In my last article about CPF Life policy changes, I’ve analysed how the policy changes will affect my retirement plans and how I would aim to achieve the target of my projected Full Retirement Sum at the age of 55. Ever since changes to CPF Life plans were announced this year, I’ve been been thinking of different ways of maximising my payouts while keeping the option of a bequest available for my family when I pass away.
Let’s do a quick recap on CPF Life policies.
Doing away with the name, CPF Minimum Sum, CPF has introduced 3 types of Retirement Sums – Basic Retirement Sum (BRS), Full Retirement Sum (FRS), Enhanced Retirement Sum (ERS). For simple calculations, FRS is double the BRS amount and ERS is triple the BRS amount.
If you were to opt for BRS, you will need to pledge your property or property charge to make up for the difference between the FRS and BRS in order to gain access to cash.
After numerous attempts to make CPF Life plans easier to understand for regular Singaporeans like you and me, there are now only two types of CPF Life plans – Basic plan and Standard plan.
The Basic plan caters to Singaporeans who are willing to receive a lower monthly payout in exchange for a higher bequest amount (the money your family will receive when you pass away) and the Standard plan is the exact opposite whereby it provides a higher monthly payout in exchange for a lower bequest amount.
The general consensus from people who made the effort to try to digest the pros and cons of both Basic and Standard plans are that while the Standard plan is the default plan that CPF would select for all Singaporeans, the Basic plan is actually much better because while the Standard plan provides a slightly higher monthly payout, it wipes out the your CPF Life premiums at a much faster pace.
The purpose of this article is to try to tackle a few variables that impact my retirement planning and increase flexibility in my retirement strategies.
As my goal is to retire by 50 (or earlier), I will need to keep most of my post-tax money outside of CPF so that they can cover my expenses from age 50 onwards.
Here are the constraints that I am working with in this article.
As my goal is to get a higher payout using my CPF money, I’m looking at trying to beat the CPF Life Standard plan with a Full Retirement Sum. Here’s how the monthly payout from CPF Life Standard plan for a Singaporean retiree who has the Full Retirement Sum injected in the CPF Life Standard plan. The target for me is to achieve a higher monthly payout of $1,397 or a yearly payout of $16,764. The disadvantage of this plan is that 20 years that after you start receiving monthly payouts from CPF Life, your Full Retirement Sum will be fully wiped out and there will be nothing left for your family when you pass away.
The government wants all Singaporeans to pool their money together to build an annuity program that all Singaporean citizens can tap on upon retirement. Assuming that I am able to accumulate the Full Retirement Sum (projected to be around $300,000) in my CPF account, I want to see if I can get a better return if I only opt for the Basic Retirement Sum (and pledge my property charge) and use the remaining 50% of my CPF account to buy a private annuity.
Putting a Basic Retirement Sum into the CPF Life Standard plan, I would receive a monthly payout of $767 or a yearly payout of $9,204. That means I will have to find a private annuity plan that provides a monthly payout of at least $630 ($7,560 per year) and higher to make this work.
I was fortunate enough to have a friend who works as an insurance agent with Tokio Marine who was kind enough to help me generate some figures based on Tokio Marine’s Retirement GIO and Retirement PaycheckLife for the calculations in this article. These two annuity plans fit my bill as they are similar to CPF Life plans where I would receive monthly/yearly payouts for the rest of my life. There are probably other similar private annuity plans in the market but I did not do a thorough check.
I had my friend help me generate both Retirement GIO and Retirement PaycheckLife plans simulating a scenario whereby I would withdraw the remainder of my CPF money ($150,000) out of my CPF account at age 55 after opting for the Basic Retirement Sum and put that money into premiums for either a Retirement GIO or a Retirement PaycheckLife plan. The plan is to let the money sit in a private annuity plan until the age of 65 where the monthly payout would start in conjunction with monthly payouts from CPF Life.
When you look at the payouts and bequest amounts below, you will notice that the Retirement GIO plan pays a lower monthly payout than the Retirement PaycheckLife plan but you would be able to recover the full amount of your premiums upon death or surrender of your annuity plan. The Retirement PaycheckLife plan not all that bad though because it would still return a fraction of your premiums upon death or surrender of your annuity plan unlike CPF Life Standard Plan where all your premiums would be entirely wiped out.
|Annuity Plans||Tokio Marine Retirement GIO||Tokio Marine Retirement PaycheckLife|
|Monthly payout from age 65||$676.67
As we can see in the table above, both the Retirement GIO and Retirement PaycheckLife pays out more than $630 each month. That means I am able to get a better return by combining a CPF Life Basic plan (Basic Retirement Sum) and a private annuity plan together, instead of just sticking to a CPF Life Standard plan (Full Retirement Sum).
