Managing retirement plans with debt

If you have credit card debt or personal loans, it can be tough to also save and invest. You may find yourself constantly torn between the two, and forced to choose between them; but this isn’t ideal as, if all you do is pay down debt, you may find you have insufficient funds later in life. Or worse, you may find yourself constantly needing credit, and hence caught in a cycle of debt. Here’s how to take a balanced approach, and manage your retirement plans even as you pay off debts:

1. Prioritise high-interest debts in your repayment plan
Not all debt is equal. High-interest debt, such as credit card balances, can quickly spiral out of control. Prioritise paying off these debts as soon as possible, over lower lower-interest loans (such as your HDB loan or student loans).
In general, credit card interest rates are around 24 to 26 per cent per annum, whilst most (not all) personal loans are at six to nine per cent per annum. In contrast, a low-interest debt - such as an HDB loan - is at 2.6 per cent interest*.
Because credit cards and personal loans have much higher interest rates, it’s important to resolve them as soon as you can. The longer you let these loans carry interest, the harder it becomes to save for retirement.

*As of 2025. The HDB loan rate is 0.1 per cent above the prevailing CPF rate.

2. Contribute to retirement savings as and when you can, even if the amount is small.
Even while paying down debt, it’s important to still contribute something—however small—to your retirement savings.
Since compounding interest can be earned on retirement savings, holding off on them for long periods can cost you more than you expect. For example, if you save $200 a month for 10 years, at just five per cent annual growth (compounded monthly), you would have around $31,185 by the end of that decade.
But if you had started just five years earlier (15 years of saving), the amount could range above $47,800. So the sooner you start, the bigger the impact.
Don’t worry if the amount you can save isn’t huge: even a little bit can amount to a significant sum, over a period of decades. Some insurance plans also have a savings component to help with that. For example, some retirement income plans can pay out up to 5.4 times the premiums you paid.

3. Take advantage of government policies to enhance your retirement
If you’re forced to start saving later, due to debt earlier in your life, there are ways CPF can help. One example of this is the Matched (MRSS).
The MRSS is available to Singaporeans aged 55 and older. Under this scheme, the e government will match you dollar-for-dollar, for every voluntary top-up you make to your CPF Retirement Account (RA). For example, if you voluntarily top up $500 to your CPF RA, the government will put in another $500, so you get $1,000 instead.
This is up to a limit of $2,000 per year, or up to $20,000 in your lifetime. Your CPF RA can accrue at up to six per cent per annum, so this can help you to catch up even if you start saving late.

4. Don’t empty your emergency fund to pay off debt as soon as possible
An emergency fund should consist of six months of your expenses. It may take time to build this, but it’s essential for emergencies. If you’ve accumulated savings in such a fund, avoid spending all of it at one go to accelerate debt repayment.
For example, if you have a fund of $10,000 saved up, and you’re $20,000 in debt, it could be a bad idea to pour all $10,000 in debt repayment. This will still leave you with $10,000 in debt; and when you get into an emergency, you’ll have nothing available. This could lead to borrowing yet again.
This can lead to a vicious debt cycle, where you’re constantly borrowing, wiping out your savings to repay the debt, and then incurring a new debt. This can inhibit your ability to save over time, and badly affect your retirement.
So pay back what you can as best you can, but always ensure you still have some savings for emergencies.

5. Ensure property insurance coverage, to avoid medically-related debts
It is very difficult to pay for certain serious illnesses out of pocket, such as cancer, heart attack, or stroke. If you’re not sufficiently covered for these, the resulting expenses - from hospitalisation to follow-up treatments - could pressure you into borrowing, or clearing out retirement funds.
Consider proper critical illness coverage, so you can get a lump-sum payout in the event of a major illness. This will mitigate the need to take loans for medical reasons, or having to spend retirement savings prematurely. Some critical illness plans can even protect you repeatedly from the same illness (e.g., such as a second stroke, the return of cancer, and so forth).
Also consider that, if you don’t have critical illness coverage, the resulting expenses could cause you to delay or default on existing debt repayments. This will incur even higher interest, and potentially trap you in a debt cycle.

Finally, be sure to review your plans and progress at least once a year
It’s best to speak to a qualified financial representative, to ensure your debts are being paid down or managed in the right way. At the same time, a financial expert can ensure that you’re still on track for your retirement goals, via a balanced and diversified use of retirement savings.
Saving whilst still in debt can be frustrating: but by developing a systematic approach, and paying down debts the right way, it’s possible to become debt-free without sacrificing your retirement.