It is not unheard of for Singaporean children to take care of their aging parents. This is partly due to our unwavering Asian culture of familial unity. We even have a legislation for it! Protected by the Maintenance of Parents Act, senior citizens who are unable to sustain their lifestyle can apply to the court in order for their children to provide a monthly allowance.
More than just a social obligation, there are four steps to begin a retirement plan for your parents.
#1: ANALYZE THEIR CURRENT FINANCIAL SITUATION
You must understand the overall financial circumstance that your parents are in. Are your parents’ CPF balances enough to sustain them for the years to come? Know whether they have a maturing savings account or an efficient estate plan. Compare these assets to their outstanding debts and other liabilities.
What led to the poor management of their golden nest? This means that you have to figure out their financial mistakes and help them to avoid these in the future. I have to admit that some setbacks are due to factors that are beyond their control (e.g., layoffs due to recession).
An open discussion is necessary.
Take all these into careful consideration while deciding how much support they will need from you to retire comfortably.
#2: DETERMINE THE EXACT TIMELINE
Determine when your parents intend to retire. Retiring at 50 sounds pleasant, but can your parents sustain their desired lifestyle for the next 30 years or so? You have to be realistic!
Some Singaporeans prefer to work on a full-time or a part-time basis as they go beyond the retirement age (i.e., aged 62 is the minimum according to the Retirement and Re-employment Act). Knowing exactly when the income stream will cease will provide you a rough idea of how much time you have to grow your wealth.
#3: PREPARE YOUR FINANCES
Preparing your finances goes hand in hand with the second bullet. It is a cooperative effort between you and your parents. You must highlight that they have to play an active part in the entire journey.
As long as you can afford to do so, you can set up their endowment plan. This is a prudent decision that will allow you to reap a beneficial compound interest in a span of a decade. This amount may supplement their CPF balances.
Moreover, preparation shall not be limited to the financial wealth. You can also focus on your parents’ wellbeing. Improving their physical health can reduce the risk of serious diseases. Enroll your parents to dietary programs, studio memberships, or wellness facility.
For instance, NTUC Health’s SilverCOVE at Marsiling Heights allows its members to enjoy an integrated senior wellness facility. SilverCOVE fuses social activities with lifelong learning initiatives with their gym facilities, TCM services, and more. The price for two people is about S$480 per year.
#4: DIVIDE THE RESPONSIBILITY
Raising a child is hard work, but taking care of your aging parents is no walk in the park either. Divide this responsibility between your siblings. Doing so will not only maintain fairness, but it will also reduce the financial risks of your parents. Say you are the sole provider of your family…picture what will happen to your parents if you suddenly lose your job. It is a gloomy sight!
For your younger brother who recently transitioned to the working scene, he can take on the weekly utility bills. For your sister who has a higher position in the company, she can help out with a portion of the mortgage repayments. Come into a mutual agreement during your discussion.
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The best time to help your parents is now. Consider speaking to a financial adviser to ensure that your parents can retire comfortably and peacefully.
According to a recent survey by Nielsen, 1 in 3 working Singapore adults are not planning for retirement. This is alarming because many people have curated a list of “excuses” for not saving money. Rather than adding glistening fuel to the fire, this article will give you six good reasons why you must save for your future.
1. TO DANCE TO THE BEAT OF YOUR OWN DRUM
Planning for your golden future likely ensures that you covered your living arrangements for the rest of your life. You can move freely to beat of your own drum without worrying about the perceptions and rules of other people. Believe me when I say that living in someone else’s household robs you of privacy. Discretion is one of the fruits that you can reap from your prudence.
2. TO NOT RELY TOO MUCH ON THE CPF SAVINGS
Your Central Provident Fund account (or CPF Savings) was established to provide a basic safety net to cushion the minimum standard of living during your senior years. You must aim for financial independence and not fully rely on what this welfare system can bring.
3. TO HELP YOU DEAL WITH FINANCIAL HICCUPS
As your body’s reflex interplay, hiccups occur unexpectedly. This applies to your finances too. Regardless of the financial hiccups that you will face throughout your life, a secure nest will do wonders! It can help you cope and save you from bankruptcy.
