Preparing for a rewarding retirement

By Lorna Tan

If you’ve only got a minute:

• CPF Retirement Sums provide guidance for a basic retirement. For those who have higher aspirations to secure a comfortable retirement, DBS’s latest research report recommends a retirement nest egg between S$550,000 and S$1.3 million (can be supplemented with CPF savings) as an appropriate target to meet.
• The report reveals that expenditures change at different life stages, with significant declines upon reaching retirement.
• Given their longer time horizon, younger investors can consider allocating a larger portion to other asset classes, such as equities, for potentially higher returns.

By 2026, Singapore will be a super-aged society, where 21% or more than 1 in 5 of our population will be 65 and older. By 2030, 1 in 4 citizens will be aged 65 and above. As Singaporeans aim for a financially secure retirement, there are always questions about how much they will need and the steps to take.

The amount needed for retirement varies depending on individual circumstances and aspirations. The Central Provident Fund (CPF) Retirement Sums – particularly the Basic Retirement Sum (BRS) and Full Retirement Sum (FRS) have provided much guidance on how much a member can set aside from age 55 in their Retirement Account (RA) to achieve a basic retirement lifestyle.

The BRS provides monthly payouts in retirement to cover basic living needs, excluding rental expenses. The FRS – comprising cash or a mixture of property (up to half of your FRS) and cash – is an ideal point of reference of how much a member needs in his golden years. The Enhanced Retirement Sum (ERS) provides a higher monthly payout, making it suitable for those who might require more retirement income.

For those who have higher aspirations and aim to secure a comfortable retirement, DBS’s latest research report recommends a retirement nest egg between S$550,000 and S$1.3 million as an appropriate target to meet. The amount can be supplemented with our CPF annuity payouts, CPF savings and other income sources. This projection range assumes a 20-year drawdown from age 65, based on Singapore’s latest Household Expenditure Survey 2023 and assuming an annual inflation rate of 2.5%.  

Different retirement outcomes and lifestyles

The lower end should support individuals with more conservative needs, while the upper end is recommended for those with more aspirational wants.

This research paper “Life after work - Preparing for a rewarding retirement journey” is the 6th instalment in the DBS Financial Health Series that analysed aggregated and anonymised data insights from 2 million DBS retail customers as of June 2024, to shed light on the retirement adequacy of our customers.

Successful retirement planning is like running a marathon, so it is about growing your nest egg early, at a steady pace and having a well-executed strategy.

Here are the key findings and financial planning tips from the study.

Plan for sticky expenses during retirement, even as retirees’ median expenses are 62% lower than those aged 55-64.

A comparison of SingStat data and DBS customers reveals that expenditures change at different life stages, with significant declines upon reaching retirement (SingStat: -60%, DBS: -62%).

According to the 2023 Household Expenditure Survey, retiree households (those with non-working individuals aged 65 and over) spent an average of S$2,349 per month, approximately 40% of S$5,931 for all resident households, which translates to a 60% decline in expenses. The median expense patterns for DBS customers paints a similar picture. We noted that the median expense for retirees aged 65 and older is 62% lower than that of pre-retirees aged 55 to 64.

Comparison of median expenses across different age groups

A vast majority of retirees would have paid off their mortgages by then. While financial commitments decrease with age, you should still budget for sticky expenses such as healthcare costs and insurance needs.

CPF forms the foundation of retirement planning for most Singaporeans, of which median payouts cover more than half of retirees’ expenses.

As retirees generally enjoy a simpler, more financially manageable lifestyle with fewer obligations, the median CPF payout covers over half the median expenses of our retiree customers. Any remaining expenses can be supported by a well-planned nest egg and additional income sources, such as employment or investment income, ensuring financial comfort in retirement.

CPF payouts account for more than half of median retiree expense

CPF’s Lifelong Income For the Elderly (LIFE) national annuity scheme provides a crucial base for retirement income. As of 2023, 60% of all members have set aside the BRS. However, relying solely on CPF may not be enough if you have aspirational wants. Consider leveraging your CPF savings to enhance your retirement income, through contributing the FRS or ERS, and/or participating in the CPF Investment Scheme (CPFIS).

