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ECONOMY | Contributed Content, Singapore
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Shaun Wang

Ageing gracefully with assurance

BY SHAUN WANG

Most Singaporeans can expect to live longer than their previous generations, thanks to continuing improvements of standards of living over the years. For example, the life expectancy for females was 70.1 years in 1963, and has increased to 84.6 years in 2013, and is expected to extend to 88.8 years in 2033.

Singapore's "graying" population today has 460,000 people aged 65 or above, which represents 11.8 percent of Singapore residence. However, there will be dramatic increase of the graying population over the next 20 years. The population of 65 and above will triple to 1,467,000 by 2035, representing one third of the residence by then.

Concurrently, the fertility rate in Singapore has fallen significantly, hovering between 1.29 and 1.15 in the past ten years, which are well below the 2.1 replacement fertility rate required to prevent the population from declining. Contributing to the decrease in fertility rate is an observed trend that many young females tend to choose to remain single, rather than getting married and having kids.

With longer life expectancy and low fertility rates, the Singapore population pyramid is on course to become inverted in the next 20 years.

In anticipation of increased longevity and an ageing society, individuals need to consider three questions:
1. When should I be saving for retirement?
2. Where can I get protection against potential shocks of medical expenses at advanced age, especially due to critical illness?
3. What are other important factors for a good quality of retirement life?

Firstly, when it comes to saving for retirement, the key is to start saving early and invest for the long-term. Many retirees lament that ageing comes much quicker before they realise it. The best approach is to start early and set aside some percentage of income. By starting early, people will have a longer time horizon and more time to grow investment savings.

By setting aside a percentage (say 5 to 10 percent) of income as "seed", it means you will have substantial savings by the time you retire, rather than having spent it during your youth.

There is a variety of saving or accumulation products for Singaporeans to choose from. The Central Provident Fund Board offers CPF LIFE Plans to Singapore citizens and permanent residents with a monthly payout for as long as the policyholder lives. The Singapore government also offers the Supplementary Retirement Scheme (SRS) which provides tax benefits to encourage saving for your retirement.

Many insurance companies offer a variety of life insurance and annuities products. Life annuities are particularly useful to generate a steady stream of income after retirement as long as the person lives, even if the person lives many more years than expected.

Regular and periodic contributions toward saving and investing are highly recommended; there are proven advantages of dollar-cost averaging investing. Otherwise, trying to time the market can be elusive. Empirical evidences show that many individuals are not disciplined investors, and they tend to be enthusiastic investors when the market is booming, and become disinterested when the market is declining. As a result they lose out on the opportunity to invest in a declining market, thus failing to profit when it recovers.

For many Singaporeans, home-ownership represents another effective accumulation of assets. Singaporeans already have a very high home-ownership rate of 90.3 percent. Singapore will continue to attract new professional expats and wealthy individuals. The housing market value and rental income both tend to hold well.

In theory, reverse mortgage could be a solution for asset-rich but income-poor retirees to generate steady streams of income post retirement. Singapore’s recent experiment with introducing reverse mortgages has met with limited success; the product design and financial terms need to be improved and better understood by customers who naturally also look into other options.

Secondly, to prevent unforeseen financial shocks, Singaporeans can look into assurance protection products such as critical illness plans and long-term care products. Critical illness products normally provide protection against catastrophic medical expenses. According to research findings from Gen Re’s "2012 Dread Disease Survey", over 90 percent of all severe stage claims received by life insurers are for five critical illnesses, namely major cancers, heart attack of specified severity, coronary artery by-pass surgery, stroke, and kidney failure.

The Life Insurance Association of Singapore is proactively introducing refinements to the critical illness benefit framework aimed at providing consumers with more flexible and customised products.

Thirdly, the quality of retirement life very much depends on good physical health and social connectedness. There is huge potential for Singapore to tap into wellness programmes. Health assurance products can be linked to wellness programmes to encourage disease prevention and active physical exercise.

Our society is rapidly changing due to technological advances. The elderly tend to be much slower in adapting to new technology, compared to the young. Communities can offer some introductory courses on technology and social media to help the elderly keep up with new technology and remain connected to the mainstream society.

Retirees have a social and emotional need to remain connected to the family circle and the society. In the Chinese culture, filial piety (孝) is a "social norm" where the elders and their young take care of each other's basic needs. Nothing can offer the elders more comfort than being surrounded by loving grandchildren.

At the Ho Rih Hwa Leadership in Asia lecture in June last year, Prime Minister Lee Hsien Loong stated that the best and only solution is for Singaporeans to marry and have more children. He pledged that the Government would do more to help Singaporeans marry, have babies, and take care of their families. It would not just be through baby bonuses but in the form of help with housing for young couples, affordable and quality child-care, healthcare support for elderly parents, and the promotion of flexible work arrangements.

Given its past solid track record in overcoming challenges, Singapore is definitely able to maintain strong families in the social fabric, and provide for a graceful retirement living.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.

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Shaun Wang

Shaun Wang

Dr Shaun Wang is Professor of Actuarial Science and Director of Insurance Risk and Finance Research Center (IRFRC) at Nanyang Business School, NTU.

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