Planning for retirement income: Where will it come from?

For many of you in the workforce today, your salary may account for the bulk of the monthly income you need to pay for daily living expenses each month. Once you retire, and your monthly pay cheque disappears, you need to find alternative income sources to continue paying for your daily living expenses each month.

If you do not work on building your retirement income streams from an early age, it may become increasingly stressful to plan for it when you are older. Ultimately, your ability to retire on your terms may hinge on how successful you are in creating sustainable retirement income streams to replace your employment income.

To kickstart this exercise, you can consider these five diversified retirement income streams in your golden years and start building them today.

1. Properties

One of the biggest expenses and most significant stores of wealth for many in Singapore is their home. Once you retire, you can choose to right-size your home by tapping on the Silver Housing Bonus¹.

You can also choose to right-size your lease period, by selling a portion of your remaining lease back to HDB through the Lease Buyback Scheme².

Another way you can monetise your property is through rentals. Subject to any applicable restrictions or prohibitions, you can either rent out spare bedrooms that you have in your home or earn income through investment properties you own.

2. Investment Portfolio

Those who have ploughed their money into the financial markets can build an income stream either by liquidating a small part of their portfolio each year, or receive dividend income from investments such as stocks and/or REITs, and coupon payments from bonds.

Another important consideration when building an income stream comprising of equity and bonds is understanding your risk appetite. Avoid chasing riskier investments just because you are lured by the potential returns or dividends and coupons on offer. Remember that higher returns come with higher risk that you must be willing to take.

As you grow older, your ability to take on risk may diminish as well. You have a shorter runway to requiring your funds and may not be able to ride out market crashes to enjoy the upside. This is why you may want to consider shifting more assets into safer investments such as bonds or even topping up your CPF accounts as you age.

3. Continuing Work

Either through choice or a need, you can continue being a contributing member of Singapore’s economy with a full-time or part-time job. The statutory retirement age and the re-employment age will be increased to 65 years and 70 years respectively, by about 2030. This signifies the need to continue upskilling and working longer than we may have initially expected when we first joined the workforce.

Even though you may want to work longer, you can also plan for other income streams for your retirement needs. This is because when you retire is not always in your hands, and can happen either through retrenchment or ill-health.

The right job also promotes a healthier lifestyle by keeping your mind and body active. You may also dedicate your time to worthy charitable or community causes if you do not need the extra income.

4. Retirement plans

With increasing life expectancy in Singapore, the number of years you live in retirement may also rise. You can strengthen your retirement strategy by relying on an income stream provided by retirement plans you have invested in. By putting aside a regular sum of money or a lump sum during your working years, you can gradually build up the value of your retirement plan to pay you a regular income after you leave the workforce.

5. Family Support

While no one wants to burden their retirement on their children or other family members, it is another avenue to sustain yourself in retirement if you do not have the means to.

Just as you dedicated yourself to bringing them up, feeding them, clothing them and educating them, they will similarly want to be there for you. At the same time, you have to understand if they cannot contribute to your full needs, especially as they may have other financial commitments as well, such as a family of their own.

Another way to provide for your retirement is to put aside any inheritance from your parents or relatives you may have received towards boosting your retirement income – through any of the above methods.

Plan your retirement income sources early

There may be a tendency to procrastinate planning for your retirement income early in your career, as you may have more pressing financial concerns and think that it can wait being decades away.

The longer you kick this proverbial can down the road, the harder it may be to build your retirement income streams.

Speak to your Insurance Specialist or Relationship Manager to explore insurance options.

1: Refer to https://www.hdb.gov.sg/residential/living-in-an-hdb-flat/for-our-seniors/monetising-your-flat-for-retirement/ silver-housing-bonus for more details on the Silver Housing Bonus.

2: Refer to https://www.hdb.gov.sg/residential/living-in-an-hdb-flat/for-our-seniors/monetising-your-flat-for-retirement/ lease-buyback-scheme for more details on the Lease Buyback Scheme

Source: AIA Singapore Private Limited

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