Most of us who read about wealth management would be familiar with both the CPF and the SRS. Both accounts are great (with their own humble limitations) to aid us towards a good retirement. Let’s look at the most ideal case where you reach your FRS (full retirement sum) and also the Best Case Situation for SRS. Assuming you draw down SRS at age of 65, this would mean that you will have the following retirement income in future.
FRS: $14,400 ~ $16,800 annually
SRS: $40,000 annually (for 10 years)
The combined income will be approximately $55,000 annually which is a decent income for retirement. Obviously, we have to think about replacing your SRS income after the 10 years. Longevity risk in Singapore is very real as the average mortality age for men is 83 and 88 for women.
However, your retirement will be thrown off course if you do not understand about the upcoming war.
Critical Illness: The Next War
Singapore’s Life Expectancy is 84.5 in 2017 compared with 76.1 years in 1990, an increase of 8.7 years. However, Healthy life expectancy (which assesses quality of health): 74.2 years in 2017 compared with 67.1 years in 1990, an increase of 7.2 years.
These scary statistics show us there is a big chance for us to be in POOR HEALTH at age 75. That is the point in time where our SRS account STOPS FEEDING US. This implies two terrible problems.
- You have less money to spend.
- Your health might not allow you to work.
We have less money to spend
Do you think retirement will be fun if you can only spend $1200 monthly? Obviously not! $1200 will probably allow you to live your life modestly! Let’s do a few simple calculations. Hopefully, you will not be needing to pay for rental or mortgage at that age.
You can read about the average cost of living in Singapore here or look at our estimates.
You go to the coffee shop to have breakfast to catch up with your friends. Breakfast would cost $3 (A usual kopi and bread). During lunch, you find it necessary to save money so you order mixed vegetable rice (2 vegetables and 1 meat) for $3. At night, you head over to the local zhichar store where you buy a sweet and sour fish rice for $5. During the weekends, you grab a few drinks with your friends over a better meal. Although you might take turns treating each other, the bill comes up to $100. At age of 75, your hospital insurance premium (public hospitalisation coverage) will be around $500 in cash (and increasing) every single month. Lastly, you buy groceries to fill up your kitchen.
| Food Expenditure: | $330 |
| Hangout with Friends: | $200 |
| Insurance: | $500 |
| Groceries: | $200 |
| Mobile Phone and Internet: | $100 |
| Electricity: | $100 |
Without anything else, this would cost us an average of $1400 a month by living a modest lifestyle. No holiday. No trip to Japan. No restaurants or cafes. Is that the lifestyle that you want?
Perhaps, you might say you have savings. How about the health supplements that you have been taking? How about the occasional pains that require you to go for a TCM massage? Or how about the organic food that you have to eat because it is supposed to ease the inflammation in your body?
These little things add up to impact your standard of living in your later years.
Our Health Might Not Allow Us To Work
The problem escalates when your health condition worsens. You might not be able to work to sustain your lifestyle after age 75. Firstly, Singapore’s reemployment age is at 67. 75 is a long stretch from 67.
Also when the quality of life falls, it could mean that this person is living with chronic diseases such as cardiovascular diseases, cancers, musculoskeletal disorders and mental disorders. As an employer, it will be very difficult to employ someone who could have the above conditions.
Conclusion
Even in the best scenario combining your CPF Life and SRS, there is still a risk of having inadequate income for retirement. As medical advance continues, the chances of you outliving your income continues to grow.
We wish that everyone gets themselves financially educated to see the risk ahead instead of being surprised by the risk in the years ahead. With some foresight, we can plan well into the future instead of worrying in the future.
Your journey starts now.
Longevity risk as it is very possible. We wish you a long life. We also wish you a healthy life.
Guest Writer: Chengkok, Sensei of Wealthdojo
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