Retirement Planning for Singles
An edited version of this article (in Chinese) was published in the 16 October 2016 issue of ZaoBao. Below are our original interview answers in English.
Q1: It is perceived that retirement planning is more difficult for singles compared to married people, and it is especially difficult for single women. How true is this, and why?
Singles' living expenses are generally higher as a proportion of income as compared to couples. As the saying goes, one person cannot live half as cheaply as two e.g. housing costs (mortgage or rental) is higher as a percentage of income for individuals. Hence, this will reduce singles' investible income and ability to save for retirement as compared with couples.
Other challenges include less predictable income stream versus a couple where the other can act as a backup in case one partner gets retrenched, etc. Women have a longer life expectancy as compared with men and hence have to prepare more for retirement to prevent outliving their resources in their golden years. Married women can inherit their husband's savings when he passes away whereas for single women there is no such additional second wind.
Society also generally expects the women to take care of their aged parents (versus the sons). As such, the added financial burden and responsibility would also be a drain on their own savings, thus severely handicapping the building of their retirement nestegg. Married women can sometimes count on their joint savings with their husbands to help spread this burden but for single women, it falls squarely on their shoulders.
Q2: What should be the top priority for single women?
Most singles only have themselves to rely on financially, therefore contingency planning is of paramount importance. Single women need to be financially prepared for unexpected events, such as involuntary unemployment, by having sufficient savings in their emergency fund. In addition, they need to plan for adverse life situations, such as illnesses and disability, by having a comprehensive health insurance and sufficient critical illness & disability protection. The last thing they would want on their minds in such an eventuality, is to have to worry about money and having to resort to borrowing from family or friends.
Some action plans:
Plan early - Think about your desired retirement lifestyle and needs. Work out a target amount and be disciplined in saving and investing towards that target.
Pay yourself first - There is a tendency for singles to postpone taking action as there are many distractions vying for every dollar earned.
Prepare funding - build up your emengency fund as quickly as possible, typically about 6 to 12 months of expenses (depending on one's comfort level)
Diversify - don't put all your savings/investments in one basket - take the time to talk to your adviser or friends to understand what the different investment instruments are and the risks involved so that you can make an informed decision. It is also critical to plan for investments of differing risk levels and liquidity (just in case you need to draw out some money suddenly for emergencies).
Take advantage of tax relief / reduction schemes available, e.g. SRS, CPF Retirement Sum Top-up scheme and voluntary CPF contributions for self employed individuals - talk to your financial adviser about these options and how much you should be putting in them.
In general, get started on saving for retirement early. The later you start, the more you will have to save to meet the same retirement lifestyle.
It is also strongly recommended that single women build up a strong network of trusted friends to help with giving second opinions as well as providing emotional support when needed. Furthermore, as a lot of decisions would impact their financial health, taking the time to seek out a trusted and experienced financial adviser is also paramount - one who can help with providing sound financial advice as there is less room for making financial mistakes. An experienced financial adviser can also help to optimise insurance and investment planning to maximise the limited financial resources available.
Most women tend to be more conservative with their investments, mostly due to a poor understanding of how such investments work. Unfortunately this could be detrimental to them saving enough for retirement as a right level of risk is necessary to be able to grow one's capital at a good pace. Again, a good financial adviser could better explain the different investment instruments and risks and thus help them plan better.
Q3: What advice would you give to single men?
Advice is somewhat similar to the single women (see above answers). However, there are some differences:
On health issues, most men tend to ignore warning health signs (most women usually don't have this problem). For married men, the wives would keep reminding them to seek medical attention. Whereas for single men, there is no one to fulfill this role until either the pain becomes unbearable or the problem manifests itself physically, when he is then forced to seek medical help. As such, having both a robust medical plan and doing annual check-ups becomes doubly important.
As the converse of women, most men also tend to be more aggressive and over-confident with their investments and thus make more speculative bets. This could introduce more volatility and investment losses and thus affect the long term savings for retirement. Thus a good financial adviser could help to temper his gung-ho risk-taking appetite and place in investments more closely suited to his investment objectives and personal financial situation.
Q4: Some married people may become single again at a older age (maybe 45-55), for various reasons, and they may stay single. How should they redo their retirement planning? (two scenarios: single again without kids and single again with kids)
Review expenses - especially housing expenses (e.g. mortgage repayments), which tends to be a big proportion of their fixed financial commitment. Look at options to reduce this burden as every dollar saved is a dollar going towards more longer term objectives like retirement.
Review insurance coverage - talk to a financial adviser and make the necessary adjustments. There should be less dependence on life insurance, especially in the case of no children and increased need for long term care insurance. Where there are children to take care of, coverage may need to be increased as the cover from the previous spouse falls away.
Review retirement needs again - especially with one person saving versus 2 persons, there may need to be adjustments.
Some common mistakes to avoid:
Do not be over-reliant on spousal support (e.g. alimony) if it is provided for lifestyle or retirement needs. The early demise of the support provider or willful non-payment could affect this income stream at any time. In the case of willful non-payment, taking legal avenues to pursue the ex-spouse is costly and may not always be cost-effective after deduction of legal costs, time and the accompanying emotional stress.
Prioritizing children's education saving needs over personal retirement needs - Remember that loans can be taken for children's education, but not for retirement.
For those who become single again with young kids, the financial burden can be very great. Try to seek out whatever government or support schemes are available especially for to alleviate schooling expenses e.g. fees and books. Expenses can oft times exceed income and it becomes imperative to seek out a good and trusted adviser to help with cash flow planning as well as help sign on affordable medical insurance plans for the children and the single parent. This is important to limit the downside liability of one's limited savings should an unexpected medical condition suddenly arise in either the children or parent.
A possible source of monies is also from the house or apartment. It may be feasible to downsize and use the differential to pad up the family finances or help towards other pressing expenses or savings.
