A recent study found that Singapore is the nation with the third highest life expectancy, behind only Japan and Switzerland. Singaporeans can expect to live an average of 83.1 years. But Singaporeans aren’t exactly rejoicing at the news. Living longer means you need to amass a larger retirement fund, which is a concern in a nation where retirement-readiness is a huge problem. Better to die early than live a life of toil, right?
Living longer lives is going to have a financial impact on us personally and on a societal level. Here are three key considerations that must be made in light of our high life expectancy.
More money will be needed for retirement
The main reason so many people look upon a higher life expectancy as a curse rather than a blessing is because it means people are going to need even more money to retire. This isn’t good news at a time when so many reports about how Singaporeans aren’t saving enough for retirement are making the rounds.
Singaporeans have estimated that they will need a whopping $1.38 million to retire comfortably. To put things into perspective, a Singaporean earning the median salary of $4,056 throughout his entire working life will only earn $1,460,160 over 30 years of work.
Coupled with the possibility of living longer, this means Singaporeans will need to be a lot more conservative with their spending, and a lot more aggressive in preparing for retirement.
Opting for a home that’s well within one’s budget, fighting the urge to live a glamorous lifestyle and being modest when organising overseas trips and weddings can all help to free up money to be channelled into retirement. But that money is going to be worthless a few decades down the road if it isn’t meaningfully invested according to a well-thought out plan.
Of the many stressors that come with living in Singapore, lack of money for medical bills tops Singaporeans retirement fears, at least according to a 2014 Nielsen survey. The obvious answer to this problem is to ensure you have adequate medical insurance coverage.
The main issue is that insurance premiums go up as you age (and that’s assuming you manage to sign up for a guaranteed renewable policy BEFORE you get hit by a serious health condition that makes you uninsurable).
To make matters worse, if you’re going to live longer, you will not only need to channel a larger sum of retirement money into paying insurance premiums, you might also want to fork out the cash for more comprehensive coverage. Singaporeans live an average of 73.9 years in good health, but the average life expectancy is 83.1. That’s an average of 9.2 years spent in poor health.
When you reach your 70s, you can expect to pay more than $1,000 a year for even the most basic policy. So do factor that in to your retirement planning.
That $100 you’ve saved today isn’t going to be worth the same amount ten or twenty years from now. When planning for the future, it’s important to understand how inflation will affect cash value.
Basically, prices in Singapore are rising all the time. With the cash you could have used to buy a 5-room flat in 2007, you can only buy a 4-room flat in 2017. Even if you own a home that’s been fully paid for, never shop and live a simple life, you can’t escape the effects of inflation. Necessities like healthcare, groceries and public transport will all get more expensive over time.
This is why it’s a bad idea to keep all your retirement savings in the bank. They’ll be worth a lot less by the time you’re actually ready to retire. The longer you live post-retirement, the more you’ll need to factor in the effects of inflation on your nest egg.
What you need to do is to invest the cash so that it grows over time, thereby enabling your money to retain its value in the face of inflation.
This story first appeared on Moneysmart 29th May 2017.