Your Retirement Savings

And after all the hue and cry about the changes to the CPF system ... what are you going to do about it? Personally, I mean.

A couple of points, if they were not that clear to you previously, ought to have become somewhat clearer by now. Firstly, whether you like it or not, chances are that you WILL live to a ripe old age. Here's some calculations by Tan Kin Lian, done in an ST article on 21 Sep:

"Many people think their chances of reaching 85 are slim. But they are mistaken. I estimate more than 50 per cent of the population will live to age 85 and beyond.

You do not believe me?

The Department of Statistics' publication Population Trends has data for the death rates of each age group over a period of 25 years from 1980 to 2005. Death rates have been falling over this period by about 3 per cent yearly.

I did some projections based on that data, assuming the decline will continue. This is likely to be the case, at least for the next 10 to 20 years. It has been falling at this rate for the past 25 years. Why should it stop now?

Based on my projections, a male at age 55 today has a 57 per cent chance of surviving to age 85, and 32 per cent chance of hitting 95. The probability for a female is higher, at 70 per cent and 42 per cent, respectively.

If you still do not believe me, remember I am referring to people who are 55 years and less today. This group will have a longer life expectancy compared to that of the older people living today."

Secondly, for many Singaporeans, CPF money alone won't be able to sustain them through their retirement. If these Singaporeans also do not have children to support them (adult children being the traditional safety net for the aged, in Asian societies), then the challenge grows greater.

Whatever the government may do now at the policy level, understand that it's pitched at the subsistence level. A monthly annuity payout of $300 is really just to ensure that you'll have enough money to buy your bowl of rice every day with a few sticks of veggies and toufu in it. It's to make sure that when you're old and wrinkled, you don't have to die of starvation on Singapore's nice, clean streets and spoil the scenery for tourists.

So if you want to enjoy your retirement years in much better shape than that, Mr Wang suggests that you spend some time thinking about how to save, invest and grow your money more effectively.

There's no point complaining: "But I only earn $X every month now, and after I pay my utilities bill and my handphone bill and my mortgage and my car instalment and my food expenses and give $Y to my parents, I only have $Z left, I have hardly anything left over to save."

Because, folks, it's your own life. And you know our kind of government is definitely not the kind that's going to give you any free money on a silver platter.

So you have to find a way, that's all.

Me, I drew up my first financial plan for retirement, during my 3rd year of working life. A crude model, no doubt, since I didn't know very much about personal financial planning then, but it got me started.

What about you?

Here's an interesting exercise - think of five ways you could cut down your expenses, without compromising the quality of life that you're accustomed to right now. No, let's make it more interesting - think of five ways you could cut down your expenses, which would either not compromise your current quality of life, OR improve it.

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Retirement, Money and Singaporeans

A Straits Times article, about retirement, savings and Singaporeans' expectations.

ST Aug 11, 2007
Retire? Not so soon, say many
Singaporeans polled
They need to carry on working because of worries
over insufficient savings
By Lydia Lim

SINGAPOREANS are in no hurry to retire and most want to work beyond the official retirement age of 62, some even into their 70s.

It's a case of 'CPF no enough' for many of these workers.

Seven in 10 polled last month in a Straits Times Insight survey on CPF said they do not think their savings in the national pension fund will see them through old age.

Six in 10 of them said the same of their Medisave funds for hospital bills and specified treatments.

The survey of 636 Singapore residents aged 30 and above found that apart from CPF, 77 per cent expect to be able to draw from other sources of retirement income, mainly savings, investments and insurance.

But a significant minority of 23 per cent had nothing else set aside.

One cause for concern is that only one in two Singaporeans has done any financial planning for retirement.

Even fewer, three in 10, have done their sums on how much they need to squirrel away.

What may mitigate against any resulting savings shortfall is their willingness to work beyond the retirement age of 62. Some two-thirds said they plan to do so.

Of these, one-third are willing to work up to age 65, another third up to age 70 and the remaining third into their 70s.

The journalist has got her thinking hat on backwards. The truth can be stated much more simply. It doesn't really matter what the "official" retirement age is. You will go on working as long as you (a) need the money, and (b) are still able to keep working.

