We observe a group of old people gathering at the hawker centre whiling the time away over cups of coffee from dawn till dusk. Another group may pass their time playing golf or going for extended vacations. The second group enjoys their retirement because their retirement went according to plan.
MANY wage earners are so busy with building their careers and starting a family that they have little time to plan for retirement. When one is in the twenties, retirement is faraway at the age of 65. But as time cruises along, one day we wake up to find that we have started to execute the retirement plan too late and may end up with little money to enjoy life at a time when we should be reaping the fruits of our labour.
A rule of the thumb is that you need 70 per cent of your pre-retirement yearly salary to live comfortably. That might be sufficient if you have paid off the mortgage on your property and are in excellent health. A common question is how much should I save? Save as much as you can, many financial planners recommend that you save 10 to 15 per cent of your income for retirement, starting after your 21st birthday.
A key indicator of pension systems is the “replacement rate”. This shows the value of the pension for specific individuals as a percentage of their earnings when working. The Organisation for Economic Cooperation and Development’s Pensions at a Glance study in 2008 found that Singapore’s average gross replacement rate is just 13.1 per cent. The average replacement rate in south Asia is 52 per cent and in the average for the 30 OECD countries as a whole is 60 per cent.
The report notes: “The relatively low replacement rate for Singapore of 13.1 per cent is because the calculations only consider the earmarked retirement account. If an individual were to put the general account towards retirement-income provision as well, then the replacement rate would be 82 per cent. It would be foolish to say that one Singaporean who withdrew the account balance to buy a house is worse off than another who built up a larger retirement income but then had to use some of it to pay rent. Nonetheless, there is a risk that older people find themselves asset-rich and income-poor in retirement and facing difficulty in unlocking the value of their housing assets to pay for essentials”.
It is true that many Singaporeans would have paid up for their house by the time they retire. This is a great relief as the monthly rentals will take a huge chunk from their retirement funds and rentals continue to rise with time. With a roof over their heads, they feel secure and could rent out a room if they need extra spending money.
The key question you should ask is how much do you need for retirement? At the Central Provident Fund Board, CPF, Web site, www.cpf.gov.sg, there is a handy retirement estimator. I tested it and the frightening results are shown in Table 1.
The sum shown in the bottom line is staggering although this estimator does not consider many other factors. It shows that the younger you are when you begin saving and investing for retirement the better.
When forecasting finance for the future, always consider the time value of money. The value of the money you have today is not the same at a future date. You need to factor in the time value of money to distinguish between the worth of investments that offer you returns at different times.
Professionals Who Planned Well
PHOTOS: CT TAN
Tan Khor Keng believes in enjoying life later.
Those who planned well for the later years early in life will live to enjoy the winter years in comfort with few worries about their financial wellbeing as they have a steady stream of income still.
Tan Khor Keng, 67, was an electrical engineer with a multinational petroleum corporation. He came from a wealthy family and was studying at an Australian university in 1965 when his father’s business was affected by the recession.
“I received a call to terminate my studies and return to Singapore,” he says. “I had only one year more to complete my studies so I stayed on and worked part time to support myself.”
That incident showed him that circumstances can change any time and one must be prepared. He adds: “My philosophy is to suffer now and enjoy life later.” Over the years, he built up his savings and invested them. He held a steady job at the MNC but in 2000 he was among the several older engineers who were given the golden handshake as the company was downsizing. At the age of 56, he was retired not by choice.
Right Time to Retire
Dr Tan gang Chiang began planning early in life.
Dr Tan Gang Chiang, 67, a dental surgeon with his own practice in Chinatown has retired since 2008. He had planned to retire at 65. By that time, his wife had already retired for two years. The timing was just right as the clinic he owned was approached by a traditional Chinese medical practitioner who wanted to rent the place.
After retirement, he felt elated. He says: “There is no fixed schedule. There is no responsibility to my patients. At no time was I really bored. I helped my son in his business. I could go for morning walks daily which may last for 45 minutes. I cycled with my three grandchildren and read many books.” He spends some time investing in stocks and shares. Being a handyman at home took up much of his time.
R Hsieh, 67, was a successful banker who retired in 1999. He felt a sense of relief after retirement, he says: “I felt that I have no more responsibilities at work, I’m answerable to no one except to my family.”
He did not do detailed retirement planning when he was young. He says: “I’ve always been frugal and lived within my means. I don’t believe in borrowing money from others. I believe in having savings in case I want to quit my job because of a bad boss. The savings should be equivalent to six or 12 months of one’s income.”
At 52, he thought of quitting as he was miserable at work. There was too much back-stabbing at work but he had to wait till he was 55 or he would lose his share options. However, at 55 he was offered the position to take charge of investor relations. This job had fewer responsibilities so he accepted the offer. After one year, he finally retired.
How to Kill Time
When we are working, we are always trying to complete several projects simultaneously. The process is never ending. Because of that, time passes very quickly but if we’re not careful, our mental health suffers.
After retirement, the pace of life slows down overnight. The retiree must have sufficient work and hobbies to kill time otherwise he will become bored. After his retirement, KK Tan did some contract work, went on long holidays, spent time with his grandchildren, did some handyman chores at home, invested in stocks and shares, and went into foreign exchange trading. He kept in touch with foreign news via the Internet.
Hsieh believes that we must take care of the brain otherwise dementia and senility will set in. He says: “You must have something new to occupy the mind. Find new interests to pursue. I spend time attending talks, reading and viewing videos on Buddhism.” Table 2 shows some activities to occupy the time.
Many retirees spend time in activities with the family and friends, reading, take part in recreation and fitness exercises, travel, increasing knowledge and skills, pondering over medical concerns, doing community and social services, hobbies, and religious work.
