STI: Can you AFFORD to retire?

Dec 18, 2004
Can you AFFORD to retire?
by Leong Chan Teik and Maria Almenoar

A LONG time ago, Mrs Lucy Lim and her husband dreamt of retiring in a terrace house they bought in Johor in 1995.

They pictured a languid lifestyle, affordable health care, occasional regional vacations and frequent visits across the Causeway to see their grandchildren, funded by an instant doubling of their savings when converted into ringgit.

But no more.

Their expectations and circumstances are greatly diminished today. All they hope for is to get by.

A catering business Mr Lim ventured into eight years ago upon retiring from his civil service job drained their savings.

Because of his age, he could not secure another job.

Their finances were dealt another brutal blow when the terrace house in Changi which they upgraded to in Singapore from a Simei HDB flat in 1995 tumbled in value.

Mrs Lim's 55th, and then 60th, birthday came and went, with no retirement celebrations in sight.

Today, at 62, with fast dwindling energy, she still stoically works as a personal assistant in a financial services company and plans to continue 'till I can't or am no longer wanted'.

She is part of a growing group of Singaporeans who are literally greying at the grindstone. They tap away at their keyboards with arthritic fingers and squint at their computer screens through bi-focals because they can ill afford to stop working.

As of June last year, 35,727 Singaporeans aged 65 and over were still employed, up from 22,699 a decade ago (1993), according to Ministry of Manpower statistics.

Of this lot, the June 2003 survey also showed up three trends:

The majority, or 35.7 per cent, worked as cleaners and in other related menial jobs. This means that their incomes will fade with their strength.

About 21 per cent held jobs in the service and sales industry, which means jobs such as salesmen and waiters, that, sadly, place a premium on youthful vigour.

Another 15 per cent were proprietors, managers and senior officials. This came as a surprise because this higher-earning group was most likely to have the financial means to retire. The survey, however, did not canvass information on their motivations for working.

But a fair guess, say financial planners and analysts, is that many of them were caught off-guard by an unrelentingly vicious spate of financial storms over the past seven years.

First, the Asian financial crisis in 1997 sparked a rout of the stock market and plunged the region into recession. Then the Nasdaq tanked with the bursting of the dot.com bubble in 2000. Shortly after came the Sept 11 terrorist attacks in 2001, which sent shock waves through stock markets worldwide.

Before things had a chance to look up, the Sars outbreak in early 2003 caused another recessionary relapse. Throughout these troubled times, people lost long-held jobs, had their wages sliced, diced and frozen, and personal bankruptcies climbed to record levels.

More woes struck as the value of homes - Singaporeans' all-time favourite investment tool - fell relentlessly. Today, they are still down by about a third from their 1996 historical peak.

These dire straits explain the dismal findings of a survey by Ngee Ann Polytechnic's School of Business | Accountancy in March last year.

Its survey of 1,140 people aged 40 to 59 years showed that only one in three felt they had enough to retire on. Another one in three planned to downgrade to a smaller home to make up for their looming shortfall in retirement funds.

Frighteningly, almost four in 10 said they were counting on luck, in the form of a Toto or 4D windfall, to bankroll their retirement.

Basically, they had no idea what they will live on in old age, just like security guard David Chung, 56.

Ten years ago, his electronics trading business at Sim Lim Square was booming.

'When the money was pouring in, I didn't really think about saving for retirement. I thought things wouldn't change,' confesses the bachelor, who lives with his sister in a four-room HDB flat in Sims Drive.

Today, working 12-hour days guarding a condominium for less than $1,000 a month leaves him 'hardly anything' to put away.

'I have to see how to get by day by day. Retirement? Can't afford even to think about it,' he sighs.

CPF not enough

ANOTHER indication of the nation's preparedness - or lack of - for old age can be found by a peek at their Central Provident Fund (CPF) balances.

These days, turning 55 is no longer cause for celebration for most. Gone are the handsome pay-outs as, according to the CPF Board, most Singaporeans have difficulty even meeting the minimum sum requirement of $84,500 when they turn 55.

That is the base level of CPF savings that has to be set aside to provide them with a very basic monthly income from age 62 onwards. Only savings in excess of that sum can be withdrawn at 55.

As of last year, only about 40 per cent of active CPF members who turned 55 met the minimum sum. Of these, slightly more than half had set aside no more than $40,000 and had to pledge their properties to make up the shortfall.

All in, it's a pretty grim picture.

Faced with mounting evidence that Singaporeans are setting themselves up for gloomy rather than golden years, the Government has decided to raise the $84,500 minimum sum bar in several steps.

By 2013, this will be raised to the tune of $120,000 (in 2003 dollars, which means it will be further adjusted upwards for inflation).

The bottomline message it is sending to Singaporeans is stark: Save more, spend less or retire poor.

But besides starting to save earlier, financial planners say that Singaporeans desperately need to know how to invest their money so it grows at a faster clip than just parking it in a 1 per cent per annum savings account.

Most have no clue. Unfortunately, Singapore Management University Associate Professor Benedict Koh notes the concept of financial planning caught on here only in recent years when organisations such as the Central Provident Fund Board, Monetary Authority of Singapore and the media began launching educational campaigns.

