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Retiring means losing our active income from work. We will have to rely on passive income streams to fund our daily expenses and retirement lifestyle.
From our first paycheck, we start making CPF contributions that will eventually build a retirement pot that gives us lifelong monthly payouts via CPF LIFE. However, it can be risky to rely solely on the scheme. Depending on our desired retirement lifestyle, our CPF LIFE payouts may not be enough.
For example, if a 55-year-old had set aside the Full Retirement Sum (FRS) of $155,000 in 2014, he can expect to receive about $1,200 in monthly CPF LIFE payouts when he turned 65 today in 2024.
Based on 2017/18 expenditure levels for retiree households, the average monthly household expenditure, per member, is $1,130 a month. Since then, the consumer price index (CPI) has risen more than 14%.
Just accounting for this, the FRS may barely cover a basic retirement lifestyle for retirees – even for future generations.
To create a more resilient financial foundation in our retirement, we should inculcate good money habits, including considering how to build multiple income streams.
Create A Second Income Stream Within CPF
As our Special Account and Retirement Account are primarily meant for our long-term retirement savings, we earn a higher floor interest rate of 4.0% p.a. Ultimately, these funds determine how much CPF LIFE payouts we get each month.
On the other hand, savings in our Ordinary Account can be used for shorter-term housing and even education expenses. Hence we earn a lower interest return of 2.5% p.a. The opportunity here is to potentially grow a second retirement nest egg with our OA savings.
However, the 2.5% floor rate on our OA savings barely keeps up with long-term inflation, especially in the elevated inflation environment today. For reference, MAS expects core inflation to come in at 2.5% to 3.0% in 2024. This comes on the back of MAS core inflation rate of 4.2% in 2023 and 4.1% in 2022.
In short, we need to invest our OA savings to beat inflation and grow our purchasing power.
We can open a CPF Investment Account (CPFIA) with one of the three local banks, like DBS and POSB for example to invest our OA savings. Note that we can only invest anything above the first $20,000 in OA balances.
For example, we can invest in Singapore Government Bonds, such as SGS Bonds, T-bills and Singapore Savings Bonds (SSBs). With the latest 6-month T-bills in December offering 3.0% p.a., we can already beat the OA floor rate.
For those with a longer investment horizon, we can consider exposure to riskier investments, including investment-grade fixed income and regional/global equities. For example, via DBS and POSB, we can invest our CPF OA savings in close to 50 funds – managed by some of the most recognised investment managers, including Abrdn, Fidelity, Manulife Investment Management and others.
Build A Supplementary Retirement Income Stream With Our SRS Account
Unlike the CPF system, building our Supplementary Retirement (SRS) Account is optional. The Government encourages us to do this with a dollar-for-dollar tax relief on top-ups to our SRS accounts – up to $15,300 for Singaporeans and PRs, and $35,700 for foreigners.
On POSB’s SRS page, we can calculate our potential tax savings when we make SRS top-ups. For example, an individual who earns $100,000 and makes the maximum $15,300 top-up to his SRS account, may enjoy over 30% of tax savings in the year.
Source: POSB
As our SRS savings do not automatically earn a meaningful return, we need to invest our SRS top-ups. We can do so with Singapore Government Securities, such as T-bills and SSBs, Fixed Deposits, as well as equities and fixed income via listed shares and bonds and unit trusts.
When using our SRS to build a supplementary retirement income portfolio, we have to also understand the withdrawal rules. While we can start making penalty-free withdrawals from our statutory retirement age, we don’t have any age cap to start making SRS withdrawals.
Once we start making withdrawals from our SRS account, we only have 10 years to empty our SRS savings. Any remaining amount after the 10th year will be withdrawn “immediately after the end of the 10-year withdrawal period”.
As only 50% of our withdrawals enjoy tax concessions, we need to stagger SRS withdrawals to minimise how much income tax we end up paying on it.
Invest Our Savings For The Long Term
Obviously, we can also grow our retirement income streams with our cash savings. Those who prefer more self-directed investments in individual stocks and REITs, or even in ETFs, can use a stock brokerage account like DBS Vickers to buy these counters on global stock markets.
DBS Vickers provides investors access to 7 popular markets, including Singapore, the US, Hong Kong, Australia and Japan, to gain global exposure. With US market fractional trading now available on DBS Vickers, we can also make regular investments in the biggest and most popular stocks, including Nvidia, Tesla, Alphabet, Apple and more.