For those who have not planned well for retirement, they have to depend on their CPF minimum sum savings which will run out as they draw down from the principal amount. In such cases, they either have to work part time or have to lower their standard of living. The CPF savings will not last especially if the person lives till over 75 years old.
Financially Hsieh has peace of mind, he says: “I get rental income from my property investment. I have some preference shares that provide me with 5.6 per cent returns each year. I have monthly payments from my annuity policies.”
Dr Tan says: “As a dental surgeon, I was worried that my hands would fail me so I invested in property just in case. I was very frugal and managed to save enough to pay the down payment for my first property at the age of 40.” The properties bring in regular income. He has invested in preference shares and stocks.
Putting money in annuities is a wise decision that brings in retirement income monthly. Consult your insurance agent about the kinds of annuities that suits you best and at when you should start the policy. One type of policy works like a government pension scheme. The annuitant pays a lump sum to the insurance company and begins receiving monthly payments from a certain age. This payment goes on till death. So if he lives till 90, he makes a profit from his investment. However, if he dies at 58, for example, whatever is left over in the policy after deducting the payments made to him will go to his beneficiary. It’s a win-win situation with practically no risk.
Elderly couples who own a Housing and Development Board apartment and have no income may want to look into the reverse mortgage scheme. In this case, they mortgage the apartment to a bank or insurance company and receive a certain sum monthly for their expenses. When they pass away, whatever value is left in the apartment will go to their beneficiaries. The advantage is that they don’t have to depend on their children to support them and they still have shelter over their heads.
Normally, the bank or insurance company will offer reverse mortgages based on 80 per cent of the property’s value. The disadvantage is that if the price of the property falls over time, the payments may have to be adjusted or if the value falls drastically, the property may have to be auctioned off.
Healthcare Costs A fact of life is that as one ages, huge sums may have to be spent on medical and hospitalisation bills. For that reason, some older civil servants who have the medical benefits card with entitlement to heavily subsidised medical treatments at government-owned hospitals consider the card to be better than platinum.
The problems many retirees face is that when they are employed, they are covered by the company’s medical and hospitalisation insurance. Few plan for the day when the policy expires at a time when they need the benefits most. Even for those who bought insurance policies with some hospitalisation coverage, read the fine print. Many of such benefits expire or are reduced when the policyholder reaches a certain age.
Buy medical insurance early in life as not many insurance companies will insure you on this after a certain age. Even if they do, the premiums will be exorbitant. Insurance companies are not charitable organisations.
Children’s Support for Their Parents
In a paper “The Real Challenges of an Ageing Population” for the Centre for Governance and Leadership, Andrew Kwok says: “In Singapore, it is socially accepted that families should bear the filial responsibility of caring for their elderly. However, appearances of functioning familial support structures could be unreliable. The normative expectation of caring for aged parents should be discerned against actual behaviour, as normative culture can act as a cover, concealing more serious problems. These difficulties may not be surfaced or adequately dealt with because grown children avoid the issue, and aged parents are too embarrassed to talk about them openly. Academics point out that in reality, more and more children are no longer supporting their parents, even in countries like South Korea, where a strong normative culture of filial piety still holds sway.
“As the ratio of children to parents decreases, filial piety should not be emphasised to the point of creating an unrealistic burden on children. The concept of filial piety can be used to raise awareness and garner support for a family approach towards caring for the elderly, but the provision and regulation of community and institutional care may need to be expanded, and should not be seen as an arrangement of last resort.”
Hsieh believes that if parents really love their children, they should not ask them for support in their old age. The children can’t afford the time and money as they have their own family to support.
Dr Tan remembers that his parents who were not wealthy insisted that he stays with them even after marriage so that he continues to contribute to the household expenses. He says: “Parents should not depend on their children for support but children should contribute part of their earnings to the parents voluntarily. I helped my children to buy property by giving them enough for the down payment for a property. This is a step towards their financial independence.”
KK Tan is more traditional in his thinking: “As Asians, I agree that children have an obligation to support their aged parents. Although my wife and I don’t insist, my children contribute towards the household expenses. In any case, whatever they pay us will be theirs one day.”
In Hong Kong, Europe, and Australia, there are well-managed retirement resorts where the elderly can spend the rest of their days. Singapore has a lot to do in this area before it can catch up. The domestic homes for the elderly are not luxurious and there are insufficient places to the growing group of ageing citizens.
Hsieh is prepared to join such luxurious resorts when the time comes but only if they are located in Singapore. Dr Tan says that his wife is supportive of the idea of spending their time at such a place.
KK Tan is not receptive to the idea especially if the resort is in Australia. When he was there, he saw much racial discrimination. Those retirement homes that he visited do not have Asian residents.
Advice to Younger Generation
To the younger generation, it is never too early to plan for retirement because money takes time to accumulate and investments take time to grow. Take care of your health because even if you are a millionaire, you can’t enjoy life from a wheelchair.
A Mercer survey of benefit programmes worldwide, “Introduction to Benefit Plans around the World: A Guide for Multinational Employers”, notes that the concept of retirement is changing and many will be forced to postpone full retirement. Many governments are extending the retirement age, as an ageing workforce means that the pool of retirees is growing faster than the number of productive workers who contribute to state or private-sector sponsored programmes. This will require employers’ programmes for older employees to change significantly.
As more responsibility for retirement is shifted to the individual, there is a disturbing lack of employee understanding of how to ensure a secure retirement. With participation optional and contribution level left up to employees, many employers find that individuals contribute less, start late, invest conservatively and retire too soon.
Retirement benefits may be inadequate for many employees. Unless supplemented by personal savings, many employees are likely to find their benefit plans cannot deliver sufficient retirement income to ensure a comfortable life at the age the employee retires.