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5 minute read

3 Mistakes to Avoid When Planning Your Life After Retirement Age in Singapore

Planning for retirement may seem daunting, but you can bypass common mistakes with our retirement guide.

Life after retirement can be full of wonderful moments that you may have looked forward to for many years. There’s no set way you should live or the kind of lifestyle you should have in your silver years. With the greater freedom you have, you can take part in activities you’ve long looked forward to. You can even choose to work out of interest rather than just be driven by financial considerations. Whatever your choice of lifestyle may be, you’d want it to be as worry-free as possible. 

There are some common pitfalls retirees face. Let’s take a closer look at these mistakes and how you can avoid them to have an enjoyable and peaceful retirement:

1. Minimal financial planning

According to The Business Times, nearly 8 in 10 Singaporeans will underestimate their retirement amount by 31%. If not corrected, this will leave many retirement age individuals with no option but to rejoin the workforce, rely on family, or make compromises to their retirement lifestyle.

This underestimation is partly a consequence of a limited understanding of the financial world or their future expenses. As the dollar fluctuates in value, the amount that retirement-aged people will require to live off comfortably will also vary.

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The effect of inflation on retirement funds is especially important when we consider that for 92% of Singaporeans, bank deposits are the primary savings method with only 21% supplementing this nest egg with investments. With inflation continuing to progress, retirement-aged individuals will find themselves with money that doesn’t go as far as expected. In 2020, nearly one in three Singaporeans’ savings were negatively impacted. Over time, this will have a dramatic impact on cash or bank-secured nest egg.

One exception to this is the CPF retirement account which boasts a 6% interest rate. This more than keeps up with the average inflation of 1.56% over the past 20 years. Learning how to top up your CPF retirement account helps to grow your nest egg, but this method still has limited growth, especially if you’re starting late.

Investment tools are another effective way to grow your retirement savings. This may be intimidating for those who haven’t invested before, but with a range of high, medium, and low-risk options available, a little bit of education and financial planning can prevent a nasty surprise when retirement comes around.

For those planning for retirement, consulting with a financial advisor or becoming educated on common economic trends can be a small investment with huge payoffs. Developing a retirement strategy that accounts for how society will function in the future is key to enjoying retirement without stressing about money.

2. Underestimating medical costs

As we get older, medical costs will increase as the body requires more care. It is difficult to predict what your medical needs may be, but overestimating, rather than underestimating, will provide more security and peace of mind for your retirement.

Many retirement-aged individuals in Singapore will benefit from MediShield Life. However, do take note of any caps or limits of usage and changes from the pre-retirement Medishield costs. For example, MediShield covers public hospital visits and a portion of any day surgeries or medical procedures. For GP visits and private healthcare, retirees should plan to pay more out of pocket.

Additionally, between 60 and 65, the average retirement age in Singapore, the cost of MediShield goes from S$800 to S$1100 (before subsidies). From there, it increases with the maximum reaching S$2055 per annum for residents over 90 years old. These costs are subsidised, but retirees can plan ahead to factor in a rise in costs due to inflation.

Many private health insurance companies in Singapore offer integrated Shield plans to cater to your preferences. Private insurance will provide additional coverage for hospitalisation in A/B1-type wards in public and private hospitals. It also provides more flexibility in choosing a healthcare practitioner, rather than being assigned one. Those who prefer better amenities and a higher level of care will want to consider this option.

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3. Not creating a budget

Developing a budget when you plan for retirement can help navigate the above challenges more effectively. Without a budget, you will not know how much is enough for your lifestyle. The best way to create a budget is by looking at your current monthly and annual expenses. This will give you a good starting point for a retirement budget.

Start with living expenses. These will include utilities, healthcare, transport, housing, and groceries. You may need less funds in retirement as there are often fewer mouths to feed, your home may be paid off, and reduced costs associated with travel for work.

Other factors will increase your budget though. These include medical costs, leisure and cultural activities, any outstanding debts like a mortgage, and support you may provide for a loved one. Figure out what is essential and what you can live without. You may need to re-employ if you haven’t reached your goals by retirement or have re-evaluated your budget.

A budget only works if you’re realistic about your spending habits. If you’re not willing to give up fine dining once a week or monthly trips away, then make sure these are factored into your retirement plan. On the other hand, this could be a good opportunity to cut down on expenses like take-away in favour of healthier lifestyle options.

No matter how you set up your budget, make sure it is a realistic reflection of your goals for retirement living.

Plan your future

Effective retirement plans come down to making smart money decisions as early as possible. You don’t want to reach retirement age and start looking at your options; this should be on your mind early on. Simple steps like learning how to top up your CPF retirement fund and investing smartly can ensure you can enjoy your retirement without worrying about your finances.

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