4. TO MAINTAIN YOUR CURRENT LIFESTYLE
Whether you want to admit it or not, you have stable spending habits that you cannot do away from. It is difficult to maintain these habits if your financial resources are limited. More so, the limited funding can put you at risk of barely being able to afford the necessities. This is why you must set a realistic budget to fit your lifestyle.
5. TO BUFFER COSTS DUE TO UNFORESEEN ILLNESSES
Your body will continue to deteriorate with age. Unless you find the “Fountain of Youth”, of course. Old age usually leads to elevated healthcare costs and unforeseen medical problems. Do not forget to plan for emergencies to support your Medisave account.
6. TO EARN THE COMPOUND INTEREST
Creating a bulk of savings ahead of time can help you earn the compound interest. Compound interest allows you to not only earn interest on your principal deposit, but also on any interest that is credited to your account. It helps your money to grow at an accelerating rate! The longer you keep your money invested, the greater the rate at which your initial investment produces returns.
Some Chinese parents that are steeped in Confucian values often see their children as the main source of retirement funds. This can be a stressful burden to carry, especially if you are a young adult struggling with multiple financial commitments. Therefore, I have devoted a considerable amount of time learning how to grow my parents’ retirement funds and minimise household expenses. So here are 4 ways that your parents can also grow their retirement savings.
Minimise Expenses Via Various Senior Citizen Perks
Image Credit: NTUC FairPrice
For a start, I examined how my parents can reduce their household expenditure. For instance, I recently learnt that NTUC FairPrice offers 3% discount to Pioneer Generation members every Monday. If your parents are not Pioneer Generation members, fret not as those over 60 years old enjoy a 2% discount every Tuesday as well. Similarly, if your parents are over 60 years old, they can also apply for senior citizen concession travel cards. This will entitle them to significant discounts on public transport compared to a usual adult fare card. These are all schemes that my mother can tap on from next year onwards.
For Singaporeans aged over 65, do not overlook the outstanding benefits that come with the Pioneer Generation Package. Amongst the various benefits, it provides subsidised medical and dental services at CHAS participating clinics. These subsidies should help to alleviate healthcare costs. If your parents are not aware of these schemes, you may like to inform and even assist them in the application of these concession cards. A little savings here and there will ultimately add up and go a long way to reduce the household’s daily expenses.
Grow Their Retirement Funds By Leaving Monies in their CPF Accounts
Ask any Singaporean or Permanent Resident and they will tell you that age 55 is a significant milestone in their lives. It is not so much about celebrating yet another year in their lives, but rather, it marks the day where they can dip their hands into the pot of gold that they have painstakingly built up during their working years. Yes, I am referring to the CPF. At age 55, CPF members can withdraw:
up to $5,000, or any balance in their Ordinary and Special Account savings above the Full Retirement Sum[1] (‘FRS’), whichever is higher; and
any Retirement Account savings (excludes any top-up monies, government grants, and interest earned) above the Basic Retirement Sum (‘BRS’) if accompanied by a sufficient property charge or For more information, please refer to CPF’s website.
The temptation is indeed great, but do pause for a second and have your parents assess whether they truly need the money at that juncture.
If your parents are over age 55, choosing to leave their monies in CPF ensures that:
They enjoy an additional 1% interest on the first $30,000 in their combined CPF balances. This is on top of the prevailing Retirement Account interest rate of 4% and the additional 1% interest on the first $60,000 of combined CPF balances applicable to all CPF members. This easily beats any existing interest rate offered by commercial banks. Moreover, the principal and interest are guaranteed by the government, a rock solid triple AAA rated institution.
Even if they do not withdraw any amount at 55 years old, they can still do so anytime later. Therefore, there is no hurry to decide on the withdrawal of excess funds.