Within the DBS and POSB ecosystem, we can also use foreign currencies saved in our DBS Multi-Currency Account (MCA) to pay for global investments.
This way, investors have full transparency of their exchange rates and do not need to constantly incur foreign exchange spreads when buying and selling stocks listed in foreign currencies.
Investors who prefer more guidance can invest via digiPortfolio. While there are various portfolios that we can invest in, we can also invest in a purpose-built Retirement Portfolio.
Source: DBS digiPortfolio
Managed by DBS, in collaboration with J.P. Morgan Asset Management, the Retirement Portfolio takes into account the years we have until retirement – when determining the mix of equities versus bonds to hold. For example, those earlier in their careers will focus on capital appreciation – holding more equities and less fixed income.
As we age, the portfolio will gradually “glide” into more a stable asset allocation mix – without any actions needed on our end. Even during our retirement, the portfolio will remain invested in safer fixed income assets to ensure we continue to earn a return on remaining portfolio while we potentially draw down what we need.
Read Also: Why The Glidepath Is Vital For Managing Risk In Retirement Portfolios
Protect Your Retirement Income Streams With Insurance
Insurance is an important building block for our financial stability. The financial safety net that insurance provides will better prepare when unforeseen health crisis strike.
Beyond this, we can also tap on whole life policies, annuities and even investment-linked policies to build passive retirement income.
For example, a retirement plan such as RetireSavvy allows us to start from just S$128.74/month1. We get peace of mind knowing that 100% of our capital is guaranteed by our selected retirement age or the end of the 15th policy year, whichever is earlier. Moreover, we stand to benefit from both guaranteed and non-guaranteed returns, making our money work harder to fund our ideal retirement lifestyle.
We can choose to make a single premium payment, which can be funded using our SRS, or opt for a 3-year, 5-year or 10-year premium payment term. There’s also potential flexibility in making premium top-ups2whenever we have extra cash. Moreover, our retirement plan can be personalised, with a later retirement age and adjusting our income payout period3.
Learn more about RetireSavvy.
We can also choose a more personalised retirement investment plan, via a whole life regular premium, investment-linked plan like Manulife SmartRetire (V). We have more flexibility to choose our desired retirement age starting from 40 years old and can also choose a retirement income option that lasts up to 30 years.
Similarly, the plan also gives us peace of mind, knowing that we enjoy protection for Death and Waiver of Premiums for Total and Permanent Disability4. This plan will also refund the cost of insurance5 component if the protection benefits are not utilised.
Learn more about Manulife SmartRetire (V).
Make Your Money Work Harder With DBS Multiplier
While retirement planning may seem daunting, we must remember the old idiom we’ve all heard before: the journey of a thousand miles begins with a single one. We must all take small steps towards achieving our ideal financial lives.
DBS and POSB break this down into 4 money habits we should hone from a young age: Save, Protect, Grow and Retire. And, the products and services within the DBS and POSB ecosystem not only gives us access but also encourage us to work towards these life goals.
That’s why, alongside each money habit, we can tap on the DBS Multiplier Account. In the case of building our retirement income streams with cash investments, CPF, SRS or investment plans, we can also rest assured that our cash savings are working hard. The DBS Multiplier Account pays up to 4.1% p.a. in interest returns on our liquid cash savings when we hit relatively achievable financial planning transactions.
We simply need to credit our income + make transactions in various categories to start earning a decent interest return on the first $100,000 in savings.
Source: DBS Multiplier
As we can see in the table above, we can start with as little as $500 in eligible transactions, and spend categories are broad enough to include credit card/PahyLah! Retail Spends, Home Loan Instalments, Insurance Premiums and Investments.
In the income category, it’s not just our salary that is taken into account, but also dividends that we receive on our investment and even CPF LIFE payouts for retirees.
In the spend category, most of us can definitely make eligible transactions via credit cards and/or PayLah!. As we all need to invest for our retirement, it’s also relatively easy to qualify for the category. In the insurance category, retirement plans that we discussed above, the DBS RetireSavvy and Manulife SmartRetire (V), also qualify.
We can also crunch the numbers to estimate just how much interest we can earn on our DBS/POSB Multiplier savings. For example, an individual who earns $5,000 (or any amount from $500) and makes consistent insurance and investments – which can be through our cash, CPFIA or SRS accounts – will already be able to earn 2.4% p.a.