Let me summarise this really long article for readers who just want the short story. We have determined that by combining a CPF Life Basic plan (with Basic Retirement Sum) and a private annuity (in this example, either Tokio Marine Retirement GIO or Retirement PaycheckLife will do) bought at the age of 55, we can achieve a higher monthly payout than just a CPF Life Standard plan (with Full Retirement Sum).
Personally, I’m more inclined to take up Tokio Marine’s Retirement GIO annuity plan because there’s an additional safety net of being able to get all my premiums back if I choose to surrender my plan at say, the age of 80 if I need the extra money. This is also very useful if CPF Life plans actually provide a better value than the existing Retirement GIO plan. I can always surrender the policy and buy another CPF Life plan (yes you can buy more than one CPF Life plans if you want to).
I know we can’t predict what the future holds for us (30 years in the future, in my case), but I hope this article opens up new ideas for readers who are planning their retirement.
I would love to hear your thoughts about this article and what you are planning for your retirement. Please share them in the comments below.
Short advertisement: This article wouldn’t have been possible without the help from my friend who works in Tokio Marine as an insurance agent. If you found this article useful and are interested to find out more about Tokio Marine’s annuity plans, please let contact me with your details so that I can forward it to my friend who can provide more details about their annuity plans.
I can pretty much consider October as the charity month of 2015 for me, having participated in a few charity events this month and the main highlight is Ride for Rainbows, a fundraising cycling event that is organised by Club Rainbow.
Club Rainbow (Singapore) is a charitable organisation that relies solely on donations from compassionate corporations and kind-hearted individuals to support us in our mission. Set up in 1992, the organisation provides a range of comprehensive support services for the families of children who suffer from major chronic and potentially life-threatening illnesses. Children in Club Rainbow range from newborn babies and youths up to the age of 20 years. They require frequent visits to hospitals for treatment, complicated therapy and long-term medication. On the recommendation of their respective doctors, these children are referred to Club Rainbow for follow-up support.
Ride for Rainbows is a fundraising event organised by Club Rainbow (Singapore) and is into its fourth year. Riders register for the event and have to help raise a certain amount of donations in order to qualify for the cycling event. I registered in the Rolling 20 category and that means I will have to raise $1,000 as an individual rider and then challenge myself to cycle 100 km around the island.
Fortunately, I have generous friends in my social network and was able to raise 80% of the funds through donations. I simply topped up the rest myself to achieve the target. On the event day itself, the 100 km ride actually helped me learn some lessons from long distance cycling that I find very relevant to retirement planning.
There’s an old saying, “Don’t bring a knife to a gun fight.” I did exactly that when I decided to use my 3-year old 7-speed foldable bicycle and attempt to complete cycling 100 km on the road. I mean, I use that bicycle to commute to work every day so what could go wrong? The answer is, EVERYTHING!
I had trouble keeping pace with the other cyclists who were on their road bikes and they definitely have a more consistent cycling cadence than me.
Likewise in retirement planning, you can’t invest in low risk bonds and expect your investments to enjoy a capital growth of 7-10%. You need to make the right investment choices, set the right asset allocation for your portfolio in order to achieve your objectives.
I remember during my army days, we had progressive training to increase our running mileage before attempting a 32 km run. I wanted to do a similar progressive training before the Ride for Rainbows event but that didn’t happen due to the haze situation in Singapore. In fact, I had to even stop cycling to work because of the haze and started taking the train to work a month before the event.
So I attempted to cycle 100 km without any training and I was regretting it right from the start. The journey started okay, but towards the 30 km mark, my calves started to cramp. I never knew cramps could come back again after they have gone away. So I was powering through the ride with multiple episodes of cramp on my calves. On hindsight, I would have wanted to be achieve progressive cycling mileages of 10 km, 25 km, 40 km, 60 km and 80 km before the event.
Nobody wakes up one morning, decides to retire and then retires by nightfall. It takes years of planning for most individuals to achieve financial independence. You need to meet progressive milestones, for example, achieve a net worth of $100,000, then $250,000, and gradually hit your final goal of financial independence.
During the long distance ride, I would have quick chats with other cyclists occasionally when they happen to ride alongside with me. I would receive tips like how my seat is too high and that causes my bicycle to sway side to side as I pedal, for example.
These are very useful tips as I adjusted my seat at the next rest point and enjoyed a better ride. I also received encouragements from other cyclists who saw that I was trying to accomplish the same goal as them on a foldable bicycle and they cheered on me to keep going. There were also other cyclists on foldable bicycles who were pedalling on the same pace as me so we kept edging one another not to slow down. That helped everyone to finish the ride together.
I had the good fortune to meet strangers who eventually became friends and helped me move closer to my goal of being financial independence. For example, I met this guy through an Internet forum and I learnt from him, how gold prices are affected, their trends and how to invest in gold. My gold investments eventually yielded me a 30% profit when I exited the market.
