Singapore's recent Budget 2022 revealed a slew of changes aimed at making Singapore's tax system more progressive and addressing social inequalities. Amongst the changes announced were plans to increase the Goods and Services Tax (GST) from 7% to 9% in two phases by 2024. Not long after, a number of popular food and beverage establishments were observed to have increased their prices even before the initial GST hike kicks in on 1 January 2023. This could be attributed to a combination of factors including global supply chain disruptions and increase in energy costs.
Impact of inflation
The CPF Basic Retirement Sum (BRS) will rise by 3.5% every year for the next five cohorts turning 55 from 2023 to 2027. This can be beneficial to CPF members as the pay-outs will be higher but that can also be a signal that the basic cost of living will be maintained at a higher level for a fair period of time.
According to official data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI), Singapore's core inflation rose to its highest level in nearly 10 years in January to 2.4% year-on-year. In January, MAS also said it was tightening its monetary policy settings amidst an upward shift in the nation’s inflation outlook.
How do we, as individuals, plan in advance to ensure that our wealth and accumulated savings will not be eroded by inflation and the cost of living that is going up year after year? Given that most of us often get caught up in our day-to-day pressing needs concerning work, family, and self-care, we may overlook the incremental cost of living on a yearly basis, but the impact becomes substantial over an extended period of time. To put things in context, if you need to spend S$1,000 ($733), the same standard of living assumed at a 3% per annum increase will in due course become S$1,557 over the next 15 years! Perhaps it is high time not just to focus on the routine mundane matters but think about the big important issues early in life. Regrettably, the very critical and important things in life such as planning for the future are all too often put off, only to be dealt with if there is time and energy left available.
Bank interest rates
Saving and leaving money in the bank account is often perceived to be the safest option, but with the current low interest rate environment, it can be detrimental in the long run if you hold too much cash. While liquidity and access to emergency funds is still required, one has to be wise about the amount of allocation to cash to avoid diluting purchasing power over time. In addition, the existing offerings for fixed deposits are barely capable of generating sufficient returns to match the prevailing rate of inflation right now.
The wealthy are the hardest hit
Included in the budget announcement were new wealth tax measures – including raising taxes for high earners through increased levies on personal income, residential properties and luxury cars – designed to mitigate the increasing wealth gap and strengthen Singapore’s social compact. With the increasing taxation of the wealthy, it may be an opportune time for top tier earners and high-net-worth individuals to take stock and conduct a thorough assessment of their personal finances. Should they like to continue enjoying similar levels of affluence, it could come with even greater costs, which is why reviewing your financial plans towards retirement will be crucial.
Are you still on track?
You work hard from the age of 25 to 65 for about 40 years, and you might need funds to survive for the next 20 years from age 65 to 85. Twenty years can be a very long period especially when the cost of living continues to rise and medical advancement gets better.
According to the latest findings from the Manulife Asia Care Survey 2022 that was conducted in November 2021, Singaporeans are focused on taking charge of their financial health this year. Data and stats show that 61% of individuals polled find retirement planning important since COVID-19 started. While many Singaporeans have definitely started the process to do something, it is also important to regularly review what you have and whether you are still on track to achieving your dreams and retirement goals as many may not have planned with higher inflation costs in mind.
You may be surprised, but the total amount one would be required to set aside to comfortably last through a few decades of retirement can easily come up to a significant sum of money – up to seven figures for middle aged to younger folks to sustain a reasonable standard of living. When you have a clear idea of what your goal is, then you can confidently take the necessary steps forward to plan how you want to get there with peace of mind.
What can you do?
Speak with a Manulife Financial Advisers (Manulife FA) representative to set clear objectives for yourself of what you need to get you to where you want to be. And use time, patience, and discipline as well as smart planning to get you to your goals so that you can live the life you want on your own terms. After all, wouldn’t you want to have better choices in life?
The author is a self-employed representative of Manulife Financial Advisers Pte Ltd. Views and opinions expressed in this article are those of the author and do not necessarily represent official policy or position of Manulife Financial Advisers Pte Ltd.
CFP® (Certified Financial Planner)
Senior Director, Financial Services
Manulife Financial Advisers Pte Ltd
Gregory Fok specialises in working with doctors and affluent families and has more than 17 years of consulting experience with regards to life, retirement and wealth planning.
His clients invest using Evergreen Strategies, backed by science and evidence that goes back almost a hundred years, that withstand the test of time. This gives them peace of mind as he designs efficient holistic financial plans for his clients using the 3 circles of wealth – wealth preservation, wealth accumulation and wealth distribution.
He has written a book entitled “Merchant of Time”, targeting Business Owners and Successful Individuals and had spoken to more than 13,000 top financial advisors globally at the Million Dollar Round Table.