My mum is turning 55 next year and is planning for her retirement. What can she do to better prepare for her retirement?

There are 6 main available sources of income during retirement. I'll also mention whether they need to be actively managed and/or variable or guaranteed.

1) Dividends from an equity portfolio. These are passive but variable.

2) Coupons from a bond portfolio. These are passive and guaranteed.

3) Pension from social security. These are passive and guaranteed. And in Singapore, this is CPF Life.

4) Rental from properties. These are active and variable.

5) Payouts from an annuity. These are passive and guaranteed.

6) Royalties from intellectual property. These are passive and variable.

She can work on getting a good mix from these 6 sources with usually the last one being the hardest to achieve.

So have a balanced portfolio of stocks, bonds, property, annuities, and CPF would be a great thing to work towards.

Hi anon,

There are generally two types of income streams: Guaranteed and Variable.

On the guaranteed side, you have CPF Life and annuities. Both have zero risks and are not affected by market shock. The stream of income from such sources is constant and predictable. This is particularly important as she will need a minimum safety net.

On the variable side, you have instruments such as equity, UTs and bonds. They are exposed to market risks and hence their value may move up or down. The streams of income are also not guaranteed and could be lesser in bad years, so there is an element of uncertainty to them.

There's no right or wrong answer as to the allocation of income streams, however, you will want to ensure that she has a minimum 'floor' income that is inflation hedged. This minimum 'floor' will allow her to maintain her standard of living in terms of paying for necessities (needs). The rest of the income stream can come from variable sources, but as she ages, it is better to reduce the risk profile and have a greater percentage of her income come from guaranteed sources. Her variable income sources can be used to fund things such as vacations, the occasional fine dining, etc (wants).

So you'll want to ensure that her CPF RA will at least meet FRS, and if possible, ERS (depending on her comfort zone, as monies in RA cannot be taken out). Then, depending on how much she expects to spend, an annuity can be used to take care of the remaining guaranteed income stream. With her foundations secured, she can deploy her money in stocks/UTs, etc depending on her preference.

Beyond this, she needs to take care of uncertainties in retirement, especially with respect to:

• Hospitalization: She'll want a shield plan with a rider to limit her out of pocket expenses
• Long Term Care: Upgrade her Eldershield to ensure a decent payout should severe disability occur
• Personal Accident: To cover those expenses due to accidents and the like

I'd suggest that she sit with an independent advisor to look at the overall plan. Retirement planning has many aspects and they must be taken into account to build a strategy that will give her peace of mind. I've not gone into detail as I'm not intending to write an essay here, but hopefully, you have a better picture now.

If you have any further questions, feel free to reply to this post.