Preparing for Rainy Days in Old Age in Singapore

Abstract

AbstractSingapore’s elderly population has grown exponentially over the past decades. It was estimated that by 2030, one in four residents will be 65 and above. The rapidly aging population raises the question of retirement adequacy of the elderly. Self-reliance, where individuals plan for their own retirement, is encouraged. Singapore's government emphasizes the need for sufficient retirement savings to meet the rising costs of living. Set up as a public pension program, the Central Provident Fund (CPF) mandates working Singapore citizens (SCs) and Singapore Permanent Residents (SPRs) to make compulsory contributions of a portion of their monthly salaries into designated CPF accounts. It is a defined-contribution, fully funded program where individuals save for their old age. The CPF Lifelong Income for the Elderly (LIFE) Scheme (lifelong payouts) and the Retirement Sum Scheme (limited-term payouts) support a basic standard of living for members from their payout eligibility age, which currently ranges between 62 and 65, depending on their birth cohort. Despite the original intent of establishing the CPF as an old-age security scheme, the roles of CPF funds have gradually expanded over the years. In 1968, the government allowed CPF funds to be used to finance housing mortgages. Today, housing expenditure has become one of the common uses of CPF funds. Housing equities constitute a dominant fraction of household wealth for the elderly in Singapore. Throughout one life cycle, many households face the dilemma of being “asset-rich, cash-poor” in their golden years. Housing monetization, which refers to the conversion of household wealth from a more illiquid source, such as housing, to a more liquid one, is often relied upon by elderly people to finance living expenses after retirement. The monetization option becomes increasingly important as households age and have a large proportion of wealth locked in housing.