Why it is critical to have lifelong income when you retire
Growing your wealth through investment may cushion you against price increases due to inflation but a good back-up plan is still critical because all investments carry risks.
There are just too many cautionary tales about people who lose their life savings when their investments go belly up in downturns.
It therefore pays to plan for a decent amount of cash reserve and a stable income source that continues to pay you for the rest of your life so that you can have a good retirement even when the world is in turmoil.
It is hard to look for a stable income source because all such products in the market are expensive. Moreover, like other investments, they are not guaranteed and the returns can dwindle in bad times.
This is probably why many savvy Singaporeans rely on their CPF Life monthly payouts as a solid financial defence as this income stream will never run dry and will last a lifetime.
Frankly, it is wise for every citizen to take advantage of the national annuity scheme as its return, which is guaranteed by the Government, is unmatched dollar for dollar.
Moreover, the scheme is within reach of most working adults, even at its highest tier, because they have over three decades to plan for this.
Many people have the wrong idea that CPF Life does not pay well because they are misinformed by people who do not save for it in the first place.
The number speaks for itself – those who set aside $298,200 when they hit 55 this year will get $2,370 monthly when they turn 65. If they continue to put over $10,000 annually into the scheme for the next few years, the monthly sum can grow to about $2,700.
This means that in a year, the annual income from CPF Life alone can be up to $32,000 per person, or $64,000 for couples who plan together.
Here are three good reasons why everyone should aspire to plan for such an income.
Unexpected expenses
Inflation is not the most scary thing that can derail your retirement plan. Instead, your nightmare can begin when the roof literally falls on your head and your home badly needs a renovation.
Many people never factor in such hefty expenses, which can wipe out their savings, especially if they live in private housing.
Almost every household appliance will need to be replaced in time and most people forget about this because such expenses are no big deal when you are still working.
But when you are retired, every big-ticket item will reduce your savings, unless you get a monthly retirement income.
Healthcare costs
One of life’s ironies is that medical insurance is affordable when you are young, working and healthy but it becomes a financial burden in old age, when you are hard-pressed to pay for it.
Private hospitalisation insurance costs about $1,000 annually for many young working adults, but the premium will gradually increase as they become older.
Many people don’t realise that such plans can cost $10,000 to $20,000 annually the moment they are in their 70s and 80s.
While it is not the end of the world if you don’t have such plans, you can still afford to have comfort and peace of mind in old age if you have a good lifelong income that can pay for such a policy without you having to dip too much into your savings.
Fun retirement
Inflation should not be main reason to start planning for the future. After all, where’s the fun in just being able to buy the same things you can afford now but at a higher price in future.
You make plans so that you can do the things that you cannot do now, such as being able to travel and live overseas for longer periods since you are retired.
If you and your spouse get decent payouts every month, such outings will be more enjoyable because you can save for such trips from the payouts alone, without drawing on your savings.
This reason should be incentive enough to ensure you do not miss out on the chance to secure the best lifelong income deal that you are entitled to.
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