Singapore has the Central Provident Fund (CPF) which is a comprehensive social security system for individuals. In recent times, it had started new schemes which essentially helps one prepare for retirement in a sustainable way.
Take for example, CPF Life :https://www.cpf.gov.sg/Members/schemes/schemes/retirement/cpf-life.
CPF has 3 different accounts : Ordinary, for housing, education and investments purposes that currently pays 2.5% p.a. , Special account paying 4% p.a. which is for Retirement purposes and MediCare account for medical payments.
At the moment, you can contribute up to a ceiling of SGD $161,000 (called FRS – Full Retirement Sum) into your Special account. When you are 55, you can top it up to a maximum of $241,500 to participate in the ERS (Enhanced Retirement Scheme). You then have the option to leave this amount untouched till you are 65, upon which a monthly pension of $1,920 will begin and paid to you till you die. Excluding the interest compounding factor, the break even will be 10.5 years (when you reach 75). If something happens to you earlier, the residual value of the pension will be calculated and paid to your beneficiaries.
While the monthly payout amount may not look like much in the future when you are 65, do note that you have established a steady stream of pension income for the rest of your life – one less thing to worry about in your old age.
To help you bridge the difference between the FRS and ERS (241.5k vs 161k) when you hit 55, there is also another scheme called the SRS (Supplementary Retirement Scheme) : https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Special-tax-schemes/Supplementary-Retirement-Scheme–SRS-/SRS-contributions/
The SRS helps you to build up another retirement nest egg that ties in nicely with the ERS at 55. Currently, the maximum contribution per year to the SRS is $15,300 and this amount qualifies for tax relief during the fiscal year of contribution, reducing your taxable amount. The available SRS funds are allowed to be invested in various instruments like approved mutual funds. The only catch is that the money cannot be touched till 55, else there will be an early withdrawal penalty.
Besides the schemes I mentioned above, one should also start to build up investments to obtain passive income now.
In a previous blog, I did discuss about putting money into REITs : http://www.musingsofa50yearoldboy.com/planning-for-retirement-via-reits/
Life expectancy is crossing into the 80s as we are more aware of the benefits of healthy living and advances in medical care continue to prolong life. There is a sense of urgency to proactively plan for our retirement years now.
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