Supplement your retirement income and retire early

In The State of Retirement in Singapore survey conducted by Great Eastern earlier this year, it was shared that among retirees in Singapore who did not plan for their retirement and depended on a monthly retirement income of S$1,200, they barely met their basic monthly expenses. On average, they were only left with about S$30 at the end of each month.

In the same survey, it was also shared that about 45% of retirees regretted not planning ahead for their retirement, while 60% regretted how they had planned their retirement on hindsight.

For those who had planned for their retirement, it came as no surprise that they were generally doing better during the golden years of their lives. Retirees who started planning before the age of 50 had about S$625 extra each month to spend on unplanned expenses.

The result here is pretty clear. If we want to be in a better financial position during our retirement, we need to be planning for it as early as possible.

CPF LIFE Provides A Basic Income While Payout Commences Only From Age 65

When it comes to retirement planning in Singapore, the first thing that comes to our mind is CPF LIFE. CPF LIFE is Singapore’s retirement scheme which serves as the foundation of Singaporeans’ retirement planning that provides lifelong payouts to Singaporeans and Permanent Residents from age 65. Monthly payouts are based on how much individuals have set aside as CPF LIFE Premiums, as well as the plan he/she chooses. If there is a need for more, there are other retirement insurance products available to consider layering on. 

One limitation of CPF LIFE is that payout can only commence from age 65 onwards. This means that for anyone who is planning towards an early retirement (say age 56), CPF LIFE won’t be able to provide us with the monthly payouts we need. However, you still have the option to tap on withdrawable Ordinary and Special Account savings* if you wish to fund for some of your expenses for an early retirement.

Furthermore, CPF LIFE payouts are capped at the Enhanced Retirement Sum (ERS), which is S$279,000^† as of 2021 and revised each year. If we set aside this amount at age 55, we will receive a monthly lifelong payout of S$2,080 to S$2,230 from age 65 onwards^†. You can have the option to top up the difference in your Retirement Account and ERS whenever the latter is revised such that your CPF Life payouts can increase accordingly. 

Retirement Insurance Products Allow Us To Start Receiving Retirement Income Earlier

For those looking to receive retirement income at an earlier age, we can plan towards an early retirement by purchasing a retirement insurance product such as the GREAT Retire Income. Offered by Great Eastern, this is a participating endowment plan that provides us with a cash payout plus a potential cash bonus every month from our selected retirement age.

As policyholders, we can decide on the premium term, retirement age, and how long we want to receive our payouts. What’s more, we are protected against Death, Total & Permanent Disability^‡ and Terminal Illness.

For example, a 35-year-old male who purchases the GREAT Retire Income plan can choose a five-year premium term with an annual premium of S$4,800. In total, the premium paid over 5 years would be S$24,000.

To support his early retirement at age 56, he can choose a 10-year payout period which gives him a monthly payout of about S$471.87^§ from age 56 onwards till 66. After that, the individual can rely on his CPF LIFE payouts for retirement income.

One misconception to avoid when entering the retirement phase of our lives is to assume that our options are limited to

1) an early retirement where we leave the workplace entirely or to

2) continue working in our full-time job for as long as we can.

This isn’t true. There is also a middle ground that we can (and should) consider – working reduced hours.

This option is, in fact, one that I frequently observed among some of the older people around me. For example, my mom transited from working full-time to a part-time role for a couple of years before leaving the workforce altogether. She did that because while she needed more time to help out with family matters, our family wasn’t financially prepared yet for her to stop working entirely.

Some other people that I know who are not keen on the daily grind of a full-time job have likewise opted for part-time work. Doing so gives them the time they need to pursue what they want, without forgoing an income completely.

For those who prefer to enter retirement in a phased approach, instead of going from a full-time job to becoming fully-retired immediately, the GREAT Retire Income plan can provide us with additional income to supplement our salaries when we work reduced hours.

Retirement Insurance Products Can Increase Our Retirement Income And Allow Us To Enjoy A More Comfortable Retirement

Besides an early retirement, the GREAT Retire Income plan also help us increase our retirement income.

