?? Mom, Dad, do you have enough to retire?

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?? Money talks

In many households, it is taboo for parents and their children to discuss finances.?

Some parents may be embarrassed to reveal how unprepared they are for retirement. Or maybe they just haven’t thought about it, and intend to rely on their children’s allowance.

As children, we avoid the topic because it can seem like we’re probing for what our future inheritance will look like ??.?

However, the reality is that we’ll eventually need to have such conversations with our parents – it’s best to have them sooner rather than later.

In this week’s newsletter

• Why fixed deposits can be riskier than volatile stocks
• Dopamine fasting ??: fad or fab??
• Are your parents ready for retirement ???

?? Retirement checklist

Maybe you suspect your parents don’t have a retirement plan, or perhaps it’s a topic you’ve just never spoken about before.

Our parents have given us a lot, and we don’t want them to enjoy their golden years without worry. But it’s likely that your parents are not on track with their retirement plans, at least according to a recent survey by OCBC.

In an annual survey published late last year, the bank found that only 56 per cent of surveyed Singaporeans aged 60 to 65 are on track with their retirement plans. The age at which people intend to start planning for retirement has also been pushed back, even among older Singaporeans.

It’s an uncomfortable topic to discuss with your parents, but not knowing their financial situation and their plans can cause more anxiety in the future.

They may even be relying on you to fund their retirement, which can cause some strain on your own finances. Some 60 per cent of parents in Singapore see children as a “great investment” for retirement, even as they themselves find supporting their elderly parents a financial burden, a survey published this week by insurance company Manulife has found.

I spoke with Lorna Tan, head of financial planning literacy at DBS Bank, to come up with a guide on helping our parents plan for retirement.

Step 1: ?? Broaching the topic

When asking your parents about their finances, leading into the topic slowly can make the conversation feel less invasive, Tan suggests.

Try starting a conversation about the rising cost of living and then asking how they are coping financially.

Or you could try something to this effect: “I attended this financial planning class, and the instructor says many people underestimate how much they need in retirement. If you want, maybe I could help to take a look at whether there are any gaps in your plan?”

Step 2: ?? Getting an overview of their finances

Get a helicopter view of their current financial situation. How much have they set aside for retirement? Is their mortgage paid off? What insurance plans are they on? What investments do they own?

If they don’t keep a proper record of their finances, introduce them to digital tools such as SGFinDex, which can consolidate their financial information across different government agencies and banks.

Step 3: ???What are their needs?

From there, find out what kind of retirement lifestyle they want. How often do they want to go on overseas vacations? What about fancy restaurants?

Differentiate between their needs and wants. For example, health insurance, food, transport, or even a Netflix subscription can go under the “needs” pile. Vacations, gifts for friends and family or new gadgets can go under “wants”.

Step 4: ??? Income streams

To find out whether their retirement funds are sufficient, try using a flooring strategy, Tan suggests.

First, what is the “must-have” income floor they’ll need to pay for their needs? Ideally, these should be funded by safer and more predictable sources that won’t be affected by the state of the economy. For example, payouts from CPF Life, insurance plans, fixed deposits or government bonds.

After the funding for their needs has been settled, any leftover savings can be put into more growth-oriented investments – such as stocks or index funds – that are more volatile but offer potentially higher returns.

The idea is to avoid directly drawing down on their nest egg as far as possible to prevent their funds from running dry as people live longer and in the event that inflation whittles down the value of their savings.

If they have any debts, look at the interest rates on those loans and try to reduce their amount of outstanding debt as they get older so they have fewer liabilities to worry about. Prioritise debt that attracts high interest rates – such as credit card debt – that can snowball out of control when not paid on time.

Step 5: ?? Covering the gaps

If their retirement fund falls short of their desired lifestyle, find out if there are ways to make up the shortfall.

They might want to downsize their home, for which the government provides cash bonuses, or rent out a spare room for an additional income source. They might also want to monetise their HDB flat through the Lease Buyback Scheme.

There are also government schemes available that your parents may be eligible for. These can be found on the Agency for Integrated Care’s website, and include schemes for disability assistance, home modifications as well as caregivers, to name a few.

Having an overview of your parents’ retirement needs also makes it easier for you to know how much to give to your parents to support them through retirement.

If you’re already giving them an allowance, why not do it by topping up their CPF accounts and getting tax relief for yourself? If their Retirement Account has not reached the Basic Retirement Sum, they may even be eligible for dollar-for-dollar matching from the government to top up their account.

And rather than agreeing on giving a percentage of your salary, work out a fixed amount they’ll need, and that you can afford, Tan suggests. This way, the amount can be adjusted along the way as your own financial needs grow as you age.

Also, cover any insurance gaps they lack. Consider whether they need the insurance or if they have the funds to cover unexpected health expenses. Common insurance plans to look at include hospitalisation plans (for instance, Integrated Shield Plans with/without riders) and long-term disability plans (such as ElderShield and CareShield Life).

Step 6: ?? More than dollars and cents

Another aspect of retirement planning is their estate plans, a topic that probably needs an entire newsletter to go into detail. In essence, this includes having a will, setting up a CPF nomination, lasting power of attorney and an advanced medical directive.

With the deluge of scams targeting the elderly in recent years, it’s good to also educate your parents not to fall for fraudsters who might wipe out their entire life savings.

“But beyond their finances, really get to know what your parents want to do in their old age,” Tan says. “Get them to exercise and be social. Retirement planning is not just about money. It’s also about enjoying life and finding purpose in it.”

TL;DR

• Broaching the topic may be uncomfortable, but you’ll need to talk to your parents about their finances eventually
• Get an overview of their financial situation and work out an ideal retirement lifestyle
• Match their needs and wants to different income streams that can fund them
• Look at ways to top up the gaps in their retirement plan

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