Furthermore, your parents also have the option to start their CPF LIFE payouts later, up to age 70[2]. For each year deferred, their CPF LIFE monthly payouts may increase up to 7%,guaranteeing them a larger monthly payout thereafter. Therefore, if your parents are gainfully employed at that juncture, it may be a superior proposition to leave their monies with the CPF.
A good example would be my father- in-law. He turned 55 recently but chose not to withdraw the excess sum after setting aside the FRS. He realised that he would earn an interest rate that is higher than if he were to leave the excess sum under the fixed deposit schemes offered by commercial banks. This is a very prudent decision that will add to his retirement funds.
Grow Their Retirement Funds With Silver Housing Bonus
Some retiring parents face the problem of being cash-poor but asset-rich. They have insufficient retirement funds but may own a property that has appreciated substantially in capital value. The government has introduced the Silver Housing Bonus to incentivise this group of people to unlock the value of their property and to ensure members have a lifelong income. It was introduced to help lower-income elderly households supplement their retirement funds when they “right-size” their flats. Eligible households can receive up to $20,000 cash bonus when the net sales proceeds are used to top up the CPF Retirement Account.
This policy is an attractive option for parents whose children have all left the nest and gone on to set up their respective homes. The need for a big house no longer exists. Therefore, it may be a practical option to downgrade to a smaller house in order to receive the $20,000 cash bonus from Silver Housing Bonus, as well as save on utilities, maintenance and conservancy fees at the same time.
For those who are not keen to “right-size” their flats out of sentimental value, there is another way to unlock the value of their property. By participating in the Lease Buyback Scheme, your parents can receive a stream of income to add to their retirement funds while continuing to stay in the property.
Claim Tax Relief Via The Retirement Sum Topping-Up Scheme (‘RSTU’)
For young adults who have been giving their parents a monthly cash stipend, do consider utilising the CPF Retirement Sum Topping-Up Scheme (‘RSTU’) instead. That is because you may be eligible to receive tax relief and reduce your income tax expense. Do note that the amount of tax relief that you enjoy is the amount of cash that you have contributed to your parents’ Special Accounts or Retirement Accounts (for parents above 55 year old), capped at S$7,000 per annum. This tax relief is applicable only if your recipient’s Retirement Account has not exceeded the current FRS. Cash top-ups beyond the current Full Retirement Sum will not be eligible for tax relief.
Therefore, by depositing cash into your parents’ CPF accounts via the RSTU, you fulfill your duty as a filial child and also receive tax relief! That is killing 2 birds with one stone.
In all honesty, I confess that this is a difficult suggestion to broach. Most parents of that generation still prefer to see cold hard cash as part of their retirement funds. To bridge this gap, you may try to argue that:
If they have no urgent need for the monthly stipend that you are giving, contributing directly into their CPF accounts earns higher interest rates than what commercial banks give.
They can still withdraw up to S$5,000 from their CPF accounts from age 55.
They will be getting higher lifelong monthly income once they start their CPF LIFE payouts.
While the aforementioned all appear to be very objective advantages, my parents remain unconvinced till this day. That is because emotions often play a stronger role in their perspectives of money. For instance, my father sleeps more soundly if his pillow, rather than his CPF, is padded with his retirement funds. But I will continue to nag and hopefully my parents will switch sides one day. Talk about role reversal!
Conclusion
Despite the various ways to grow the retirement funds and minimise household expenses, you may have come to notice that my family and my wife’s family are at different ends of the spectrum. My father-in-law uses his financial literacy to take advantage of the various schemes available in CPF to grow the household’s retirement funds. On the other hand, I am doing my utmost to help my parents play “catch-up” in terms of retirement readiness. But as they say, better late than never.
A prosperous retirement is more than just attaining financial independence. It involves finding happiness and meaning in this fresh chapter of life as well as stretching your financial resources to aid your journey.
Here are the must-read publications if you are looking for ways to make the most of your remaining years:
1. “HOW TO MAKE YOUR MONEY LAST: THE INDISPENSABLE RETIREMENT GUIDE” BY JANE QUINN
Are you at the library right now? Check out the self-help books and other resources about retirement. You will notice that most of these books focus mainly on how to invest your money to create a potent retirement fund. The author’s experience supported this. Quinn once said: “I found books and websites on how to invest but practically nothing on how to prudently parcel your money out. If you take too little from savings, you’re depriving yourself of some of the comforts that you worked for. If you take too much, you’ll go broke.”
