The Decumulation Challenge

In the face of unprecedented change, the retirement landscape looks fraught with even more challenges. Future retirees will need to ensure they have access to retirement income that can comfortably provide for their essential needs, discretionary wants and unexpected costs.

It appears Singaporeans are doing a commendable job at the accumulation phase; although the same cannot be said when it comes to decumulation. In a 2019 edition of an annual retirement security index, it was found that “Singapore emerged the global top scorer in retirement finances, although it performed poorly for retirees’ quality of life and material well-being. As for the life expectancy indicator, Singapore moved up three spots to 4^th place.”¹

Many do not fully grasp the importance of mitigating longevity risk when they begin planning for retirement. Simply put: If you expect to live longer but have retired earlier, you may potentially outlive your nest egg. Take for example in countries with higher life expectancies such as South Korea and Japan, individuals continue to work beyond the retirement eligibility age to stave off longevity risk. In short, they stay in the workforce not just because they want to, but because they have to.

According to The Burden of Disease in Singapore 1990 to 2017 report, the average Singaporean is expected to live 74.2 years in good health. However, figures from the same study also revealed that that the average Singaporean would spend 10.6 years in ill health as at 2017, about 1.5 years longer than they did in 1990². Unforeseen critical illnesses and hefty medical expenses can put a devastating dent in even the most well-furnished nest egg. 

Aside from basic bread-and-butter issues, Singapore also performed poorly in the material well-being sub-index; ranking 32^nd out of 44 countries, three places down from 29^th in 2018. Whilst the quality of retirement differs for individuals, it is undeniable that the cost of living in Singapore is high and looks set to climb even higher.

In a qualitative study published in May 2019, researchers in Singapore gathered people aged 55 and above to talk about what they considered to be their “basic standard of living”, and through that, calculated that an individual aged 65 and above would require at least $1,379 a month to sustain this “basic standard of living”. A couple aged 65 and above would need $2,351.³

These pressing financial issues will be exacerbated by the country’s low fertility rates and replacement level. Depending on your grown-up children as a primary source of retirement income will not be entirely viable, as the worrying phenomenon of the “sandwiched generation” has arisen due to the financial responsibilities of the middle generation supporting and caring for both young children and their ageing parents.

Increased life expectancy and changing expectations of a golden retirement are definitely compelling reasons for you to start taking decumulation seriously. Reach out to me and I will be glad to offer you the solutions you seek.

Sources:

¹https://www.straitstimes.com/business/economy/singapore-is-top-for-retirement-finances-but-among-worst-in-the-world-for-retirees
²http://www.healthdata.org/sites/default/files/files/policy_report/2019/GBD_2017_Singapore_Report.pdf
³http://www.healthdata.org/sites/default/files/files/policy_report/2019/GBD_2017_Singapore_Report.pdfhttps://www.straitstimes.com/singapore/study-finds-1379-a-month-needed-to-meet-basic-living-standard-for-single-elderly