Even if we have already set aside the Enhanced Retirement Sum, which gives us $$2,080 to S$2,230 each month from age 65 onwards, we can also supplement our retirement income with the GREAT Retire Income plan.

A 35-year-old male who purchases the GREAT Retire Income plan can choose a five year premium term with a monthly premium of $400^ǁ. In total, he pays S$24,000 over five years.

From age 66 onwards, he chooses to receive a monthly retirement income over the next 20 years. This gives him a monthly payout of about S$438.38^¶ from age 66 onwards until he reaches the age of 86.

For the GREAT Retire Income plan, we can choose between a payout period of 10 or 20 years. Furthermore, the plan also provides additional income for disability if we can’t perform two or more of the six Activities of Daily Living (ADLs) during the payout period.

If we prefer the payout period to be lifelong, we can opt for the GREAT Lifetime Payout, a retirement income plan that provides us with a lifetime monthly payout starting from the 4th policy anniversary for as long as we live.

Regardless of whether we are working towards an early retirement, or choosing to increase the payout that we can receive during retirement, retirement insurance products such as the GREAT Retire Income and the GREAT Lifetime Payout are options to complement our CPF LIFE payouts, rather than to replace it.

The key strength of these products lies in their flexibility and how the products can be designed to suit various types of retirement plans. Through these retirement insurance products, we can choose how long we want the premium terms to be, when the retirement payouts should commence, and how long the payout period should be.

If you are keen to find out more about these products, do check out the respective links for these products here - GREAT Retire Income, GREAT Lifetime Payout– or get in touch with your Great Eastern’s Financial Representatives.

#Lifeproof your financial freedom, not just your retirement.

Footnotes:

^* https://www.cpf.gov.sg/member/infohub/educational-resources/heres-what-cpf-members-are-doing-with-their-cash-withdrawals-after-age-55

^† https://www.cpf.gov.sg/member/faq/retirement-income/general-information-on-retirement/what-are-the-basic-retirement-sum--brs---full-retirement-sum--fr

^‡ Coverage for Presumptive Total and Permanent Disability (TPD) is only applicable up till Policy Anniversary where Life Assured reaches the selected retirement age, while coverage for other forms of TPD is up till Policy Anniversary which the Life Assured is age 65 next birthday or when the Life Assured reaches the selected retirement age, whichever is earlier. Presumptive TPD refers to a state of incapacity which is total and permanent and takes the form of total and irrecoverable loss of:

(a) the sight in both eyes;
(b) the use of two limbs at or above the wrist or ankle; or
(c) the sight in one eye and the use of one limb at or above the wrist or ankle.

Please refer to the product summary for details on other forms of TPD.

All figures in the above illustration are based on IIRR of the participating fund at 4.25% p.a. and are subject to rounding.

^§The figure comprises guaranteed and non-guaranteed benefits. The non-guaranteed benefit is illustrated based on the assumption that the Illustrated Investment Rate of Return (IIRR) of the participating fund is at 4.25% p.a. and is subject to rounding. Based on IIRR of 3.00% p.a., the monthly payouts will be S$351.40.

^ǁ This figure is rounded down to the nearest hundred. Please refer to the policy illustration for exact premium amount.

^¶ The figure comprises guaranteed and non-guaranteed benefits. The non-guaranteed benefit is illustrated based on the assumption that the Illustrated Investment Rate of Return (IIRR) of the participating fund is at 4.25% p.a. and is subject to rounding. Based on IIRR of 3.00% p.a., the monthly payouts will be S$283.46.

All ages specified refer to age next birthday.

All figures used are for illustrative purposes only and are subject to rounding.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

The above is for general information only. It is not a contract of insurance. The precise terms and conditions of this insurance plan are specified in the policy contract.

As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid.

You may wish to seek advice from a financial adviser before making a commitment to purchase this product. If you choose not to seek advice from a financial adviser, you should consider whether this product is suitable for you.

Protected up to specified limits by SDIC.

Information correct as at 9 December 2021.

Disclosure: This article is written in collaboration with Dollar&Sense.