Unless you regard suicide as an alternative, you don't have a choice. What were you thinking - that Singapore is a welfare state?

Blue-collar and lower-income workers are the most likely to want to work longer.
Eight in 10 plan to do so, against six in 10 among professionals, managers, executives and business types, or those drawing more than $3,000 a month.

Older Singaporeans are also more likely to want to work past the retirement age than those in their 30s.

The vast majority - 83 per cent - are however against a recent suggestion by ministers to raise the age when they can draw down their CPF minimum sum. It is currently 62.

The only practical significance of the "official" retirement age is that it is also the age when you can start utilising (in tiny little monthly instalments) your CPF minimum sum. For an explanation of how this works, refer to my old post here.

The survey findings also revealed a good amount of ignorance of the workings of the CPF system. Seven in 10 do not know how much they had in their CPF accounts.
And one in two does not know the rate of return on CPF savings.

Of the half who do, most - 63 per cent - are unhappy with the interest rate, which
stands at 2.5 per cent for Ordinary Account savings and 4 per cent for Special and Medisave Account savings.

The top two changes CPF members would like to see are more flexibility in the use of their money, and a higher interest rate on their savings.

Financial experts and Members of Parliament said it is good that Singaporeans feel no false sense of security over their retirement finances.

Manpower Minister Ng Eng Hen emphasised in an e-mail interview that a critical factor in determining what is enough for retirement is how long people work in relation to how long they can expect to live. Average life expectancy has risen from 61 years when CPF was introduced in 1955, to 80 today.

I believe that in the long run, what will catch many people off-guard is how long they end up living. Life expectancies (except in very poor countries) have steadily been rising over many decades and the curves don't seem to show any sign of topping off.

In 1900, life expectancy at birth in the United States was only 47 years. By year 2000, it had climbed to 77 years (an increase of 30 years). In 1950, life expectancy in China was 35 years. By 2000, it had risen to 71 years.

If you google around to check out what the scientists and doctors have to say about new medical discoveries and research and their implications for how long people are going to live, well, you'd probably be quite startled. Anti-aging medicine has become an industry in itself.

The question is - how long can you afford it? Not the medicine. I mean - life itself. Living 10, 20 years longer than you expected means that you need money to support yourself for an additional 10, 20 years. That's a pretty long time.
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A Quick Note About CPF and Retirement

A reader, Louis Tan, emailed to ask about the implications of the government raising the retirement age from, say, 62 to 65, 67 or 68 years. Yes, this signals to Singaporeans that they are expected to work longer before retiring. Apart from that, does it really mean anything?

Well, yes. It affects your CPF money.

How does the CPF work? You do not get to withdraw all your CPF money when you turn 55. First you must set aside a "Minimum Sum" and leave it in a "Retirement Account" with the government. At age 55, the only CPF money you can immediately withdraw is any excess you have, above the Minimum Sum.

When will you start getting your Minimum Sum back? When you reach the official retirement age. And then only in monthly instalments stretched over 20 years.

This is basically to ensure that in your old age, you can at least afford to buy your own rice and water, so that you do not become a nuisance to the government. Hopefully, you will die within 20 years of your retirement age, before your Minimum Sum runs out. Then the PAP government will not be responsible for your basic subsistence needs.

Now, what happens if the retirement age is raised? Obviously you'll have to wait longer before getting your Minimum Sum monthly instalments. For example, suppose the retirement age is raised from 62 to 68 years. You'll have to wait till you're 68 years old, before you can get your monthly cheque.

Since it is a long wait between your 55th and your 68th birthday, you will feel more motivated to continue working after you turn 55. Otherwise you may not have enough savings to last until your 68th birthday.

How much is the Minimum Sum? Currently it stands at $94,600. It will be slowly raised through the years, until it reaches about $120,000 in the year 2013 ($120,000 figure has not been adjusted for inflation).

If at the age of 55, your total CPF money is less than the then-prevailing Minimum Sum, then you get to withdraw nothing at all. Another reason to keep working.
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