The Silver Tsunami Impact

The sea started to recede. It was unprecedented, it was fascinating. Still laughing away in high spirits, tourist and residents at the beach got their cameras out and documented the moment. Little did they know what was going to happen next...

On 26 December 2004,?9.1-magnitude earthquake off the coast of Banda Aceh Indonesia, triggered a deadly tsunami that killed more than 230,000 people and rendered millions homeless. - BBC News.

Fast forward to 2021, today we are educated that an earthquake near the coast might signal a possible tsunami. Warning centres have been set up and evacuation routes have been established.

Similarly on a not-so-literal sense, we are not new to the concept and impact of an ageing population. The world has been warned about the impending – or already happening Silver Tsunami. Well, how have we responded?

Singapore will see one of the greatest impact compared to other countries. Singapore currently ranks 5th?(2021) in the world's life expectancy, alongside with places like Japan and Switzerland, yet, we also rank 3rd?– from the bottom, in terms of fertility rates. This meant in 2020, 1 working adult had to support 4.3 elderly above 65 years old.?

How can the current trends help us plan financially for our future?

Understanding the challenges of ageing population, regulations have been created/or are already in in the blueprint to tackle the issue of ageing. We are currently at the tip of the iceberg. With some foresight, we could better prepare for the rest of what is to come. We might have to expect that inflation will continue to rise sharply for certain sectors e.g., healthcare, housing, transport, food. We might also experience more intense sandwich generation effects in the future. This is due to increasing demand and low supply. Here are 4 main trends and its implications.?

GST increase from 7%-9%

o???Other than core inflation effects, goods that we commonly purchase like food, clothes etc will increase by another 2% starting 2023 due to GST hikes. GST forms as a significant revenue for the Government to use it to combat increasing healthcare costs and infrastructure for ageing population.?This means if our income and savings does not increase at the same rate, we will have a lower purchasing power, and businesses will have lower revenue moving forward.?Learning from historic trends, GST might continue to hike in the future.

Increase in statutory retirement age

o???Currently at 62, it will increase to 63 by July 2022 and eventually to age 65 by 2030. Statutory retirement age is the minimum age in which company cannot ask employee to retire. After this minimum age, they can continue only based on contractual basis.

o????As much as CPF is currently giving a high interest rate, it is a national social scheme that is govern by the trends of the population at large –If Singapore continues to have an increase life expectancy, we could expect changes in our CPF system to align with the trend.?This indicates possibility of changes in CPF life pay-out age (currently 65y/o) and time when CPF becomes free for you to use (currently now at 55y/o).??If CPF is your ONLY retirement fund, you might want to reconsider diversifying at a young age to stay in control.

Increase contribution to CPF at older age

o???Increased contributions mean less cash on hand for disposal at older age. It can be seen as a good thing because it encourages more savings for retirement, however,?you might want to prepare some cash flow needs at that point in time should desire to retire earlier than stated by the government.?With the recent budget 2023 announcement, it further confirms this movement in the years to come.?

Compulsory 5% co-payment for integrated shield plans

o????Medical inflation was at record high of 9.3% and has been lingering around for the past few years. This consequently led to the industry wide movement of making all integrated shield plans to include a mandatory 5% co-payment, coupled with various claim cost measures (claimed based pricing).?

What can we deduce from this?

o????If medical inflation is not controlled, we might be looking at more co-payment moving forward, higher premiums, or less coverage so as to make this insurance viable in the market. Unfortunately, with Singapore being an ageing population, where more people would be in demand of medical services and facilities, it is likely that the high medical inflation might linger for a long time.

o????In Addition, there has been more attention given to preventive health - out of hospital expenses like home care and regular check ups and procedures that might not qualify for insurance claims.

This means moving forward, if the insurance industry stays status quo,?we might not be able to depend 100% on insurance for our medical needs. We would likely have to set aside extra healthcare expenses as part of our retirement funds.

The Challenge: The low interest rate environment

On top of the silver tsunami, we are living in a low interest rate environment where banks are giving low returns for our savings (with the exception of the recent rate hikes), and most incomes are not seen to increase faster than the inflation + tax rate. No longer are the days that we can sit around, do nothing, and still expect to live well. In such challenging times, it is our responsibility to actively manage all areas of our money, and adopt a good financial planning mindset, at all stages of our life.?

Now what?

Here are 3 areas you can start with:

1.???????Ensure that you are prepared for your own retirement

If you have started, good job! You’re one step closer to financial freedom and fighting the silver tsunami. However, most people still disregard retirement planning because it seems far away, or the amount required seems too daunting to even think about. Sometimes we tend to have the YOLO mindset (You Only Live Once) such that we prioritize short term over longer term goals. We often think that we can wait, and worse case, we can/are willing to work through our retirement years. Despite a decent or even high income, many are struggling to put aside savings due to immediate obligations, lifestyle needs and lack of perspective. We tend to allocate minimal to retirement planning or keep our saving objectives vague.

Adopt a goal-oriented planning strategy by identifying the right timelines, life events, and risk tolerance. Then you can be assured that every hard-earned dollar is fully maximized in working towards building your ideal life while balancing your short term needs.??

2.???????Ensure your spouse is well prepared for their own retirement

“Till death do us apart”. How many of us think of this promise deeply when you say it? Imagine if you’ve put in so much effort in planning, yet your spouse did nothing. Now think of the opposite scenario – are you doing your part? For many couples,?retirement is a common goal. A healthy couple would likely be spending retirement years together doing retirement things. For instance, you probably won’t get to travel 4 trips a year for holiday if your wife's savings can only afford 1.?If you are the main bread winner, you will have to plan extra for your spouse's retirement as well. If there is a huge difference in age gap, you might also want to plan extra and for a longer timeline if you want to provide for your spouse's retirement.

3.???????Ensure your parents are well prepared for their own retirement

Our parents belong to the generation that experience the whole process of Singapore being a developing country to a developed one. In their time, proper financial planning was not prevalent – even doubted and had a bad reputation. Most Singaporean worked hard, and their main asset is their hard-earned savings in bank, and real estate that they are living in or have invested over time. Singapore life expectancy was also in the 70s, unlike today where it has increased by 10 years to an average of 84y/o.

Thankfully, bank rates were going at 4-6% at that time, while properties have multiplied many folds. However, that golden time is over. With another 20-30 years down the road, preservation of savings and insurance planning will be of top priority to ensure sufficient savings to last for longer years and unexpected medical events.?

Concluding words

We are currently facing a silver tsunami. The alert has been given – the time to act is NOW. If you choose to stay in Singapore, you will need choose to fight or be left to freeze away.

Together, we can stop the vicious cycle of depending on the next generation. We can make a change and allow generations after generations of our family, and other Singaporeans to not only survive, but live well in longevity.?