4 Retirement Trends We Can Observe From The OCBC Financial Wellness Index 2021

Amid the global pandemic, Singaporeans are paying more attention to financial management and improving their financial health. This can be seen in the results of the OCBC Financial Wellness Index for 2021, where our overall score improved from 61 in 2020 to 62.

The OCBC Financial Wellness Index is a survey that aims to understand Singapore’s financial health based on 10 pillars of financial wellbeing as defined by OCBC’s wealth management experts. The 10 pillars are: 1) saving behavior, 2) spending on funds, 3) manageable debts, 4) protection against financial emergencies, 5) regular reviews, 6) regular investing, 7) old-age provision, 8) excessive speculation, 9) money borrowing and 10) gambling addiction.

The index results showed that Singaporeans do better in retirement, improving by 5 points to 49 from 44 in 2020. Although retirement provision reached the third highest point on the overall scoreboard, it achieved one of the largest improvements among the 10 pillars. This suggests that pension planning has taken a back seat to more immediate priorities (e.g. retirement planning.

Here are 4 interesting trends we see from the results of the OCBC Financial Wellness Index about the way Singaporeans think about retirement.

Also read: DollarsAndSense took part in the OCBC Financial Wellness Index Survey – How We Did and What We Learned

Plan more for retirement

The uncertainties created by the pandemic are motivating more Singaporeans to plan their silver years, with 51% listing retirement planning as one of their top priorities. This is a 6% increase compared to 2020, when only 45% planned to retire. More women (52%, up 5% from 2020) and men (50%, up 7% from 2020) also have retirement planning as one of their top 3 priorities.

The story goes on

More respondents have started creating retirement plans, 66% in 2021 versus 63% in 2020. While we tend to associate retirement planning with the older age groups, the younger generations are also planning to retire. 58% of 20 year olds and 67% of 30 year olds have started making plans for retirement, showing the largest increase (7%) from last year. In fact, 33% of 20 year olds and 41% of 30 year olds say they are on the right track with their retirement plans.

At the other end of the age spectrum, 57% of 40 to 54 year olds and 62% of 55 to 65 year olds say they are on the right track with their retirement plans. This suggests that there is a minority of retirees who are not yet ready for retirement.

More are opting for a simpler retirement lifestyle

Another interesting observation is the changed preference for the retired lifestyle. In the survey, respondents were asked to choose their preferred retirement lifestyle (see graphic above). Among the Singaporeans surveyed, those who opted for the simplest lifestyle made up the largest group (40% with 35% for lifestyle B and 25% for lifestyle C). This is an overall 4% increase for those who chose Lifestyle A. Lifestyle A preference becomes more and more important with age. 59% of 55 to 65 year olds choose this option, an increase of 10% over the previous year.

This suggests that regardless of their maturity, Singaporeans will become more sensible and prudent after being hit by the realities of the pandemic.

Source: OCBC Financial Wellness Index

We underestimate our pension needs by an average of almost a third

Although retirement planning is back on the Singaporean radar, it is still a neglected area in their financial portfolio. According to OCBC survey results, 81% of respondents underestimate the amount needed for their chosen retirement lifestyle, compared to 78% in 2020. On average, they underestimate their retirement needs by 31% (a slight improvement from 32% in 2020 ). .

Source: OCBC Financial Wellness Index

The younger the age group, the greater the tendency to underestimate pension needs. The youngest age group (20 years), who is the newest and freshest to enter the labor force, underestimated their retirement savings by an average of 46% of the amount required for their chosen lifestyle.

Older people tend to have more accurate pension estimates, with the oldest age group (55-65) underestimating their pension funds by only 23%, which may be their experience. However, at their age they are also approaching the minimum retirement age of 62 (or 63 in 2022). This underestimation is worrying as they have a shorter runway to generate enough income to set aside savings for their retirement. For them, a 23% deficit can range from $ 541.65 to $ 1,224.75 per month based on the three lifestyle scenarios above.

Also Read: Is A Retirement Income Of $ 2,000 Per Month Realistic For The Average Singaporean?

Regular contributions and investments are key to having enough for retirement

Most Singaporeans are good at saving, which is the best rated of the 10 pillars of finance. 88% of the respondents put at least 10% of their salary aside and save regularly. Even if more of us are better prepared for rainy days, it may still not be enough.

Singaporeans who have started creating retirement plans tend to get retirement funds through cash savings (55%), local stocks (39%), foundations (39%), regular investment plans (38%), CPF LIFE (32%), and overseas Stocks to accumulate (25%). While the high share of cash deposits is a testament to our ability to save, it can affect our retirement plans as inflation exceeds the interest on our cash savings.

Source: OCBC Financial Wellness Index

In general, those who regularly deposit and invest in their retirement plans are better on track to meet their retirement goals. It is therefore important not to neglect investments in retirement planning.

The post 4 Pension Trends We Can Watch Using the OCBC Financial Wellness Index 2021 first appeared on DollarsAndSense.sg.

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