5 Risks You Might Face in Retirement (And How to Plan for Them)

Throughout my years in wealth advisory, the most common answer I get when I broach the topic of retirement planning is “Aiya, in Singapore, how to retire?” Although this response is largely tongue-in-cheek, it represents a real consideration for Singapore’s working class.

With costs increasing yearly, as well as being in the middle of the ‘sandwich generation’, more and more people feel that retiring comfortably in Singapore is getting more and more challenging. An article by The Business Times published last year quoted a survey by Blackbox Research and Qualtrics, stating findings that one in three Singaporeans polled said they may retire in Johor Bahru, once travel arrangements become more convenient.

But, is it really possible to retire comfortably in Singapore? Or more specifically, what are the potential risks that retirees face when thinking about retiring? At Havend, we have outlined five potential risks you might face in retirement, and how to plan for them.

1. Inflation Risk

In my early twenties, I used to frequent a famous coffee shop in the east. My Saturday nights would often be spent there watching the latest Manchester United soccer match with my friends, all while enjoying a cup of hot Teh-O for $0.70. The draw of watching my favourite team win and the relatively low price of the Teh-O often left many beautiful memories.

I recently went back to the same coffee shop for dinner. Remembering my times there, I ordered the same Teh-O that I had probably had a hundred times. Only this time, when the bill came, I did a double take. $2 for hot water and a few leaves. That is essentially what inflation is: the rate at which there is a general increase in prices and a fall in the purchasing power of money.

Now, imagine my Teh-O as your current expenses. What would have been affordable today might not be affordable in your retirement years. If we were to look specifically into Singapore’s standard of living, we would see a substantial increase over the last decade or two. Undoubtedly, this is one of the biggest potential risks that retirees face, where the purchasing power of their retirement income may be reduced, and ultimately the question that they will ask themselves is “would this be enough?”

For instance, a retiree planning to withdraw $5,000 monthly for the next 20 years would need to accumulate a retirement fund of $1.2 million. However, this figure does not account for inflation (assuming it is at 2%), and as a result, the retiree would likely deplete their savings by the 17th year. In reality, to sustain a $5,000 monthly income over 20 years while considering inflation, the retiree should aim to have saved approximately $1.45 million, around 15% more than intended.

2. Longevity Risk

Singapore is widely considered to be a developed country. With structures touching the sky and an economic hub that is the envy of many nations. Singapore is the only country in Asia with a AAA sovereign credit rating from all major rating agencies. Also, life expectancy in Singapore is also among the highest in Asia, averaging at about 85 years old. That brings about the second risk that retirees face, which is the risk of them outliving their retirement savings. Due to medical advancements and a growing emphasis on health, people are living longer, which would essentially mean that their retirement funds would also need to last longer.

Take the previous illustration, for example. In that same scenario, if the retiree had budgeted for 20 years of retirement income, living just 2 years longer would mean needing an additional $180,000 today to maintain the same standard of living—especially once inflation is considered.

This would have an impact on his retirement funds that he had in place, going from an additional $1.2 million to essentially needing an amount of $1.63 million to cater for 22 years of $5,000 monthly retirement income.

This highlights a crucial challenge many retirees may face — the rising cost of living can significantly erode their retirement income over time.

In Singapore, where the cost of living is already high, those extra years could mean not only a need for more funds, but also a careful re-evaluation of spending habits and investment strategies. It’s a vivid reminder that financial planning for retirement isn’t just a one-and-done deal. As we grow older, our needs—and the economic conditions that surround us—can change dramatically, necessitating a flexible and proactive approach to managing retirement finances.

Since retirees might enjoy two to three decades of post-work bliss, it’s important to have a good retirement plan in place to ensure that you stay financially fit as you embrace your long, leisurely golden years, without fear that you will one day go to the ATM and realise that your retirement funds have run out.

