SINGAPORE: With the rising cost of living, can Singaporeans solely rely on traditional retirement savings models like the Central Provident Fund (CPF), personal savings, and gratuity?
In another part of the world, CNBC reported that American workers also rely on traditional sources to fund their retirement: pensions, social security, and personal savings.
However, according to Sam Dogen, a Chinese American retiree at 34, founder of Financial Samurai and author of the Wall Street Journal bestseller Buy This, Not That: How To Spend Your Way To Wealth And Freedom” and the upcoming book Millionaire Milestones: Simple Steps to Seven Figures, to reach a comfortable retirement, you may have to reimagine what the model can look like.
He said, “You’re unlikely to be able to count on a pension. And you can’t count on Social Security. If it’s there — and it should be there — you can treat it as a bonus. You just have to count on yourself.”
Mr Dogen achieved Financial Independence Retire Early (FIRE) with his “three-legged stool”. It’s a model based on tax-advantaged savings, taxable investments, and an “X factor”, a skill he says you can teach others as a side hustle, which, he said. works for both early and traditional retirees.
But is this also true for Singaporeans who rely on the traditional retirement model of CPF, personal savings and gratuity? Or do Singaporeans really just have to count on themselves?
CPF, personal savings, and gratuity
CPF is a mandatory social security savings scheme that requires workers and employers to contribute a percentage of income to help citizens and permanent residents with retirement, healthcare, and housing.
Gratuity is the lump sum of money paid to employees as a form of appreciation for their long years of service to a company. However, while many companies offer gratuities, there is no legal obligation to do so.
When it comes to personal savings, while “Singaporeans are managing their debt and saving well”, according to OCBC head of group wealth management Tan Siew Lee, a 2023 OCBC survey said that many are not prepared for “rainy days”.
According to The Business Times, the survey found that respondents who saved at least 10 per cent of their salary dropped to 84 per cent from 91 per cent in 2022, with 53 per cent noting they don’t have at least six months’ salary in emergency funds, compared to just 46 per cent the previous year.
While OCBC’s 2024 survey found more Singaporeans have been investing and are on track with their investment goals, respondents who started making plans for retirement dropped to 54 per cent, down six percentage points from last year.
Rising costs and struggles of Singapore retirees
Recent reports also showed that many retirees in Singapore are facing more financial challenges than expected.
According to People Matters Global, a recent study from Sun Life Singapore revealed that 64 per cent of retirees are struggling with general living expenses, and 43 per cent are having trouble covering healthcare costs.
Even among retirees with higher incomes, 15 per cent reported being surprised by higher-than-expected expenses.
Although the Singapore government encourages saving through schemes like the CPF, these savings may not be enough for many retirees, especially for those who struggled to save in their earlier years.
Ho Jian Xiong, a financial services manager with AIA, pointed out that key expenses for retirees, such as housing, food, and healthcare, are expected to rise in the coming years.
He noted that Singapore’s ageing population also contributes to this financial strain, as more retirees compete for a limited number of healthcare facilities and social services.
He added, “Retiring in Singapore can be challenging due to the high cost of living, the lack of a social safety net, the ageing population, and the increasing retirement age.”
Singaporeans looking for alternative retirement options
Some Singaporeans are starting to look for alternative retirement solutions, including moving to places where the cost of living is lower.
A survey by SensingSG found that one in three Singaporeans desires to relocate to Johor Bahru (JB), Malaysia, after retirement due to its lower cost of living compared to Singapore.
The favourable exchange rate between the Singapore dollar and Malaysian ringgit allows retirees to stretch their savings further, making Johor Bahru an attractive option for those who want a more affordable and peaceful retirement.
However, other retiring Singaporeans continue to rely on selling their flats to fund their retirement, as previously noted by Rohith Murthy, who was appointed as MoneyHero Group’s new Chief Executive Officer in February this year. He noted this is the most common problem faced by Singaporean retirees.
While Singaporeans count on their flat as their source of retirement funds, flats may fail to appreciate and might not meet a retiree’s needs for the entirety of his or her retirement (usually planned to age 90).
As costs rise, Singaporeans too, may need to “count on themselves” when planning for a secure and comfortable retirement. /TISG
Read also: NTUC to extend retirement and re-employment ages ahead of national schedule
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