choose to make partial withdrawals. But since these policies are meant for the long-term, early termination will likely result in penalties or a lower capital return, so it's best to check the terms before you sign.

Conclusion: which one should you opt for?

As we’ve outlined above, both CPF LIFE and private annuity plans have their own merits. CPF LIFE provides risk-free and guaranteed returns that will continue to pay you for as long as you live.

CPF LIFE is a national annuity plan designed for the masses; so while it doesn't offer as much flexibility as an annuity plan, CPF LIFE provides risk-free and guaranteed returns that will continue to pay you for as long as you live.

Conversely, a private annuity plan is more flexible; as mentioned, you can choose to receive payments earlier or later, adjust the payout period, decide on the premium payment term, or make a partial withdrawal if you need emergency cash or if you want to liquidate your investment portfolio.

The downside of an annuity plan is the income that you receive may be lower than what you would get from CPF LIFE. Furthermore, not all annuity plans offer lifelong payouts.

That said, if your budget allows it, a better way to maximise your retirement funds is to purchase an annuity plan and keep your CPF LIFE plan.

This way, your CPF LIFE payouts can cover your basic living expenses while the income that you receive from your annuity plan can help supplement your retirement funds on top of what you receive from CPF LIFE, thus ensuring that you can live the lifestyle that you want.