You see, spending your money wisely is just as important as building a nest. Find a balance between these elements by reading this book. Written in plain terms, this book explains how you can stretch your money once you are in retirement.
2. “THE NEW RULES OF RETIREMENT: STRATEGIES FOR A SECURE FUTURE” BY ROBERT CARLSON
For people who are far from the retiring age or who are in the earlier stages of retirement, this gem is perfect for you. It is dubbed to be a “global book” that seeks to help its readers to wrap their minds around the whole subject. It takes a realistic look at the diverse life patterns that are emerging in the retiring Baby Boomers in the recent years.
It includes chapters that educate you about managing your fund, avoiding scams, planning for long-term care, and more. These chapters are detailed and easy to read.
3. “HOW TO RETIRE HAPPY, WILD, AND FREE” BY ERNIE ZELINSKI
What makes this book shine above the rest is its Canadian humor and its focus on the non-monetary aspects of retirement. It encourages its readers to improve their physical, spiritual, and emotional well-being. It puts heavy emphasis on how to live during retirement. This is why the contents of the book are not only practical but also relevant.
4. “THE RETIRING MIND: HOW TO MAKE THE PSYCHOLOGICAL TRANSITION TO RETIREMENT” BY ROBERT DELAMONTAGNE
A Psychological transition to retirement entails dealing with the emotional stress that comes with this significant milestone. A substantial part of the book is dedicated to finding the reader’s inner being to create a fulfilling life and to enhance personal relationships. Dr. Delamontagne helps us to understand our personality types as it influences how we grow toward the next stage. These nuggets of knowledge are backed by his personal experiences.
5. “WHAT COLOR IS YOUR PARACHUTE? (FOR RETIREMENT: 2ND EDITION)” BY JOHN NELSON & RICHARD BOLLES
Learn about the wide array of variables that are involved in retirement as this book provides you with useful guidelines on how to be healthy, happy, and successful. There are worksheets and exercises inside for hands-on or practical learning.
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Ultimately, the authors view retirement as a crucial stage in life and not just an event that occurs when you stop working.
It is no secret that Singaporean and expat workers have to face a higher cost of living compared to other cities in the world. In order to cultivate a sufficient retirement fund, these employees have to save nine years longer than the preceding generations. This information is according to the recent HSBC report that included 1,008 Singaporeans who are either working or retired.
Findings in “HSBC’s Future Of Retirement: Generations And Journeys” report showed that the average Singaporean begins saving for retirement at age 32 and continues it for another 29 years. Simple arithmetic will tell you that the previous generations of Singaporeans used to save at an average of 20 years.
Despite having the advantage of saving for a longer period of time, 41% of the participants wished that they had started to save earlier. This tone was supported by the 38% of the participants who stopped saving money due to several difficulties.
Mr Matthew Colebrook, the head of retail banking and wealth management in HSBC Bank Singapore, highlighted that: “in many instances, life events are also getting in the way of setting aside money earlier or in a consistent manner.” This is one of the significant roadblocks that keep Singapore workers from maximizing their retirement fund.
Another roadblock that is worth mentioning is the “tunnel vision” that Singaporeans apply when investing. Often they exclude other forms of assets and focus on cash savings and properties. In fact, the report found that 21% of Singaporeans anticipate that selling or downsizing a property can help them fund their retirement.
Mr. Colebrook made another potent statement concerning this tunnel vision. According to him, “all asset classes’ performance will rise and fall as the current softening of the Singapore property market and low deposit rate environment show us. This speaks volumes for why it is important to seek diversification in a savings plan.”
To gain information about the diversification of a retirement plan as well as other strategies to grow your wealth, you must educate yourself or even seek the help of a financial professional. A financial professional can help tailorize a strategy that suits your personality and lifestyle the best.