Source: DBS Multiplier
Read Also: DBS / POSB Multiplier Account: Earn Higher Interest As You Make Better Financial Decisions
Footnotes:
Terms and conditions apply, please refer to respective Product Summary for specific definitions.
1 Based on Life Insured 30 years old. Depending on the age of the life insured, the premium amount will vary between S$128.74 and S$128.75 for a 10-year premium payment term.
2 You must submit the request to Manulife 1 year after the policy effective date and 5 years before the selected retirement age. Please refer to the product summary for more details.
3 You must submit the request to Manulife after the policy effective date and 2 years before the selected retirement age. Please refer to the product summary for more details.
4 Coverage for death of life insured is up to age 99. Coverage for waiver of premium benefit on TPD is up to before the flexi start date and policy owner’s age 70.
5 If there is no claim made on death or waiver of premium benefit on TPD before the Target Retirement Age, the cost of insurance charged on basic benefits will be refunded in a lump sum as additional units on the policy anniversary of the Target Retirement Age.
Disclaimers:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stock broker or financial advisor.
Disclosure: This post is sponsored by POSB. All views and opinions expressed in this post are from DollarsAndSense.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$100,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
Investments
All investments come with risks and you can lose money on your investment.
This information is for general information only and should not be relied upon as financial advice. This publication may not be reproduced, or communicated to any other person without prior written permission.
This information does not take into account the specific investment objectives, financial situation or needs of any particular person. Before entering into any transaction involving any product mentioned in this publication, where applicable, you should seek advice from a financial adviser regarding its suitability for your own objectives and circumstances. If you choose not to do so, you should make an independent assessment and do your own due diligence on the product. This information does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction. It is not intended to provide, and should not be relied upon for accounting, legal or tax advice.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
Insurance
This publication is for general information only and should not be relied upon as financial advice. Any views, opinions or recommendation expressed in this article does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
This advertisement has not been reviewed by the Monetary Authority of Singapore. The information and opinions contained in this publication has been obtained from sources believed to be reliable, but DBS makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose. This publication is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. It is provided in Singapore by DBS Bank Ltd (Company Registration. No.: 196800306E), an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore.
DBS In Collaboration with Manulife
RetireSavvy and Manulife SmartRetire (V) are issued and underwritten by Manulife (Singapore) Pte. Ltd. (“Manulife”) (Reg. No. 198002116D) and distributed by DBS. It is not an obligation of, deposit in or guaranteed by DBS.
Buying a life insurance policy is a long-term commitment. An early termination of the policy usually involves high costs and the surrender values payable may be less than the total premiums paid.
This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (“SDIC”). Coverage for the policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact Manulife or visit the Life Insurance Association or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
Unit Trusts
This article (collectively the” Information”) is provided to you for your private use only and are purely indicative and for discussion purposes only. The Information is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.
The Information may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS Bank Ltd. nor any of its related companies or affiliates nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The Information may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.
Figures and amounts stated are for illustration purposes only and shall not bind DBS Group. DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein. The Information does not have regard to the investment objectives, financial situation and particular needs of any specific person. In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.
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Prices and availability of financial instruments are subject to change without notice. In any event, investment involves risks and past performance is no guarantee of future results, and future results may not meet our/ your expectations due to a variety of economic, market and other factors.
The Information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Investment products falling within the PRIIPS Regulation (as defined below) are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (the “EEA”). For these purposes, a retail investor means a person who is one (or more) of:
i. a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or
ii. (ii) a customer within the meaning of Directive 2002/92/EC (as amended the “Insurance Mediation Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or
iii. (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”).
Consequently, no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the investments or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the investments or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPS Regulation. For this purpose, DBS Group will assess whether the account’s beneficial owner (or, in the case of trust accounts, the settlor) is a retail investor in the EEA.
A PRIIP is any investment where the amount repayable to the investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the investor.
Prospectus and Product Highlights Sheet for the Unit Trusts mentioned may be obtained from any DBS/ POSB branch. You should read the prospectus or profile statement and Product Highlights Sheet before deciding to subscribe for or purchase units in the scheme. The value of the units in the scheme and the income accruing to the units, if any, may rise as well as fall.
This information is from DBS Bank Ltd (Company Regn. No. 196800306E) (“DBS”) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the “MAS”).
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