• All blog entries
    • Calculators
    • Case studies
    • Cost of living
    • CPF Are You Ready?
    • CPF Matters
    • Credit Management
    • e-Learning
    • Estate Planning
    • Events
    • Financial advisers
    • High Networth
    • Insurance
    • Investments
    • Letters to the Press
    • Magazines
    • Others
    • Retirement Planning
    • Scams
    • Surveys
    • Tragic Stories
    • Unethical sales process
    • Videos
  • Legal
  • Testimonies
    • Individual testimonies
    • Gallery
  • My Account
Hi, looking for a fee-based financial planner in Singapore? Read this article now!
  • Home
  • About
    • About Wilfred Ling
    • Wilfred Ling from Client to Adviser
    • Why do you run your own professional financial planning practice?
  • FAQs
    • FAQs on Wilfred Ling’s Financial Services
    • FAQs on Financial Planning
    • FAQs on Investments
    • FAQs on Insurance
    • FAQs on Estate Planning
  • Services
    • Overview
    • Retirement Planning
    • Investment Portfolio Management
    • Insurance Planning
    • Young Parents
    • Helping Parents with Special Needs Children
    • Safeguarding your Assets from Creditors
  • Fees
  • Cool Tools
  • Contact
  • Subscribe
  • 17, February 2019
You are here: Home / Retirement Planning / Life Expectancy and the Importance of Retirement Planning

Life Expectancy and the Importance of Retirement Planning

23, December 2016 by Wilfred Ling 2 Comments

We have heard in the news that life expectancy is rising. But how much is it rising and what is the impact to retirement planning?

I downloaded the statistic from Singapore Department of Statistics for life expectancy at age 65 and plotted the data on a XY graph as shown below and did a linear regression.

longer life expectancy

Don’t be shocked by what you see. It seems life expectancy has been rising in a very linear fashion without any sign of it slowing down. Around 1991 to 2002, the life expectancy appears to slow down but in 2003 it suddenly ‘reverted’ back to its trend line.  The R2 of 0.95 for both male and female shows that the straight line trends are very strong.

Let’s assume you are now 40 years old and if you are still alive at 65, how long are you expected to live? If you are a female, you are expected to live on average X = (2016+65-40)=2041 , Y =0.2038*2041 - 323.65 = 92.3 years old! Do remember that 92.3 years old is the ‘average’ age. You have a very good chance of living beyond 92.3 years if you fall at the wrong side of the bell curve!

So, what is the impact to retirement planning?

Be careful of the inflation monster

The inflation monster rear its ugly head when the time horizon is long. If the inflation is 2% per annum, your purchasing power is reduced by 9.4% after 5 years. But for 40 years, your purchasing power will be reduced by a whopping 54.7%. You don’t need to invest in stock to face the risk of large losses. All you need is to keep your money under the pillow and the inflation thief will rob more than 50% of your money (guaranteed).

Be careful of complicated investment portfolios

It was reported that one in ten people age 60 and above in Singapore has dementia and I quote directly from the Straits Times:

“IMH experts attribute the rise in prevalence rate to a rapidly ageing population and increasing prevalence of stroke, obesity, diabetes and hypertension that are risk factors for dementia.” - One in 10 people over 60 have dementia, new Singapore study claims, 25 March 2015 Straits Times.

In view of the risk of mental incapacitation due to aging and other risk factors, you should not have complicated investment portfolios. The ability to do financial analysis adjustments, spot clever accountings etc all relies on having an alert and fully functional mental capacity.

Professional financial planners advice that risk tolerance should decrease as one ages. I would say that the risk tolerance of a person who lacks mental capacity is actually ZERO.

Hence, I suggest that the basic retirement expense of a person should be supported by no-frills annuities. Anything extra can come from high risk investments such as stocks and rental income.

Do note that the features of annuities should not be changed throughout the life of the retirees otherwise the annuity becomes like another complicated investment portfolio to manage. (CPF Life is subject to ever changing goal-post shifting CPF rules. So CPF Life is one such annuity that is considered a rather complicated investment product).

