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Young Singaporean families deprioritise retirement planning in favour of their children

3 min read
retirement

Young families are spending more on their children’s needs instead of setting aside the money for retirement purposes

According to studies conducted by AIA Singapore, they found that retirement savings has been deprioritised in favour of their spending more on their children’s needs. Parents spend almost 20 percent of their income on their children but only 7 percent on their retirement. This includes paying for items such as education and future savings. 70 percent of respondents shared they intend to maintain or increase the amount of income allocated to their children’s expenses.

Through the studies, AIA Singapore found three factors explaining the financial priorities of younger families.

  • An over-reliance on bank savings due to a lack of financial understanding. Bank deposits are the most popular savings instrument for Singaporeans, with nine out of ten respondents selecting this tool. However, nearly 1 in 3 Singaporeans’ savings was negatively impacted in 2020. Singaporeans are planning to set aside a median amount of between SGD251 – SGD$500 monthly for retirement.
  • Savings priorities tend to be short term instead of long term. Families focus on their needs and emergency spending instead of goals such as retirement. In terms of savings goals, emergency spending is the top priority (64 percent), followed by ensuring financial security for the family (56 percent). 76 percent intend to leave an inheritance for their children, but only half have started planning for it.
  • The amount of money required to maintain a desired lifestyle continues to expand, but many continue to underestimate the amount required. On average, Singaporeans plan to retire at 60 years old, which will require at least 25 years of income. Close to half of respondents want to maintain their current lifestyle after retirement, but more than two-thirds (66 percent) underestimate the actual amount needed. Among families with children, the underestimated amount needed is SGD 1,020 per month.
retirement

Retirement planning is an essential part of securing our longer term financial security, not just for parents, but for the entire family, so everyone can look forward to a brighter future with peace of mind.

Ms. Melita Teo, Chief Customer and Digital Officer, AIA Singapore

The shortfall between expectations and reality of retirement is widening

The AIA Retirement Quotient (RQ) survey (March 2020) showed that five out of ten Singaporeans were 14-years short when it comes to adequately planning for their retirement. This was compared to the national average life expectancy of 84.8 years old.

Due to the pandemic, many families have shifted savings allocation towards their children, and prioritised short-term needs. This has come at the cost of retirement goals. Most of these goals are also pegged almost exclusively to financial health and do not consider other aspects of wellness.

Pre-pandemic: According to findings from the AIA Retirement Quotient (RQ) survey conducted in mid-March 2020
Today: According to findings from AIA Save Smarter Study 2021, AIA360 Retirement Study 2021, and AIA Health Matters Survey 2021 conducted in June 2021

Given the trend towards saving more because of the pandemic, Singaporeans have been focused on channeling the extra money towards short-term goals such as emergency funds and family needs. This is despite the context of seeking to maintain their current lifestyle during retirement, and discounting the impact of the inflation rate on their savings.

Parents are also prioritising their children, with seven out of 10 parents sharing they do not wish to be a financial burden to their children and family members during retirement. However, a shortfall in savings might create that future scenario.

retirement

Retirement Quotient (RQ) by AIA Singapore and Ipsos

AIA Singapore in partnership with Ipsos developed a Retirement Quotient (RQ). This is an indicator to measure Singaporeans’ retirement readiness and guide them on a more holistic retirement planning journey. The RQ is made up of four distinct pillars: financial preparedness, health preparedness, social support, and trust in institutions.

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Images credit to AIA Singapore