BT: Retirement dreams (08 Nov 2006)

Business Times - 08 Nov 2006

Retirement dreams

There appears to be a big funding gap between the amount Singaporeans believe they can retire on and reality. ANNETTE KING reports

SINGAPOREANS dream of an early and comfortable retirement. It's a nice dream but are they prepared for it?

In an AXA retirement survey conducted in 2004, Singaporeans said their ideal retirement age was 54. This was the youngest ideal retirement age benchmarked against 14 other countries in Asia and globally. One in four Singaporeans also assumes that his or her standard of living will be the same or improved after retiring.

The reality, however, is that Singaporeans are not financially prepared for retirement because they have not saved enough. Asked if they knew how much income they need to fund their retirement years, only one in five Singaporeans aged 45 to 54 had an answer. Probed further on when they started retirement planning, the average age was 39 in the 'prepared' group.

We can derive three things from the findings:


Singaporeans dream of an early and comfortable retirement and want to retire as early as age 54. The official retirement age in Singapore is 62 years, which could possibly be raised to 65 years.


Although they want to retire at 54, they only start planning for their retirement 15 years before it happens. This means they expect their last 15 years in active employment to generate enough funds to last them through their retirement, which may span 23.4 years for men and close to 30 years for women.


Singaporeans do not have a clear idea of how much they need during retirement. This leads us to believe that there is a big retirement funding gap and that Singaporeans' perceptions are vastly different from reality.

The survey included a group of working adults and a group of retirees. While there were similar views regarding how they would like to spend their time and what roles they see themselves playing after retirement, the answers they gave on how they did their financial planning was rather disturbing.

How will Singaporeans spend their time during retirement?

Singaporeans love to travel - just take a look at the popularity of the annual Natas travel fair. Almost half the respondents in the survey cited travelling as their main activity during retirement. On average, a Singaporean retiree spends almost 23 days a year travelling.

While Asia remains a filial society with a traditional culture, an increasing number of Singaporeans don't see themselves playing doting grandparents when they retire, preferring to do community work or join associations where they can transfer their knowledge and life experiences.

Only four in 100 among the retired group spend time with their grandchildren on a regular basis. However, it is interesting that close to 80 per cent of Singaporeans expect financial aid from their children in their retirement. But with Singapore's fertility rate at 1.24 and falling, there are now fewer children around to take care of ageing parents. The adults have to rely on their own resources.

Also, with a changing society, fewer young Singaporeans are staying with their parents. When they move into their own homes, their monthly allowance for their parents sometimes stops or is reduced. Fewer Singaporean parents then get financial support from their children these days.

Unfounded optimism

So why do Singaporeans think they have enough retirement funding? Where does their confidence come from?

They think they do not need to spend a lot of money in the first place. Almost all Singaporeans stay at home and 30 per cent of the retired group stay with their children. They expect financial aid from their children to help them with daily expenses and occasional indulgences.

Nine out of 10 Singaporeans think they are saving enough for retirement by contributing to the Central Provident Fund, with half thinking that their CPF funds will give them a monthly income equal to their last drawn pay. By 2013, the Minimum Sum required in an individual's CPF account would be $120,000. If a person spends 10 years in retirement, this means he will have less than $1,000 a month for expenses. It is also important to note that most Singaporeans' CPF account balances are nowhere near $120,000. In 2005, the current account balance was less than $40,000.

Life expectancy has improved over the last decade, thanks to improved medical care. According to the 2005 population trends study by the Department of Statistics, life expectancy at age 65 is 17.9 years for men and 19 years for women. It's good news that we are living to a ripe old age. It's not such good news if we run out of funds during this period.

With a $120,000 minimum balance, a Singaporean male can expect a monthly payout of just over $550 over 18 years while a female Singaporean can receive a monthly payout of about $520. With current balances at $40,000, the Singaporean male will suffer a 60 per cent reduction in his monthly payout value, receiving less than $200. The Singaporean female will be no better off.

This is a worldwide issue with compulsory retirement savings: people think that with a mandatory contribution towards savings, the funds will be sufficient at the end of the day. From the above calculation, we have shown that it is not the case. CPF savings are by no means sufficient to last one's entire retirement.

Another point to note is that Asians are cash rich but asset poor. According to a Smith Barney report on Asian household balance sheets, in 2004, Asians held 53 per cent of their assets in cash with less than 30 per cent in equities and mutual funds. But history has proven that equity investments outperform cash and bonds over the long term.

AXA Life Singapore CEO Richard Shermon believes that the first priority of an individual is to seek protection for himself and his family. 'After a customer has secured the relevant protection coverage and solutions for his needs, we encourage him to consider investments to ensure he has the funds to live his desired lifestyle in his retirement. Sometimes, this means moving up the risk curve to invest in equities rather than remain in cash and deposits, given one's long-term investment horizon.'

Start planning now

Why do Singaporeans shy away from financial planning, an activity that holds such significance for their future? By spending a few hours with a financial professional, they can achieve a lifetime of preparedness and assurance.

Retirement is viewed positively in Singapore. It is seen as a time to slow down and pursue interests outside work. Some see retirement as a chance for an easier second career or a time to start a business. They have visions of visiting countries and engaging in meaningful community and social activities.

But when reality hits them, they end up staying home most of the time because they do not have the funds to live their dreams.

Retirement is the time to enjoy the fruits of your labour. So why face the prospect of downgrading your lifestyle when you can help yourself by seeking good financial advice and making the effort to plan early? While we cannot have one plan for life because change happens, we can plan for living.

The writer is chief marketing & strategy officer, AXA Life Insurance Singapore Pte Ltd.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.