Leave some money behind for your wife who has  a longer life expectancy

It can be seen from the graph above that a female individual has a longer life expectancy compared to a male. Therefore, husbands should take that into consideration by leaving behind sufficient estate upon his demise. This means that when he purchases an annuity like CPF Life, he may consider opting for the CPF Life Basic which has the higher bequest compared to CPF Life Standard.

There are also annuities that has bequest equivalent 100% of the initial premium. Normally I advice husbands to buy annuities that always maintain a bequest of 100% of the initial premium. For the wife, I will suggest a decreasing bequest annuity.

Like this article? Subscribe to my newsletter below for more.

Get regular Tips on Financial Planning. Free subscription for 3 years. Covers all aspect of financial planning such as 'How much salary you should have?', 'How to avoid insurance that is not suitable?", 'What are the retirement planning methods?", etc

Share this:

  • Tweet
  • Print

Related

Filed Under: Featured, Retirement Planning

Comments

  1. Fred says

    30, January 2017 at 4:35 am

    Haha….Wilfred

    Your advocacy of no complicated products due to high dementia probability but introducing an annuity of the same breadth.

    Reply
    • Wilfred Ling says

      30, January 2017 at 8:26 am

      Yes that’s right as annuities are simple products just like pensions.

      The exception is CPF Life. Although its an annuity but requires the retiree to potentially make decisions along the way because of the ever-changing rules in CPF Life.

      Reply

What do you think? Leave a comment. Cancel reply


WILFRED LING, CFA

WANT TO GET REGULAR TIPS ON FINANCIAL PLANNING?

JOIN with thousands of other subscribers in getting tips on all aspect of financial planning such as "What is the minimum salary required?", "How avoid insurance that is not suitable", etc.


WILFRED LING IN THE NEWS

Click HERE to find out more.


THE KIND OF CLIENTS I AM LOOKING FOR

NEW TO US?

Learn how you can fully benefit from this massive website: HERE

For Registered Users Only (free)

  • Monthly Pan Europe Update January 2019 21/1/2019
  • China Eases Monetary Policy Again, Now What? 10/1/2019
  • What’s New In China’s 2019 Outlook? 19/12/2018
  • Monthly Asian Monthly Roundup December 2018 14/12/2018
  • Monthly Pan Europe update December 2018 14/12/2018

View All

For Clients Only

  • Monthly Global Equity Update January 2019 25/1/2019
  • JPMorgan Guide to Market Q1 2019 15/1/2019
  • JPMorgan Perspective Q1 2019 15/1/2019
  • Monthly Global Equity Update December 2018 24/12/2018
  • Monthly Global Emerging Market Update December 2018 21/12/2018

View All

Top Posts

  • Strange way of how CPF Interest is calculated & retirement planning CPF has a rather strange way of calculating interest. I...
  • CPF Life Standard default plan is the worst of the two (22 June 2017 update to the new booklet) This article was originally written in 8 July 2014 and...
  • CPF: How to Accumulate $1m in your CPF by 57? I read from the CPF’s AREYOUREADY facebook about a man...
  • CPF Retirement Sum Scheme Although CPF Life is compulsory, there are those who wi...
  • Shocked that you cannot use your CPF for housing loan due to Valuation Limit? (Closed caption) Many HDB owners struggle with their mortgage installmen...

Recent comments

  • Alanna on Police report filed against A2A Capital Management
  • Alanna on Police report filed against A2A Capital Management
  • Russ on Police report filed against A2A Capital Management
  • Deb on Psychology behind the Singapore ‘chope’ culture and what we can learn to achieve our financial freedom
  • Wilfred Ling on Vanguard funds in Singapore at just US$ 20,000!
  • Jess on Vanguard funds in Singapore at just US$ 20,000!

To be notified of new blog post, like this facebook page

To be notified of new blog post, like this facebook page

Read articles based on different categories

Investment Login

iFAST Central: Login

iFAST Prestige: Login

Navigator: Login

Chartered Financial Analyst

CFA
5 years milestone in Continuing Education

Chartered Financial Consultant

ChFC

Featured Blogger

IM$avvy
© Copyright 2006-2019 Wilfred Ling. All Rights Reserved hollow-nasty
hollow-nasty
hollow-nasty
hollow-nasty