Build multiple passive income streams for your retirement.

As retirement nears, it is prudent to build multiple passive income streams and match them with your needs and wants, to ensure a more sustainable retirement. The more guaranteed and reliable income flows like CPF LIFE payouts can be used to meet your needs while the more variable income flows may fund your wants.

Having a portion invested in equities – even during your golden years - can provide potentially higher returns to meet more ambitious retirement goals. The optimal asset allocation and product solutions will depend on your financial situation, risk profile and time horizon.

Flooring Strategy

Another option is to monetise property through rental, lease buy-back and/or home equity products. By ensuring your essential needs are always met and using variable income wisely for your lifestyle wants, you can maintain a balanced, sustainable withdrawal plan.

More customers are actively managing their monies.

Close to 1 million customers actively invest and insure with DBS/POSB, with many putting aside a fixed sum each month to grow their wealth. For example, we saw a year-on-year doubling of the number of Regular Savings Plan (RSP) investments into DBS’s robo-advisory platform digiPortfolio, highlighting a rising trend among customers looking to invest their monies in quality assets and leverage the power of compounding to grow their wealth. We found that customers aged between 24 and 44 allocate close to 15% to 17% of their salaries into investments, while those between 45 and 64 invest close to 30% to 49% of their salaries.

Younger customers can do more given a high proportion of their investments tend to be in fixed income.

Even with smaller initial investments, younger people who start early benefit significantly. The report indicated that those aged 24 to 44 allocated 15% to 17% of their monthly salaries to investments, but over half went to fixed income (like T-bills and Singapore Savings Bonds), whose returns may not be sustainable. Given their longer time horizon, younger investors can consider allocating a larger portion to other asset classes, such as equities, for potentially higher returns.

This is because while past performance is not a guarantee of future returns, the market has always recovered from declines and provided patient investors who stay invested with positive returns over time. 

Reaching your retirement goals sooner, or setting even more ambitious ones, is achievable.

Our analysis shows that a 25-year-old aiming for a retirement goal between S$550,000 and S$1.3 million will need to invest between S$360 and S$850 per month, assuming an annual return of 5%. However, if you are unable to invest so much or would like to reach your retirement goals earlier, consider a portfolio with more equities to reap the magic of compounding over time and achieve potentially higher returns. Equities can include unit trusts, ETFs, well-diversified equity indices tracking funds, investment-linked insurance plans, and managed portfolios in DBS’s robo-advisory digiPortfolio.

Monthly investments to achieve different retirement targets by age

Historically, equities have averaged 10% annual returns over the past 15 years, which could help you achieve the same goal with less capital, or accelerate your progress. While equities are more volatile, consistent investing over a longer time horizon can mitigate this risk.

Vast majority (99.7%) of our retired customers can tap the hidden gold in their property to boost retirement coffers.

Most Singaporeans would have fully paid off their mortgages by the time they are 65, as we found that only about 0.3% of our retired customers have outstanding balances. Our high homeownership rate, along with property accounting for 44% of household wealth, provides retirees with a significant potential resource. Property ownership offers retirees the flexibility to generate passive income (via renting) or explore other monetisation strategies.

Singaporeans who have benefitted from the property boom in both public and private markets over the past decades are sitting on substantial gains that can be reaped, if needed. While some retirees view property as a legacy asset, those needing liquidity can explore options such as government lease buy-back schemes and home equity loan products to boost retirement funds.

Inculcate good money habits

Your current financial situation is essentially the sum of your money habits. Unlike goals, habits are about processes, the rituals that help us get better. To make lasting improvements, the solution lies in enhancing these positive money habits - Save, Protect, Grow, and Retire – over time.

The rules of thumb for each habit include: (i) Save regularly and build reserves for emergencies; (ii) adequate protection against large medical bills and loss of income; (iii) invest consistently while diversifying your portfolio with insurance and investment solutions; and (iv) generate multiple passive income streams for a more comfortable retirement.

Start small with achievable objectives and take it step-by-step to achieve financial wellness and retirement adequacy.

Ready to start?

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.