Every cyclists love a accelerating down the hill without pedaling. But that is your reward when you actually make the effort to ride up the hill in the first place! When we were riding through the Mandai stretch of the route, there were many hills to overcome. Having done my research on the cycling route, I knew that this was the most challenging part of the entire 100 km route.
I powered through the hill climbs because I knew that it would be a worse torture to attempt to climb the hill at a slower speed. The reward at the end of the climb is a 40 km/h sprint down the hills without pedaling and enjoying the cool breeze brushing against my face.
The journey of financial independence is never easy. Especially when there is a huge gap between the size of your existing investment portfolio and the ideal size of a investment portfolio that you can retire with. It is a tough hill to climb but one just has to keep soldiering on. The end of that journey will definitely be a sweet one!
Can I retire today? That’s the million dollar question that I ask myself from time to time.
While I have a spreadsheet that tracks my expenses and provides me statistics about my lifestyle on both monthly and annual basis, I didn’t have a forward-looking tool that provides insights into how changes to my lifestyle today can make an impact to my life in 10-20 years time later.
I know that I am changed from an extravagant lifestyle to one that is a lot more frugal with low monthly expenses and high savings rate. But will this new lifestyle allow me to retire by the age of 50 (as the title of this blog says) and most importantly, retire with a retirement portfolio that outlasts my lifespan?
With that in mind, I created the Singapore Retirement Planning Simulation Spreadsheet to provide insights into retirement planning for Singaporeans.
As its title suggests, the spreadsheet provides a simulation of how my life would be if I maintain my current lifestyle for the next few decades. To make it more realistic, I’ve added elements such as life expectancy, inflation estimates and investment portfolio growth forecasts.
What’s a Singapore Retirement Planning Simulation Spreadsheet without factoring Singapore’s retirement policies such as CPF retirement age, CPF Life payouts, Supplement Retirement Scheme (SRS) withdrawal age and 10-year SRS withdrawals.
It doesn’t matter if you are an avid reader of my blog or perhaps you chanced upon this article through search results from search engines. Chances are, you are reading this article because you care about your retirement and want to build a plan for it.
By inputting information about your current lifestyle and your ideal retirement age, you will be able to see if you are able to achieve your retirement goals. If the answer is no, you can also make adjustments to the spreadsheet to find out what you need to change or improve in order to meet your retirement goals.
Click here to view The Singapore Retirement Planning Simulation Spreadsheet. The spreadsheet is in read-only mode and you will need to save a copy of the spreadsheet in your own Google account to use it.
To save a copy of the spreadsheet, you will need a Google account. Once you are signed in, make a copy of this document by clicking on File and Make a copy.
In the My Information worksheet, update the cells that are highlighted in yellow with information about your current lifestyle.
In the Results worksheet, enter your estimated life expectancy age in the cell that is highlighted in yellow to indicate how long you expect yourself to live. The cells that are highlighted in light orange indicate your lifespan based on your life expectancy age. Your goal is to ensure that your Retirement Portfolio outlasts your lifespan.
If you expect to receive additional income apart from your retirement portfolio, enter the amount you expect to receive on a monthly average for the year in the cells highlighted in yellow. An example would be rental income from your real estate investments.
Here’s where it gets interesting. Will you be able to retire based on your existing lifestyle?
In my simulation, I used an example of John Smith, a 30 year old Singaporean who earns $5,000 and spends $3,000 each month. Saving the remaining $1,000 means he is saving 25% of his net income each month. That’s not too bad right?
John is a hardworking employee in Megacorp (fictitious company name, duh!) and receives an average of increment of 3% each year. At the age of 30, John already has $20,000 in his investment portfolio and expects a growth of 5% on his investments each year. That’s above the inflation rate that he predicts to hover around 3%. John thinks that he will be able to meet the Full Retirement Sum needed in his CPF by the age of 55 so he sets the CPF Life Payout Forecast to $1,220. He intends to retire at the age of 65 once he starts receiving payouts from CPF Life and expects to live till 82.
How do you think John fared in this simulation?
Well it looks like John can retire at the age of 65 and have enough money in his retirement portfolio to last him till the age of 88 if he does not change his current lifestyle. That’s 6 years more than his estimated life expectancy age. The bad news is that if he lives beyond 89, he may have to either change his lifestyle, rely on his family for financial support, or go back into the workforce (which will be really difficult).
I had a lot of fun creating this spreadsheet and learning along the way how the different variables in life can impact my retirement strategy. I’m certainly going to make more changes to my life to improve my retirement strategy so that I can retire by the age of 50 or earlier.
I hope you can make use of this Singapore Retirement Planning Simulation Spreadsheet to help you fulfil your financial dreams. It’s free and I’d love to hear your feedbacks on how I can improve on this spreadsheet.