As Singaporeans celebrate National Day on 9 August, let’s take more than a moment to look back at our history with a sense of pride and gratitude for all that the founding generations have done for us. They overcame the odds as a tiny island to become a thriving nation state, with our leaders having implemented smart policies that have bettered the lives of Singaporeans over our 60 years.
Our pension system, run by the Central Provident Fund (CPF) Board is among those initiatives and one of Singapore’s many internationally recognised achievements. Having been established since before Singapore was independent (they celebrate 70 years this year – congratulations CPF Board!), it has naturally undergone many changes over the years and today provides each Singaporean and permanent resident with a solid foundation for their retirement.
You might recall, however, that on its own the CPF system has not always been the most popular with Singaporeans. It is only in more recent years that a true appreciation of it has grown among its members as many have begun to optimise, or at least improve the way they interact with and make use of it.
This shift was due in no small part to the CPF Board’s continuing efforts to better communicate and guide members through making the best use of its features, as well as the longtime support and advocacy it has seen from wealth advisers (like us!) and the rise of grassroots movements initiated by CPF enthusiasts.
Systems Need Both Good Implementation and Effective Navigation to Work Well
What this shift in the way Singaporeans have engaged with the CPF system remind me of is an important truth—that systems are just systems. No matter how well-designed, once moderate complexity is involved, they tend to present as a collection of rules that must be navigated in the right ways to achieve the best outcomes.
Our own RetireWell® planning methodology is another such example.
To address the five key risks in retirement for our clients, we developed and officially launched our version of a bucketing system in 2014. Since then, we have released two editions of our RetireWell® e-book and conducted numerous seminars and webinars sharing this methodology.
Using our system, we allocate retiring clients’ money into eight buckets designed to provide reliable income for each 5-year block of their retirement. These buckets include an income bucket of income producing assets for basic essential spending, a spending bucket that holds cash for up to five years of additional expenditure and a reserve bucket (patent no. 11202305812Q) to ensure an appropriately sized buffer is set aside to make up for potential shortfalls in investment returns. The other five buckets are invested in globally diversified portfolios of stocks and bonds with allocations that correspond to their respective investment time horizons and the client’s individual risk profile.
Over time, we have noticed that while many people who have learnt about RetireWell® have eventually become satisfied clients (and even raving fans!), there are also others who have attempted to employ a version of this kind of system on their own.
Aside from potential intellectual property rights infringements, this is not inherently a bad thing. It means that the methodology has gained recognition and that people are learning how to structure their retirement assets in a thoughtful way that better addresses the key wealth risks that each of us will face in the later phase of our lives.
However, even more so than with CPF, we know that for a system like RetireWell® to be at its best, potential users will need to ensure they are navigating its ins and outs effectively. And that means getting more than just the bucketing math right.
They will also need to use the right portfolios to ensure they have the best chance of earning the returns they require, make sure to monitor and assess the validity of their initial assumptions as markets and the world evolve, as well as navigate the trade-off decisions that will have to be made as their life plays out or their goals themselves change.
Doing all the above well is no easy task especially without proper expertise—the kind of collective know-how that cannot be easily documented in an e-book, shared completely during a 2-hour webinar, or gained without working through hundreds of cases in all their uniqueness and complexity.
It is for this reason that an ongoing relationship with the right adviser can be so valuable.
How the Right Adviser Can Make a World of Difference to Your Outcomes
To use a system like RetireWell® effectively and improve your outcomes, our team supports clients with the following:
1. Implementing Retirewell® Buckets the Right Way
Our Advisory team works with clients to size their initial bucket capital allocations appropriately and determine the best asset allocation for each bucket based on their needs, aspirations, and risk profile.
Our Investment team curates and manages each portfolio that advisers recommend ensuring that they capture market returns and premiums efficiently, and that appropriate risk exposures are maintained.
2. Reviewing Your Plan’s Inherent Assumptions on an Ongoing Basis
In addition, our Investment team uses empirical methods to update our estimates of the long-term future expected returns of the equity and bond markets every year to ensure that our base assumptions about market returns always remain reasonable.
Our Solutions team reviews our planning returns assumptions for each portfolio to ensure that all fees are taken into account so that the outcomes you plan for are what you actually receive. They are also responsible for the framework that governs how and when any significant changes to long run expected returns warrant adjustments to our clients’ plans.
Our Advisory team walks with clients to constantly review the assumptions that were made during the initial planning phase. This includes their level of assumed spending, income, and retirement age, among others.
3. Navigating Life Decisions and Their Associated Trade-Offs
Relatedly, our Advisory team are also there for clients when important life events happen.
For example, due to life circumstances, a client may find they need to retire earlier than anticipated. What modifications need to be made to the plan and what are the trade-offs that they will need to accept?
Another may find the need for more cash today than originally planned to support a loved one. From where should that cash now be taken and, crucially, what does that mean for the remainder of their retirement years?
If the realised returns during their retirement are much lower than expected, should they adjust their spending downward? If so, by how much? And if they would rather continue spending as they have planned, what else may need to be adjusted?
These are just some of the possible situations that real clients face where our advisers act as guides in making the important decisions by running scenarios, discussing options, and supporting convicted action-taking.
4. Constantly Improving the System and Their Portfolios
And finally, our Solutions team is always looking into new ways to improve the RetireWell® planning process and develop new systems entirely where it makes sense to. Over the years RetireWell® has received numerous improvements and updates, large and small. For example, in 2021 the team rolled out our patented Reserve Bucket, a significant upgrade that reduces the effect of potential return shortfalls across RetireWell® buckets.
Our investment team too is also constantly at work upgrading the portfolios used in each bucket by seeking out funds that express the desired asset allocation exposures most effectively and efficiently.
All this to say that it is important to realise that a retirement planning methodology and its successful use is much more than just the design of the system itself. Its effective application is equally important and best done with the support of a team with a wealth of deep experience.
When navigating a system like RetireWell®, you shouldn’t have to do it alone and the good news is you don’t have to.
This is an original article written by Bryan Chan, Lead of Solutions at Providend, the first fee-only wealth advisory firm in Southeast Asia and a leading wealth advisory firm in Asia.
For more related resources, check out:
1. Why the Reliability of Income Is More Important Than Investment Returns in Retirement
2. RetireWell® Part 1: Drawing Down Retirement Money
3. The Principles Behind RetireWell®
To learn more, download our RetireWell® eBook here.
Through deep conversations with our advisers, you will gain clarity on what matters most in life and what needs to be done to live a good life, both financially and non-financially. Learn more about our investment philosophy here.
