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Retirement planning in Singapore (2023)

The Singapore Budget 2023 has introduced enhanced measures to help middle and lower-income Singaporeans with cost-of-living concerns.

How the Singapore Budget 2023 will Affect Your Retirement Planning

For instance, those who are above 21 and have an annual income below $100,000 will receive an additional cost-of-living special payment of between $200 and $400 in June. All Singaporean households will also get another $300 in CDC vouchers in January 2024. Additionally, those who are looking to expand their families will enjoy more financial support, with the Baby Bonus cash gift being increased by $3,000, and contributions to the Child Development Account being increased.

For those planning to have a child next year, it’s important to note that the Working Mother’s Child Relief will move from a percentage of the mother’s earned income to a fixed dollar relief system. This means that higher-income women with children born from January 2024 will receive a lower amount of tax relief.

Furthermore, higher-income workers and older workers will soon experience higher CPF contributions. The CPF monthly wage ceiling will be increased from $6,000 to $8,000 over four years, which means that workers earning more than $6,000 will experience a lower take-home pay, but more contributions will be going into their CPF each month.

It is worth noting that senior workers’ CPF contribution rates will also increase, in line with the Tripartite Workgroup for Older Workers’ recommendations for total CPF contributions for workers aged 55 to 60 to be eventually raised to 37%. Additionally, platform workers aged below 30 will start to receive CPF contributions from their platform companies to their Ordinary and Special Accounts from late 2022.

Retirement Planning in Singapore

The increase in life expectancy around the world is one of the positive effects of better healthcare and improvements in quality of life. Singapore has one of the highest life expectancies in the world. However, the surging inflation is exposing the widening gaps in retirement adequacy, causing a waning sense of confidence among Singaporeans in their ability to retire well. The Endowus Retirement Report showed that the percentage of those in the mid-high income bracket who are not confident about retirement adequacy has jumped from 24% to 42% in just one year.

A sustained increase in long-term trend inflation from 1% to 3% will cause a 45.8% fall in retirement savings over thirty years, and inflation at 3% will reduce purchasing power by almost 60%. Despite this, 48% of Singaporeans do not invest their savings to overcome inflation, and many prefer options that yield lower returns than inflation, such as Singapore Savings Bonds, T-bills, and bank fixed deposits. However, platforms such as Endowus offer short-term cash management accounts that provide daily liquidity and higher yields while continuing to allow investors to benefit from rising interest rates that are reflected in the funds over time.

Many Singaporeans are currently worried about whether they will have enough money to retire comfortably. This is largely due to high levels of inflation and uncertainty in the market. Surprisingly, inflation has had a greater impact on people’s confidence than even the Covid-19 pandemic. While the pandemic caused job losses for many, only 37% of Singaporeans were concerned about their retirement savings. However, within a year, this number had risen to 42%.

Despite this, Singaporeans have varying views on retirement planning. While some are proactive in setting aside money for their future, others may not be as prepared or may lack confidence in their retirement adequacy. Rising inflation has further exacerbated concerns about being financially secure in retirement, as it can significantly erode the value of savings over time.

Income and Investments in Singapore

According to the Endowus Retirement Report, which surveyed Singaporeans across income brackets, those in the mid-high income bracket experienced the biggest loss in confidence in their retirement adequacy, with 42% expressing uncertainty compared to 24% a year prior. Additionally, 45% of respondents in the Endowus Wealth Insights 2022 report cited rising costs of living as their top financial concern for the year ahead.

Despite these concerns, not all Singaporeans are taking action to combat inflation and grow their retirement savings. The same report found that 48% of those surveyed do not invest their savings to overcome inflation, and many prefer lower-yield options such as Singapore Savings Bonds, T-bills, and bank fixed deposits.

A lack of understanding about investing in an inflationary environment may also contribute to muted investment interest, with less than half of respondents in the Endowus Retirement Report indicating clarity on which asset class and investments work well during high inflation.

Overall, it is crucial for Singaporeans to take a holistic approach to retirement planning, including setting aside enough money for retirement, growing savings meaningfully through investments, and making use of tax relief schemes.

Despite the fact that inflation reduces the value of retirement savings, more than half of Singaporeans are still not investing their savings. Among those who do invest, many are choosing options that are unlikely to provide significant protection against inflation.

By 2035, one in three Singaporeans will be aged 65 or older, and life expectancy is on the rise. However, living longer is not necessarily a good thing if retirees don’t have enough income and savings to live comfortably. With inflation at record highs, retirement adequacy has become a major concern, especially among those in the middle-income brackets. Many are reassessing their finances and retirement plans as rising costs and declining real returns take their toll.

The rising cost of living is the top concern for those living in Singapore, with 45% of them saying that inflation is their biggest financial worry for the year ahead. As inflation continues to stay stubbornly high, their concerns are not unfounded. Headline inflation in Singapore has increased sharply to above 7% as of Q3 2022, after a decade low of 1%.

How Inflation Affects Retirement Planning in Singapore

Inflation erodes retirement savings, and a sustained increase from 1% to 3% over the long term will lead to a 45.8% decrease in retirement savings over thirty years. This cost escalation and declining purchasing power make it even more important for Singaporeans to not only save enough money for retirement but also grow it meaningfully through investments. However, 52% of Singaporeans still do not invest their savings, and many prefer options that yield lower returns than inflation, such as Singapore Savings Bonds (SSB) and bank fixed deposits.

The best long-term solution to inflation is to take a long-term view of retirement planning and investing. Although the current market downturn and negative returns may be unnerving, the long-term empirical evidence shows that investing on a regular basis over a long period of beyond 15 years would rarely lose you money. It is essential to remain disciplined and dedicated to your long-term and goal-based investment plans.

Singaporeans can also make better use of tax relief schemes, such as cash top-ups and CPF transfers under the Retirement Sum Topping Up Scheme, and the Supplementary Retirement Scheme (SRS) top-up, to save on taxes and better prepare for retirement. There is a lack of understanding among Singaporeans about which asset class and investments work well during high inflation. Therefore, it is essential to take a holistic approach to growing and managing long-term wealth.

More Singaporeans today are concerned about retirement adequacy this year than the previous year. In particular, middle to middle-high-income households are signaling a greater loss of confidence, with the most significant increase in respondents with retirement uncertainty coming from the mid-high household income bracket. This is due to rising inflation and GST hikes, which leaves middle-income Singaporeans to contend with much of the cost of living pressures themselves.

To better plan for retirement, middle-income Singaporeans should make better use of tax relief schemes, including CPF transfers and Supplementary Retirement Scheme top-ups. The report also shows that young Singaporeans should be wary of lifestyle creep, with private property and car prices increasing by 9.3% and 14.4% in 2021, respectively whilst millennials are less likely to rely on CPF payouts for retirement and are more likely to have their own financial plans, preferring lower-cost, self-directed options provided by digital wealth platforms.

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