Planning for retirement in Singapore can easily be overlooked. Between long working hours, shouldering the financial stresses of the rising cost of living and spending time with family, there is precious little time to dedicate to retirement planning.
Even for those who consider retirement planning, many of us may be (falsely) comforted by the retirement safety net of CPF. By taking a chunk out of our monthly salary to put into our CPF accounts during our working years, we can receive CPF LIFE monthly payouts in our retirement, for as long as we live.
For those who understand CPF LIFE, we may be acutely aware that its primary purpose is to provide a basic retirement income in retirement. Many of us may be currently leading a lifestyle in excess of “basic”, and wish to continue living a similar lifestyle in retirement. We have to build other sources of retirement income during our working years to continue enjoying a lifestyle beyond just the basics.
For example, those who turn 65 this year can expect to receive about $1,200 in monthly CPF LIFE payouts. This is based on online resources we could find for the Full Retirement Sum of $155,000 that was required in 2014. Unfortunately, CPF has tweaked its CPF LIFE estimator calculator so that we can only see information relevant to ourselves – which is still a valuable exercise for us individually.
Read Also: [Beginners’ Guide] Understanding CPF LIFE And Your Monthly Payouts When You Retire In Singapore
How Much Do We Need in Retirement Today?
So, we can estimate that someone who turns 65 this year will receive about $1,200 a month in CPF LIFE payouts if they had set aside the Full Retirement Sum in 2014. But how much do we really need to spend in our retirement today?
Minimum Income Standard (MIS)
In 2019, a team of researchers from the Lee Kuan Yew School of Public Policy (LKYSPP) conducted focus group discussions to understand what a basic elderly household budget may look like.
Since then, they’ve updated their numbers – and the latest Key Findings (2023) report suggests that single elderly households require $1,492 a month. Elderly couple households require $2,551 a month to meet their basic needs. This is higher than what their CPF LIFE payouts (on the Standard Plan) of $1,200 per person would provide today.
Note that this figure is for 2022, and applying the 20-year average MAS core inflation rate of 1.7% per annum will increase the figure to $1,543 a month and $2,638 a month for single and coupled elderly households respectively. However, in the Minimum Income Standard report the change in monthly budgets for elderly households was closer to 2.5% per annum (from 2020 to 2022). Given the current elevated inflation level, there’s reason to believe elderly households may need even more today.
Read Also: CPF LIFE VS Retirement Sum Scheme: What’s The Difference?
Retiree Household Expenditure
Another way to look at how much those in retirement may need for their monthly expenses would be to dive into Singapore’s Report on the Household Expenditure Survey 2017/2018 that is compiled every five years. The latest one expected for 2022/2023 is not out yet.
Apart from just giving us some statistics, the figures found in this report can also be extremely valuable as it is classified by housing-type, which can provide some indication on the standard of living we would like to achieve given the type of home we are currently living in or are accustomed to.
In this survey, it was found that household members, in households comprising only non-working persons aged 65 and over, spent an average of $1,154 each month.
Source: Report on the Household Expenditure Survey 2017/2018
Of course, these figures are again based on past data and need to be updated to reflect what someone retiring in 2024 may need to spend each month. Simplistically, this is what may be more representative in 2024.
Extrapolated from Report on the Household Expenditure Survey 2017/2018 for 2024 figures using 1.7% inflation per annum
On average, each retired person, living in a household comprising only non-working persons, would need to spend $1,298 per month.
Quite logically, those who live in HDB flats will spend less. Those living in the smallest 1- & 2-Room HDB flats will spend approximately $773 each month. Even those living in 5-Room and Executive HDB flat can expect to spend less than what their estimated CPF LIFE payouts would be if they kept the Full Retirement Sum when they turned 55 in 2014.
On the other hand, those living in condominiums and landed properties can expect to spend more than double their counterparts living in HDB flats each month. In particular, those living in condominiums and other private apartments spend more than even those living in landed properties.
Are Our CPF LIFE Monthly Payouts Enough?
From a numbers perspective, it looks like those living in HDB flats could use their CPF LIFE monthly payouts to fund their retirement lifestyle entirely, if they had kept the Full Retirement Sum when they turned 55 in 2014. They may be receiving $1,200 and spending just under that amount even if they are living in a 5-Room or Executive HDB flat.
However, the actual figures in the Report on the Household Expenditure Survey 2017/2018 revealed that retirees were drawing only $361 from CPF LIFE (and CPF Retirement Sum Scheme) back then.
Source: Report on the Household Expenditure Survey 2017/2018
It may be logical that those living in the smallest housing-types may not have been wealthy enough to build up the Full Retirement Sum to receive a monthly payout valued at $1,200. However, from the data, even those living in landed properties, with the highest CPF LIFE income, only received $867 each month back in 2017. This was less than half of what they were spending each month.
Of course, many of these people may have had a much smaller CPF balances as contribution rates may have been lower because of their age. Nevertheless, we should also take heed that active management may be required for us to ensure our CPF LIFE payouts can afford a basic retirement living standard.
Younger cohorts are more likely to reach their Retirement Sums. In 2022, 70% of the cohort who turned 55 managed to save the Basic Retirement Sum (BRS). About 7 in 10 of these individuals also managed to save the Full Retirement Sum. Looking ahead, we should expect CPF LIFE to play a bigger part in retirement income in Singapore.
Taking a leaf from the wealthier households, investments made up their biggest source of income during their retirement years. We should also look to actively build our investment portfolio over the long-term so we can enjoy the fruits of our labour during our retirement.
Read Also: Here’s What Your Full Retirement Sum Might Look Like When You’re 65
This article was first published on 8 June 2020 and has been updated.
The post $773 To $3,015 A Month: Here’s How Much You Need To Spend During Retirement In Singapore Today appeared first on DollarsAndSense.sg.
