What if your parent’s retirement income stopped, can they rely on you?
In the past, many Singapore family tend to have 1 sole breadwinner and 1 homemaker. Stereotypically, the Dad made the money and the Mom took care of the family. What this resulted is an asset imbalance.
For example, the Dad would have accumulated CPF and not the Mom. Although, it really isn’t imbalance as couples might have joint accounts. Or perhaps the Dad will tell the Mom, “my money is your money”. But reality is, one party tend to have more wealth than the other
In this article, I’d like to talk about ONE retirement planning blindspot : Concentrating in one source of retirement funding
Context
Recently, I got recommended to this couple and they are deciding on how much CPF-Life to sign up for. Ideally they don’t want their children to be worried of their retirement. They are concerned with the adequacy of retirement fund and how long it may last.
They are of retirement age, 65 (M) and 60 (F) respectively, conservative in the way they manage money. CPF-life seems to be a reasonable and a “default” option
That will be quite true if both of them have their own set of CPF-Life payout. Personally, CPF-Life is an amazing scheme!
One of the interesting thing about their situation : wealth is concentrated in the hands of the husband
They have joint account with some money, but most money is in husband’s personal account as he was managing the funds with fixed deposits (I thought it’s usually the other way round).
Their initial plan was to have their main retirement income coming from CPF-Life, tied to the husband’s name.
And I spotted one major issue in this set up.
What if uncle deceased before auntie?
Implication 1 : Income stream stops
Their only income stream comes from CPF-Life, tied to uncle's name and it will stop when he is no longer around. Thereafter, auntie will receive a bequest.
A big question here is, will the bequest amount be sufficient for her remaining retirement years? Considering that bequest goes down to $0 between the age of 80-85. Without this continuous payout, are the children mentally prepared to takeover the “income baton”
Implication 2 : Estate & liquidity complications
Most of their money is in uncle’s personal account. If uncle passes on first, his estate will be split between his children and his wife. No doubt their children will continue to take care of their mother. However, there will be a transition phase where auntie won’t have access to the cash in bank which is part of their retirement fund.
Implication 3 : Potential change in lifestyle
Will lifestyle change if one party is no longer around. Will they be living with children? Which child? And are the children mentally prepared? Will there be a helper? Taking this into consideration, will the current retirement fund be sufficient? Especially so if auntie passes on first, as uncle is dependent on auntie for the household matters.
Implication 4 : Management of money
Uncle has been managing the household finances for many years. Will auntie be comfortable handling the money and will the money be sufficient if she adopt a “put in bank and draw down” approach?
Conclusion
A detailed retirement planning should take these factors into consideration. It takes patience and partnership with a good financial advisor to discuss this pointers.
Reality is, most retirement planning don’t go as deep.
For younger folks, retirement planning will first focus on the accumulation of fund.
For seniors, retirement planning should dive deeper into the details and with some “What-if” planning.
Amongst many possible solution, one of the solution this couple took up was to create a guaranteed income stream, similar to CPF-Life using private annuity and place it under auntie’s name. In the event 1 party is no longer around, the retirement income stream will not stop
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