In Asian culture, it is not unusual for children to take on the responsibility of caring for their parents when they are aged or no longer working. Often, parents welcome and appreciate this gesture of care and concern from their children. More than just taking on this responsibility as an obligation, there are several smart ways to embark on a realistic retirement plan for your parents.
Here're FIVE steps you can take when planning your parents' retirement:
1. Understand their financial situation
This means knowing how much they already have for their retirement, whether they have savings plans that are maturing and how much the payouts are, their CPF balances, what other assets do they have, as well as whether they still have outstanding loans and liabilities. So yes, some form of open communication is necessary!
Taking all of these into consideration, together with your parents' desired lifestyle in retirement and your own ability to contribute, you can then start to get an idea of the amount you can help with.
2. Ask when your parents would wish to retire completely
They may choose to continue working full-time or on a part-time basis. Aviva's Consumer Attitudes Survey (June 2014) showed that 54% of Singaporeans want to continue working past retirement age. Knowing when the income stream will stop will give you an idea of the time horizon you have to grow your money.
3. Decide on the kind of payout that they'd prefer
Ask them whether it's more ideal for them to have a lump sum nest egg that they manage themselves, or if they prefer to have a monthly income. There are several options available in the market to cater to different needs.
If the time horizon is short, you can look at plans with short premium term options, or consider lump sum investment plans. With a short time horizon, capital preservation should be top of your agenda, and you may wish to consider structured deposits from banks or participating endowment plans from insurers that offer a capital guarantee.
For example, Singlife's My Retirement or MyIncomePlus guarantees your capital as well as the payout amount upon reaching the chosen retirement age¹. It also gives you the flexibility to choose your premium term, as well as decide if you prefer monthly payouts or a lump sum withdrawal².
4. Purchase health coverage
Older folks are naturally more susceptible to ill-health. Medical expenses are often unexpected and very costly, so it only makes sense to transfer the risk of high bills to an insurer. Integrated Shield plans are a cost-effective way to do so. The premiums can be paid from your parents' or your own Medisave, and most Integrated Shield plans today have add-ons that allow you to be covered from the first dollar.
Realistically, if your parents are getting health insurance only at older ages, they might already have existing health conditions that may be excluded by the insurer. However, they can still be covered for non-related conditions, and this is advisable compared to having no coverage at all.
5. Budget for a long-term care protection plan
In the event of disability, long-term care can be very costly and often for a prolonged period. With a lower ratio of dependants supporting the aged, it's important to plan for such a situation so you can afford the needed long-term care for your parents. In Singapore, we have the national ElderShield scheme, for which Singlife is one of the appointed insurers. ElderShield offers a basic level of protection, and those seeking comprehensive coverage can purchase ElderShield Supplements such as Singlife's MyCare and MyCare Plus.
¹ Capital is guaranteed at the selected Retirement Age, and returns are guaranteed only upon policy maturity.
² Please refer to the MyRetirement and MyIncomePlus product brochures, which are available on our website for more details.
As of 1 January 2022, Aviva Singapore is now Singlife with Aviva.