Are Singaporeans financially prepared for retirement and ageing? Researchers from Singapore Management University are finding out.

SMU Office of Research & Tech Transfer – Singapore has one of the fastest ageing populations in the world – the consequence of rising life expectancy and declining total fertility. Adding to the concern of retirees and those heading for retirement are Singapore’s pricey living standards, as Singapore was ranked the most expensive city in the world to live in by the Economist Intelligence Unit in March 2015, beating out cities such as Paris, New York and Tokyo.

As Singapore’s baby boomers ride off into retirement, can these retirees be adequately replaced to maintain a sufficient labour force, and do they have sufficient funds to maintain their lifestyle and brace against medical crises in their twilight years?

It is to answer these questions and build a picture of the unique economic situation in Singapore that Singapore Management University (SMU) founded the Centre for Research on the Economics of Ageing (CREA).

In the keynote address of its inaugural conference held on 11 November 2016, Dr Amy Khor, Senior Minister of State for Health, said, “Many worry about population ageing, and refer to it as a silver tsunami … But population ageing need not be a disaster. It will only seem so if we all decline after a magical retirement age and spend longer years in inactivity and ill health. This outcome is not inevitable. For Singapore, the good news is that we are not only living longer, but also healthier.”

In fact, Dr Khor said, the average number of years lived in good health has risen from 65.8 years in 1990 to 72.3 years in 2015 for Singaporean men, according to the Global Burden of Disease Study 2015. That number has correspondingly gone up from 69 years to 75 years for women, she added.

The Singapore Life Panel®: Data-driven and robust

The inaugural conference highlighted early insights based on data collected from the Singapore Life Panel® (SLP), a population-representative sample of Singaporeans aged 50 to 70, covering about 11,500 Singapore households.

SMU President Arnoud De Meyer described CREA as a “massively data-driven” and “robust” interdisciplinary effort that has the potential to inform other ageing economies. He said that CREA was established with a Ministry of Education Tier 3 research grant – the first Tier 3 grant awarded to a social science project. It is under the leadership of Professor Bryce Hool, director of CREA and dean of the SMU School of Economics. Lee Kong Chian Professor of Economics and Finance, Yu Jun, is the principal investigator of the project.

“Our longer term objective is to contribute to informing policy in Singapore as it relates to the ageing population,” said Professor Hool. “The wealth of data that is being collected [means that there is] potential for the data to be used in many ways, including analysis of behaviour and the future positions of Singaporeans in this timeframe.”

The nuts and bolts behind the study

CREA’s flagship SLP study is led by health economics expert Professor Rhema Vaithianathan, a senior research fellow and co-principal investigator at CREA. She shared the methodology behind the four-year study, which began in August 2015 and is now in its 16th monthly cycle.

Via monthly internet-based surveys, CREA researchers have been tracking income, spending, wealth, health and other economic indicators to learn about how financially prepared the respondents are to financial risks such as health shocks, death of a spouse, and unemployment.

On average, the research team gets 8,000 responses per month, a figure that is “remarkably stable with minimal attrition”, Professor Vaithianathan said. Respondents who are not familiar with computers or do not have access to the internet are assisted in answering the survey questions by SMU students at centrally-located libraries.

The distribution of responses is representative of the population, she said, taking into consideration characteristics such as ethnicity and education (matched against the 2010 Singapore Census of Population); labour force participation rate (matched against the 2014 Singapore Labour Force Survey); and monthly gross earnings excluding CPF and monthly household expenditure of employed residents aged 50-70 years old (matched against the 2012-13 Singapore Household Expenditure Survey).

Ready for retirement? It depends

Among the earliest findings from the survey was that there is a large variation in income, wealth and spending by marital status, age and education, shared Professor Michael Hurd, a senior research fellow at CREA.

“Our data shows that some groups are spending more than their incomes, and they have low levels of wealth. That is certainly a matter of concern,” said Professor Hurd, who is also a senior principal researcher and director of the RAND Center for the Study of Aging in the US. “The average wealth is quite substantial, but the wealth distribution is highly skewed, with some people having nothing, literally nothing, and some people having substantial wealth.”

In general, married people – both men and women – earned more income, spent more, and saved more than singles, said Professor Hurd. “This means single people don’t have quite as many economic resources.”

Education was another important factor in determining income and subsequent wealth. “Married people who have post-secondary education have annual incomes of around $100,000, secondary education around $40,000 – that’s a factor of three; and primary education around $20,000.”

A lack of consistent saving was hurting people in the middle of the income distribution, or the 40-60th percentile, Professor Hurd said. Except for those married and aged 60-69, most were spending more than they were earning, leading to dissaving, or negative saving.

A dynamic model of ageing

Other early findings from the SLP data showed that a health shock – a diagnosis of a new chronic condition such as hypertension, cancer, stroke, cancer or diabetes – loomed threateningly for many as they aged. In the first 14 months of the survey, 25 percent of those aged 65 and up received a health shock.

Retirees are likely to be cash-poor but house-rich, the study also found, especially for households in HDB four-room flats or smaller. Home equity makes up 84 percent of the wealth of those in the bottom 10th percentile, compared to 74 percent of the wealth of those in the top 10th percentile, whose absolute levels of wealth are also much greater.

These insights, among others, were shared at the conference by speakers, whose findings collectively illustrated the challenges Singapore is facing from increasing healthcare costs, over-investment by the elderly in housing assets, and a lack of retirement savings.

From the monthly longitudinal data they collect, Professor Vaithianathan said the CREA researchers will simulate the trajectories of respondents’ wealth, income and consumption over their lifetime, to understand what their financial situation will look like into their 80s and 90s. “We can’t reverse ageing, but we can be the best prepared in the world for it,” she said.