Sep 22, 2014

    Moderation and thrift count in retirement - plus a loving kid

    A SOMEWHAT surprising picture of thrift among Singapore's retiree population emerged in data from the latest Household Expenditure Survey, released by the Department of Statistics last week.

    For the first time, the survey included statistics on retiree households, defined as households comprising only non-working people aged 60 years and over.

    Retirees spend a few thousand dollars at the most each month; more typically, the amount is a moderate $1,000.

    Perhaps, needs are simpler when one is older. The statistics debunk a fashionable assertion that "even $1 million is not enough to retire on" or that you must target to have retirement income which is 70 per cent of your last drawn income.

    Put the expenditure numbers together with income numbers and, on average, half the total number of retiree households are able to meet their spending needs - with money left over.

    Even for the wealthiest who spend $2,000 a month, they do not need millions in the money pot - just a $600,000 blue-chip and bond portfolio giving a 4 per cent yield, for example.

    The relatively low level of spending could also reflect how there are already discounts for the elderly in health and transport.

    But whether future retirees can spend as little as the current batch is a question mark.

    In absolute terms, the typical retired person spends little, but is buffeted by considerable inflation.

    According to the report, individuals in typical retiree households spending $720 a month experienced a 5.3 per cent inflation rate in the last 10 years.

    The current lifelong annuity system offered by the Central Provident Fund (CPF) will not be sufficient to keep up.

    CPF Life, assuming a full 2015 Minimum Sum of $161,000, provides a monthly income of about $1,300 a month for life from age 65.

    But at a 5.3 per cent inflation rate, a typical retiree's spending will balloon beyond $1,300 a month after just 12 years.

    The inflation rate of 5.3 per cent is also more than what most conventional insurance instruments can match, or even what the CPF itself provides.

    The recently-announced Pioneer Generation Package will go some way towards alleviating the effects of health-care inflation for some retirees. But other resources are needed.

    Another interesting section of the report details how much retiree households get in income from investments, family and friends, CPF payouts, insurance payouts and the like.

    On average, retiree households in four-room flats spend $1,500 a month, but get $1,230. Those in five-room flats spend $2,000 a month, but get $1,800.

    Those in three-room flats, condominiums and landed properties spend less than what they get.

    This implies that retirees in four-room and five-room flats have to dip into their savings to the tune of $200-300 a month.

    Perhaps, these retirees can afford to spend more than what they get. If not, they will need help when their savings run out. Or they can downsize their flat.

    Another interesting tidbit is that retirees living in three-, four- and five-room flats are earning about $200-300 a month in investment income.

    This means that, on average, the typical Singaporean retiree has built up a not-insubstantial portfolio to give them passive income.

    Thus, for the current batch of Singaporean retirees, the picture does not look grim by any means. They are likely to have some resources, in the form of their flat or investments. They are thrifty and do not spend much.

    This is not to say people definitely have enough to retire on. Should they lose one income source, they might be in trouble.

    Still, a large proportion of retiree households' support comes from relatives and friends not living with them, presumably their children; the social fabric is still strong.

    Contributions from relatives and friends not living in the same household amount to $300-700 a month for most retiree households.

    The best pension benefit, perhaps, comes from having raised a child who now has a stable job - and who loves you.