3. Investment Risk

In an ideal world, we would all be able to time the markets perfectly, growing our investment portfolio substantially and reaping the rewards during our retirement years. However, this is far from how reality is.

Market performance is an incredibly important aspect to consider for your retirement funds. Investment risk in retirement planning in Singapore involves the potential for loss in the value of investments that could impact an individual’s ability to secure sufficient retirement income. Factors contributing to investment risk include market volatility, inflation, interest rate fluctuations, and the specific choice of investment vehicles, such as stocks, bonds, or real estate.

The question remains whether you would be comfortable dealing with market downturns during your retirement years, when you no longer have a steady income and must rely on withdrawing from investments that may have experienced substantial declines, or if you’re concerned about whether to cut back on your expenditures to safeguard against the premature depletion of your investment portfolio.

This is where sequence risk comes in. Sequence risk refers to the timing dynamics inherent in investment decisions. This risk is particularly critical during the early phases of retirement or when drawing funds from an investment portfolio. The order in which investment returns materialize can greatly influence the overall success of an investment strategy, highlighting the importance of timing in portfolio management.

Simply put, when a portfolio incurs negative returns during periods of withdrawal, particularly in retirement, it can significantly undermine its overall value in the long run. This occurs because the diminished asset base leaves less capital available to capitalise on potential market recoveries in later periods. On the other hand, experiencing positive returns early in retirement can enhance the sustainability of a portfolio, especially if the initial portfolio balance is substantial.

4. Healthcare Risk

As Singapore continues its journey towards becoming a global healthcare hub, a pressing issue remains. The rising costs associated with healthcare are outpacing general inflation rates and for many residents, this rise in expenditure has sparked concerns about access to necessary medical treatments, particularly as premiums for integrated shield plans and MediShield Life see significant increases.

For example, someone has done a fantastic job of saving up for retirement by keeping a close eye on their current expenses. They’ve built a nice little nest egg, enough to enjoy a comfy lifestyle when they finally hang up their work attire and slip into some cozy slacks. But here’s the kicker—one big piece of retirement planning that might have slipped under the radar is the rising cost of healthcare. Many retirees face the worry that as health insurance premiums climb, they could struggle to keep up, especially if they want a plan that includes coverage for private hospital stays, as they age.

Therefore, it is crucial for retirees to factor in healthcare costs when estimating their retirement needs, considering options like health insurance, savings, and government support to ensure financial security in their later years.

5. Overspending Risk

We have all been there. When bonus season comes around, inevitably the purse loosens a little bit. Slightly more Grab takeaways instead of walking to the hawker centre. Slightly more cab rides when public transport would have been the better option. Slightly more expensive dinners before we invariably go back to our normal spending habits. This phenomenon is classic human nature, and it also represents a risk that retirees potentially face, that is overspending.

Once retirement begins, there is a tendency to indulge in the early stages of retirement. This is where most of the time, retirees would travel and enjoy new, and sometimes expensive hobbies, to truly mark the “start” of their golden years. However, if this initial increase in spending has not been taken into account during their retirement planning, they would quickly realise that there might not be much left at the tail-end of their retirement, at a time when they might need it the most.

Building a Stress-Free Retirement: Havend’s CORE Approach to Securing Your Essentials

Yes — retirement can feel overwhelming, with many risks and moving parts. But with the right support and strategy, it doesn’t have to be. That’s why we created the CPF-Optimised Retirement Essentials (CORE) assessment — to help you build a solid retirement foundation without the need to take on market risks and volatility.

CORE is designed to secure your essential retirement income through guaranteed, low-risk options, starting with CPF LIFE. If needed, we’ll also guide you on how to supplement it with the right retirement income plans — with no upselling, just what you truly need.

Once this foundation is in place, any additional funds can be confidently invested or allocated elsewhere, knowing that your essentials are well taken care of. It’s about creating balance, not stress — and we’re here to guide you every step of the way.

This is an original article written by Syed Omar, Lead, Insurance Specialist at Havend.