Retirement: Smell the roses – with an eye on income

PLANNING for retirement typically focuses almost exclusively on the financial aspects – committing to a portfolio of stocks and bonds and anticipating the impact of inflation and expenses.

For the fortunate and disciplined, the ducks may well line up for a worry-free and generally happy retirement. But even so, non-financial aspects may cause pangs of regret.

I spoke with more than a handful of retired friends to find out what they regarded as the best things they had done prior to ceasing work, and what they might have regretted. Their ages ranged from mid-60s to around 78. Some retired early in their 50s.

There is a major caveat, however. These friends are of the baby boomer generation, born between the 1950s and 1960s, and dubbed the “lucky” generation.

They have enjoyed decades of stable economic growth, low inflation, low interest rates and, best of all, opportunities to invest in property at low prices.

Today the investment backdrop has shifted. Geopolitical tensions are woven into the landscape. Inflation and interest rates look as if they could stay elevated.

Still, a discipline of saving, whether through a property investment or a portfolio of stocks and bonds, is likely to prove rewarding – as long as you have the means to stay invested through cycles.

Here are some insights they have shared.

Property and property

Not surprisingly, property was the most rewarding store of wealth for most, and was regarded as the best investment asset by far. My limited sample of friends persevered through several cycles, from the boom and sharp bust in the 1990s, to several years when residential real estate seemed to drift – only to be hit by the 2008 financial crisis. At least three of them benefited from windfalls from en-bloc sales.

While the timing of a property purchase is key, it is equally or even more important to have the means to maintain home loan instalments, even in periods when a flat may stand vacant for months, or rentals drop sharply.

The big question is whether residential property – which has appreciated strongly post-Covid – would yield a similar return arc in the future. Buyer stamp duties are now significantly higher for investment properties. Recent transaction trends appear to indicate that Singaporeans remain optimistic, even though prices slipped slightly in the second quarter.

Family support/retirement benefits

At least three friends benefited from inherited wealth. But family support was also more than financial for a friend who decades ago divorced her husband and returned to Singapore. With her two young sons, she moved in with her mother.

One former banker – whom I shall call Alice (not her real name) – benefited from a substantial retirement package, which she quietly negotiated during the 2008 financial crisis when her bank underwent a retrenchment exercise. She was then around 50, and is now 64. By far the biggest plus of the lifestyle shift, she said, was the time she could spend with elderly parents and travel.

At the time of the payout, she debated between investing in a condominium versus a portfolio of stocks. She went for the latter, which caused some twinges of regret. The flat she was contemplating cost around S$700,000 in 2009, and today is valued at S$2 million. Her shares, she says, did not do as well.

“What I needed was passive income. Property would have done much better than shares,’’ she said. Still, her portfolio, which she still holds, pays her an income of around S$6,000 a month. She is now mulling the liquidation of her stocks to shift into bonds, “for more certainty and income’’.

Passive income

Passive income is essential. Most friends count on the payouts from their CPF Life accounts, which can pay up to around S$2,000 a month. Alice was fortunate to secure a private insurance annuity for her father, thanks to the advice of a retired financial planner whom I shall call Dan. The lump-sum annuity cost around S$250,000. It has been distributing a guaranteed income of S$2,000 a month for well over 20 years. This means the cumulative sum of income is around double the initial invested capital.

Dan had served as an intermediary for three insurers that offered such annuities in the 1980s and 1990s. The products were all withdrawn by around 2001. He persuaded several clients to take them up.

“I was so concentrated on providing clients with the annuities that I missed out on placing any for myself. All the companies withdrew their products without notice,’’ he said.

CPF Life is by far the most secure annuity scheme, and you can delay the distribution of income until 70. Private annuities are also available, where the income is typically not fully guaranteed.

But here’s the thing: What is your likely monthly expenditure? Among those I spoke to, it is surprisingly high at between S$6,000 and S$8,000 a month, although some households include an elderly parent and a domestic helper.

At least a couple of friends have downgraded their Integrated Shield (IP) cover from private hospital plans and riders to those for restructured hospital class A wards. This effectively shaves off a few thousand dollars from annual premiums at older ages.

One friend continues to write on a freelance basis, which helps to augment income.

Instiling values

Alice worries that her daughters, who are single and hold high-income jobs, might have imbibed high-spending habits from her. When she was a banker, she was clad in designer labels, including bags and shoes. Her daughters now have similar preferences, and travel in business class for personal holidays. She herself recently picked “premium economy’’ class for a long-haul flight.

“It’s important to inculcate the right values; perhaps I didn’t,” she mused. Instead of giving her daughters presents, she now tops up their Supplementary Retirement Scheme accounts. “I’ve realised through the years the value of the principle to ‘pay yourself first’, rather than spend on luxury items.”

Dan is similarly concerned that his daughter, a single parent, is uninterested in financial matters. To nudge her along, he sends her messages which are a mix of financial planning and spiritual wisdom. He is a Christian. Here is a sample: “The longer daddy lives, the less you will receive from my estate. So, a big part is being given to you while I am alive. I hope you will watch your spending… I would be very happy if you help those who are less privileged with what you receive from me.

“Don’t forget that the Lord is the ultimate owner and we are merely stewards. We will be able to face difficult times when we learn to live with less.”

Decumulation and your estate

Through the years, Dan has amended his will several times due to changes in his personal circumstances. His first will was drafted at age 26; he is now 78. The latest and seventh amendment will include his domestic helper as a beneficiary.

Lately he has been liquidating his portfolio to build a pot for current spending and giving; it is a deliberate decision to reduce his estate.

“My plan is to die with less than S$1 million, so I plan to spend and give to others today. It’s easier to go when you have less… I have already given my wife and daughter about 80 per cent of my estate. It’s better to let them have the money while I’m alive.”