10 November 2023

Economy affects retirement and rainy day plans in Singapore: OCBC

Source: OCBC. Chart: average retirement ages by age cohorts.
Source: OCBC. Average retirement ages by age cohorts.

Retirement planning and crisis plans have been pushed back in Singapore. With Singaporeans feeling the urgency to better manage their debt, 'planning for retirement’ was the indicator that saw the sharpest decline (40 compared to 47 in 2022), according to research from OCBC. The annual OCBC Financial Wellness Index which is in its 5th edition this year, surveyed 2,000 working adults in Singapore aged between 21 and 65 in August 2023.

Nearly eight in 10 (79%) Singaporeans either do not have a retirement plan or are not on track with their retirement plans – an increase from 71% in 2022, OCBC found. While it is not surprising that younger people in their 20s and 30s are further behind in retirement planning, one in three (34%) of those in their 50s and 60s are on track – a drop of 8 percentage points from 2022.

In addition, people are planning for their retirement later, even if they are older. Those in their 50s who have not started planning for their retirement stated that they intend to start preparing for retirement at age 60, which is 2 years later than the age this group quoted in 2022. Those in their 20s said they plan to start at 42 on average, 8 years later than their estimates in 2022.

At the same time, more are considering alternative retirement strategies. Nearly four in 10 (37%) of those who have not started on a retirement plan said they would work beyond retirement age, while 28% said they would retire overseas where the cost of living is lower. Nine percent said they would rely on their children to support them in their later years.

Singaporeans also fell behind on their ‘rainy day’ plans such as being able to defray major medical expenses or being able to meet their family’s financial needs for the next year. For example, only 42% of Singaporeans with dependents have accumulated enough funds to meet their family’s financial needs for at least the next one year – a drop from 50% in 2022.

More Singaporeans in their 50s (48%) and 60s (43%) with dependents had saved enough for this purpose. But these two groups also took a much bigger hit compared to younger Singaporeans, with a 14- and 24-percentage point drop respectively from 2022. This is most likely because they are sandwiched between tertiary institution-going children and ageing parents.

In contrast, this year, 31% (vs 41% in 2022) of those in their 20s and 46% (no change from 2022) of those in 30s with dependents had saved enough. Additionally, 84% of Singaporeans are putting aside at least 10% of their salary, a drop from 2022’s 91%. The average savings rate – the average percentage of monthly income saved – fell 5 percentage points, to 25% of one’s monthly income.

A larger proportion of Singaporeans also do not have at least 6 months’ salary as funds to overcome a crisis (53% this year compared to last year’s 46%).

Not surprisingly, fewer are investing this year, with only 79% of Singaporeans having investments versus 85% a year ago. The average rate of returns for Singaporean investors was slashed by half for another year running, to 0.4%.

Gen Zs and young Millennials had the highest proportion of investors who had losses – 40% of those in their 20s had negative investment returns. Taken in totality, the proportion of Gen Zs and young Millennials on track with their investment goals plummeted from 75% in 2019 to 32% this year. This could be attributed to a lack of rigorous research. One in five investors in their 20s (22%) seek investment-related advice and news only from social media channels and chat groups like TikTok and WhatsApp – the highest among all age groups, OCBC said.

"Many young investors in their 20s who lost money may not realise they have a blind spot either, with more than a third (35%) of them actively managing investments on their own, trading daily to profit from short-term price fluctuations," the bank stated.

At the same time, Gen Z and young Millennial investors were likely to have been impacted by international stocks investments, which have taken a pounding this year. Thirty percent of investors in their 20s invested in such stocks, the highest among all the age groups.

Non-traditional investments such as cryptocurrency and NFTs – once popular among young investors – have declined in popularity this year. In 2022, close to one in five (18%) of respondents in their 20s invested in cryptocurrency. Of these young crypto investors, two in five said that they would still be willing to invest in crypto within the next year, despite the volatility of the asset class in 2022. Yet just 6% of respondents in their 20s invested in cryptocurrency in 2023, likely due to adverse news including the collapse of a notable cryptocurrency exchange (FTX).

Qualified financial advice and the use of digital tools can uplift financial wellness, OCBC suggested. The Index found that getting proper help, whether in terms of advice or tools, had a positive impact on improving scores.

For instance, almost half (46%) of investors who seek qualified financial advice from financial institutions are on track with their investments. This is in contrast with those who do not seek advice from financial institutions, of these, only 35% are on track.

On average, investors who had sought qualified financial advice had a 3.3 times higher rate of return on overall investments compared to the national average. Those who did not seek advice, on average, reported a loss.

From the personality perspective, Singaporeans with ‘Emotional’ as their most dominant financial
personality trait have the lowest average Index score (54), performing especially poorly in areas such as having sufficient passive income, investing regularly and planning for one’s retirement.

Conversely, those with ‘Conscientious’ as their most dominant financial personality trait have the highest average Index score (64). While the average annual rate of return on investments for Singaporeans was 0.4%, this plunged to -0.8% for those who were dominant in the ‘Emotional’ trait but jumped to 1.4% for those who were ‘Conscientious’.

That said, the use of financial tools helped to uplift scores significantly for those with 'Emotional' as their dominant financial trait, OCBC shared. For example, the average score for a person who is dominant on the 'Emotional’ trait and who used a digital tool that provides an overview of their finances across the financial institutions they used, was 57. A similar person who did not use such a tool had the lower average Index score of 51.

OCBC’s Head of Group Wealth Management Tan Siew Lee said: “2023 has been yet another tough year, with the continuation of high interest rates, inflation and turmoil in the financial markets. All of these are reflected in this year’s results, with the Index at its lowest since we started in 2019.

"The silver lining is that Singaporeans are managing their debt better this year and are still saving well. These are virtues that Singaporeans must continue to practise, especially given the challenging outlook.

“Another simple step that Singaporeans can take is to understand themselves better. Our survey this year found that personality traits have a bearing on financial wellness. Taking the time to understand what traits they have, and the strengths and weaknesses associated with these traits, is therefore important. Only then can they find the right digital tools and solutions to bridge their shortcomings.”