If You Are 45 Years Old And Plan To Retire In 15 Years, Are You Ready?

When you sit down to plan how you will pay your expenses after you retire, one of the most important questions that you need to address is “How many years should I budget for?” Should your retirement funds last for 20 years or 30? Or is it necessary to plan for even longer?

Consider the example of Jeanne Calment, a Frenchwoman who entered into a reverse mortgage with her notary public, Andre-Francois Raffray. When Ms Calment was 90 years old, she sold her apartment “en viager” or “for life” to Mr Raffray. Under the arrangement, she would receive the equivalent of about US$500 from Mr Raffray every month for as long as she lived. When she died, the apartment would be transferred to the buyer.

The 47-year-old Andre-Francois Raffray thought he had a great deal. After all, how long could the old woman last? Thirty years later, when Andre-Francois was 77, he died. Under the terms of the reverse mortgage, Mr Raffray’s heirs had to continue the monthly payments. Jeanne Calment died three years later at the age of 123 after having collected over US$184,000 in monthly payments.

Of course, most of us can’t expect to live as long as Ms Calment. But it is advisable to plan for an extended retired life. At 83.1 years, the life expectancy of Singaporeans is the third-highest in the world. Only the Japanese and the Swiss can expect to live longer.

But remember that 83.1 years is only the average. You could live much longer than that. Consider the fact that in 1990, there were only 50 people in Singapore who were over the age of 100. According to a press report, there are over 1,000 centenarians today.

How much money will you need in retirement?

The first step that you need to take is to calculate the sum that you will need to lead a comfortable retired life. To get an idea about this, here are some questions that you may need to ask yourself:

⇨ How much will you need for your monthly expenses?

⇨ Have you created an emergency fund to take care of unforeseen expenses?

⇨ Do you have adequate health insurance cover?

⇨ Is there anyone who is financially dependent upon you?

When you are conducting this exercise, remember to take inflation into account. If you are 45 years old and live to be 85, you can be sure that the value of the Singapore dollar will depreciate substantially over that period.

How much will the value of the dollar fall by? That’s hard to say, but the inflation rate in the past can give you some indication.

Singapore: Inflation rate from 2012 to 2022
(actual up to 2017 and projections for 2018-22)

Source: Statista

Carry out a review of the amount that you have saved for your retirement. How much do you have in stocks, unit trusts, bank deposits, and your CPF account? What is the return that these investments yield? Conducting this exercise will tell you where you currently stand.

Now, you can begin calculating the actual amount that you will need every month after you retire. While it is possible to write down the figures on a piece of paper or enter them into an Excel spreadsheet, it would be simpler to use a “retirement calculator.”

Here are two retirement calculators that you may find useful:

⇨ Central Provident Fund Board Retirement Calculator – enter your age, your desired income in your retirement years, the number of years that you want your funds to last, and some other details. The calculator also takes your expected expenditure and current savings into account.

After you provide all the details that are requested, you will receive information about the amount that you need to accumulate to meet your targeted level of post-retirement income.

⇨ Do-It-Your-Way-Insurance Retirement Income Calculator – this calculator is more straightforward to use. It will take you just a few seconds to enter the required details. At the end of the exercise, you will be able to see your inflation-adjusted retirement budget as well as the shortfall/surplus. With this information in hand, you will be in a much better position to plan your retirement finances.

A brief guide to retirement income products

Singapore’s insurance companies offer a host of different retirement income plans that can provide you with a steady stream of income.

What exactly is a retirement income product and how does it work? You are required to pay a premium amount to the insurance company for a period that may range from 5 years to 25 years. Plans that allow payment of a single premium are also available. Subsequently, these savings and investment plans provide you with a fixed or variable income after a specific number of years.

There are several types of retirement income products that you can choose from:

Retirement income products that offer different payouts

You can select from three options:

⇨ Variable income amount – the payout that you receive will have a guaranteed amount as well as a non-guaranteed amount.

⇨ Fixed income amount – you will receive a predictable stream of income. This can help you to plan your budget accurately.

⇨ Increasing income amount – over the years, the payout will increase. This option will provide a cushion against inflation.

Retirement income products where the duration of payout is different

There are two options to choose from:

⇨ You will receive a payout for a fixed number of years – this is a good option only if you have other sources to fall back on after the fixed period of payouts is over.

⇨ You will receive a payout for your “entire life” – remember that “entire life” usually means till age 99.

Don’t forget your insurance needs

When you are planning your retirement finances, there is one other area that requires your attention. Do you have an adequate level of health insurance?

In your 70s and 80s, you may need to spend increasing amounts on healthcare and hospitalisation. It’s essential to purchase an adequate level of insurance to take care of your hospital bills and, in the event you need it, your long-term care.

Medical costs can be prohibitively expensive, and if you don’t carry an adequate level of health insurance, they can quickly eat up your retirement savings.

It is essential to compare the insurance products and retirement income products on an online comparison portal, like DIY Insurance, before you choose to purchase anything. You can check out their website here.