The co-author of Personal Financial Planning (Prentice Hall, 2000), who started a course on the topic in National University of Singapore (NUS) in 1995 because he saw many floundering at managing their money, says much more should be done to teach financial literacy in schools, universities and polytechnics.

Indeed, a survey of 1,000 Singaporeans who earn more than $2,000 a month done five years ago by the NUS and commissioned by Citibank found that most Singaporeans do not plan for their future simply because they don't know how.

Prof Koh laments: 'Many people work extremely hard to create wealth for their employers but neglect their own personal finances. They tend to just leave their money in savings account and struggle to keep up with inflation.'

But with more enlightenment and a little luck, he says they could pack up their jobs earlier with comfortable nest eggs, beefed up by stocks, unit trusts and insurance policies.

Even then, most Singaporeans badly need to revise their typically unreal expectations of retirement living. Ms Anne Tay, vice-president of wealth management at OCBC Bank, notes that most professionals 'refuse to believe' they will need at least $1 million to keep up their current lifestyles.

'For most, it's a case of forget $1 million - I don't even have $100,000. They ask you: How many people would have $1 million to retire on?' she recounts.

But the sobering reality is that $1 million in the bank only works out to $4,000 a month, or $2,000 each if shared by a couple, over 20 years of retirement, without even factoring in inflation. That is by no means extravagant, especially with rising medical costs today.

Grinding halt

AS SUCH, working well beyond the mandatory retirement age of 62 looks set to become the new norm.

Minister Mentor Lee Kuan Yew, for one, champions this trend because he feels that with a life expectancy of 82 today, 62 is too early to grind to a halt.

He revealed that the Cabinet had discussed this issue during a meeting last month and is now working out a scheme to enable more to work past 62, possibly at lower pay, so their skills and experience remain in circulation.

What was left unsaid is that besides benefiting one's psychological health, delaying retirement is also good for the pocket, as it will hopefully help raise tens or hundreds of thousands of dollars more for retirement.

That is why Mr Liaw Beng Teck, a university professor in Brunei for eight years and National Institute of Education teacher trainer for 16 years, continues writing educational books at 63.

'It's boring to stay home everyday. I like keeping busy. The extra money is also a bonus,' says the father of two who enjoys gardening, cooking and cycling.

In most developed Asian countries, gerontologists say Mr Liaw would be typical.

In South Korea, 53 per cent of the people in the 60 to 64 age category still hold jobs. Among Koreans above 65, about 29 per cent are employed.

In Japan, the figures are 55 per cent and 20 per cent, respectively. But in Singapore, it is just 25 per cent and 18 per cent, respectively.

Having to beaver away in one's doddering years is still viewed here as a pitiable exercise, which hints at earlier financial negligence. Many Singaporeans yelp with pain, rather than delight, at the prospect of working past 62, preferring to devote their dotage to doing something else, or nothing.

But that mindset has to change because staying at work is one positive way of ensuring active ageing.

At the least, it buys Singaporeans badly needed time to get their finances in order. Because, as Mr Chung knows, there is nothing worse than being near broke as retirement dawns, when it is too late to start life over again and save all those spent dollars.

 

What you need to do to avoid greying at the grind

START EARLY, LIKE NOW

The earlier you start, preferably as early as you join the workforce, the less you need to set aside every month.

For example, if the plan is to accumulate $1 million by age 65, you need only invest $846 a month from age 25. If you wait till 45, you need to put aside $2,726 a month.

In both cases, the investments are assumed to grow at 4 per cent a year - a rate of return which can be achieved by investing in, say, bonds and Real Estate Investment Trusts (Reits), according to financial planners.

LIFE IN PLASTIC IS NOT FANTASTIC

As American personal finance guru and debt hawk Suze Orman always says, every money-spending decision you make today has a huge impact on your future finances.

Yet, many people are 'flirting with financial suicide' by chalking up huge debts on their credit cards.

Credit card debt here has shot up from $662 million in August 1994 to $2.6 billion a decade later. Ditto the number of credit cards in the average Singaporean's wallet. The number of cards issued over that period has more than doubled from 1.4 million to 3.8 million.

LIVE LIKE THERE IS A TOMORROW

Settle for a modest home and car and fight the urge to upgrade incessantly.

Let's say you buy a three-room HDB flat at the age of 28. Seven years later, you upgrade to a five-roomer, about 40 sq m bigger.

The total mortgage you will pay - first for the three-room flat and then for the five-roomer - works out to about $399,000, including interest.

That means the cost of upgrading - the extra you forked out for more space - is, gasp, about $226,000, thanks to the higher purchase price of a bigger home and the interest costs on a bigger loan.

CHILDREN ARE NOT YOUR ATMs

Those counting on their offspring to maintain them financially in their retirement are headed for disappointment.

Singapore has one of the fastest ageing populations in Asia. Increased life expectancy is expected to impose undue financial strain on even the most filial and capable of children.

Children may find their resources stretched under the strain of supporting two generations of elders - their parents and grandparents.

The Central Provident Fund Board estimates that 10 economically active persons are supporting one elderly person.

By 2030, only 3.5 persons will be supporting one elderly person.