Selene is currently 55 years old and aims to retire at 65 years old. To maintain a fulfilling lifestyle, Selene has outlined her financial needs and goals for the next few decades. Her retirement plan includes provisions for essential expenses and ensures financial stability throughout her golden years.

Retirement Income Needs

Upon retirement at 65 years old, Selene plans essential monthly spending of $4,000 for the first 10 years. To keep this case-study simple for illustration, let us assume that Selene is looking at $4,000 monthly spending to be level. This amount covers non-negotiable expenses such as food, transportation, bills, and insurance premiums. Additionally, Selene wishes to allocate some of this budget for travel.

At age 75, Selene intends to slow down her lifestyle. As a result, she projects her monthly spending will reduce to $2,500 for the next 15 years, until she reaches 90 years old.

Thereafter, Selene is comfortable relying on her CPF LIFE payouts and drawing down her savings.

Current CPF Balances

To plan for a reliable income stream, Selene has the following CPF balances:

• Ordinary Account: $323,462

• Retirement Account: $213,000

• MediSave Account: $75,500

Additionally, she has cash savings of $500,000.

Retirement Income Gap Analysis

With $213,000 in her Retirement Account, Selene will receive a monthly payout of $1,610 from CPF LIFE starting at age 65. However, she still needs additional income to meet her spending requirements:

• From Age 65 to 75: $4,000 – $1,610 = $2,390 shortfall per month

• From Age 75 to 90: $2,500 – $1,610 = $890 shortfall per month

Evaluating Financial Instruments

To address these shortfalls, Selene can consider various financial instruments, such as:

Choosing the Right Strategy

Both fixed deposits and Singapore Savings Bonds carry reinvestment risk, making them less ideal for covering essential spending over a long-time horizon. Given that the purpose of this plan is to cover essential spending, investments are unsuitable because of market uncertainties and because Selene wants to spend her retirement funds regardless of market performance.

To ensure certainty in her retirement income, Selene can also top up her CPF Retirement Account. For instance, if Selene tops up her Retirement Account to the current year’s Enhanced Retirement Sum of $426,000 in 2025, she could receive a higher CPF LIFE payout of approximately $3,100 a month.

However, Selene is mindful of the limitations of this approach, e.g., the lack of liquidity and control over her funds, the absence of a death benefit (after the CPF LIFE premiums are fully depleted), and potential policy risks.

Based on these considerations, insurance annuities emerge as a suitable option. An insurance annuity plan provides a stable and reliable stream of income, ensuring financial security even in an unpredictable market. Moreover, Selene can choose a plan that offers the liquidity and control she desires, along with a death benefit payout for her family.

Implementation Plan with Insurance Annuity

To address Selene’s income gap, she can structure her annuity contributions in two phases.

Phase 1: Age 65 to Age 75 (To cover the monthly shortfall of $2,390)

Selene can contribute a single premium of $195k towards an insurance annuity. Thereafter, when she reaches 65 years old, she will receive a monthly payout of $2,400 over 10 years.

Summing up, Selene will receive a total payout of $288k over the 10-year period.

Phase 2: Age 75 to Age 90 (To cover the monthly shortfall of $890)

Selene can contribute a single premium of $64k towards an insurance annuity. Thereafter, she will receive a monthly payout of approximately $897 from age 75 to age 90.

Summing up, she will receive a total payout of around $161k over the 15-year period.

Final Thoughts

By allocating $259k (being $195k + $64k) into suitable insurance annuity plans, Selene secures a total payout of $449k throughout her retirement. Through this approach, we are able to create a reliable stream of income to meet Selene’s essential spending needs. By doing so, it frees up some of her resources, allowing her to enjoy a fulfilling retirement, knowing that her financial needs are well taken care of.

This is an original article written by Pang Zhe Liang, Lead of Research & Solutions at Havend.

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