The idea of retirement is seductive.
Planning for retirement is a little problematic.
Firstly, you need to know how much money you will be spending a year. Without an income that increases or is guaranteed, there are several problems.
Firstly, there is inflation.
Then there is the question of when you will be dying.
If I plan well, I should die just as the last cent is spent. If I don’t plan well, I could die before the money runs out, or still be alive when the money runs out.
The third problem is unexpected expenses. Like medical expenses. I don’t plan to have any medical emergencies, but… that’s precisely why they are “emergencies”.
[Note: this blog piece is specific to my retirement planning. It is almost certainly not generalisable to anyone else, and unlikely to be of interest to anyone else. I treat this blog as blogs were originally intended to be: personal journals. This piece is intended as a reminder of my plans or how much I had deviated from them when I’m 55, 62, or 65. But sure, if you find any useful tips or consideration for your own retirement planning, glad I was of help.]
Also, I may get another email that promises I can have a bigger penis if I just use their expensive product. That will cost money. I mean, I think mine’s a decent size but in these matters, one should probably aim for an indecent size.
(Hmmm… I think I may have written an advertising copy for them: : “Is your penis a decent size? Use XXXXX and we will make yours an Indecent size!”)
But seriously, the questions I (and maybe almost everyone) think about are:
- Will there be enough money?
- Enough for what?
- How will my family or those who depend on me, go on?
I’ll be 52 at the end of this year. That would make me 10 years from retirements (age 62 in Singapore currently).
Will there be enough money?
At 55, my CPF special account will be transferred to a retirement account to be used to buy the CPF Life annuity. This would give me a monthly allowance of about $1400. From age 65. This is about a fifth of my current salary.
(Why 55? That was the previous retirement age. And people were supposed to be able to withdraw their CPF at retirement. However, when the retirement age was raised to 62, people still wanted their money at 55. Politics!)
Most investment advisers or retirement planners will tell you that that is insufficient. That you need 70% of your last drawn salary.
Most investment advisers want you to use their services. For a fee. Which will go towards THEIR retirement planning.
At 65, CPF Life will start paying me a monthly allowance of about $1300+. It may be closer to $1400. Can I live on that? Probably. If not, I should aim for the Enhanced CPF Life which will pay approximately $1900. For that, I will need about $264k in my Special Account (SA) I got a few years to get there. Based on my projection, I should be able to just make it.
But that would only give me a “pension” from 65.
Retirement is from 62. I need to survive 3 years from 62 to 65, if I retire (i.e. stop working)?
I will have daily expenses to meet and my mortgage payments to service. I will need about $45k a year, and that is a conservative estimate. Assuming no significant inflation to worry about. 3 years at $45k a year, is $135,000.
I intend to bridge the Retirement Age-CPF Life gap with the Supplementary Retirement Savings Scheme (SRS).
I have been contributing to the SRS for a few years now (More than 10 years I believe). It’s a tax deduction. And if I withdraw only when I am 62, there is no penalty. (Before that, there is a 5% penalty, and income tax on the full sum withdrawn. After 62, up to $40k can be withdrawn tax free.)
Based on my current savings, I believe I would have more than the $135k, I estimate I need then to tide me over until CPF Life kicks in at age 65.
Also there is re-employment. Which is a subversion of retirement. But a realistic response to inadequate retirement savings which many Singaporeans are facing. I am earning above the median by most measures, and I can just make it (from my estimation) for retirement. That means many if not most Singaporeans may be in shortfall.
The govt has required that employers offer re-employment to retired staff until age 67. This is a compromise. What the govt really wants to do is to raise the retirement age to 67. But that is politically untenable. The “optics”, (in civil servant-speak) is bad.
So I think I am fine. I should have enough money.
Enough for what?
Well, as mentioned above, I need savings to tide me between 62 and 65 when my CPF Life finally kicks in. Sure, I could be re-employed. But this is the contingency if I am NOT. If your retirement plan is, “I hope to get re-employed”, that’s not exactly planning. Hope is not a strategy.
And I need to decide what to do with my condo. There is a mortgage on it, and I can service it for as long as I am working, but what happens when I am not?
At 55, I should sell the condo. It is a drain on resources.
But, it is on freehold land, so that means Z could make it her home if she so chooses.
And the hope (there is that strategy again) is that the longer I hold onto the condo, the more profit I will make when I sell it.
BUT, it is a shoebox apartment with about 400 sq feet of living space (small). Sure, there’s a roof terrace. If you like the sun. But the quarterly maintenance fee (currently over $600) is only going to rise over time. I could try renting it out, but for now the rental market is weak. And I find it a hassle to rent it out.
Anyway, 55 is just a few years away, and I’m not optimistic that the economy will be encouraging for property sales by then. It may, but the signs right now are not good. In the worse case scenario, I continue to service the mortgage until I am 62 or even 65.
Z would be 15 or thereabouts when I turn 65. Maybe I’ll offer her the chance to rent out and manage the apartment, to make money for herself (to earn her allowance). And deal with the tenants. Who knows? She might be the next (female) Donald Trump *ack!*
Which is a plan. But the fall-back is to sell the condo. At 55, if I sell the condo at the break-even price (based on what I paid, and what interest I have incurred) I would free up some cash that would make retirement a little easier.
How will PL & Z be supported?
When I’m 62, Z will be twelve.
PL will be 53, with another 9 years to go to retirement. PL can support Z and all I need to do is not be an additional burden, and help out with the finances a little. From age 62 – 65 will be the lean years for me. But once I have CPF Life as a regular allowance, that will secure some finances.
Z will be 21 when PL retires (or reach retirement age). At that time, we’ll kick Z out of the flat.
Or charge her rent.
[Jan 2018: New plan! After I transfer some of my CPF to Z’s Special Account (interest at 4% or 5% if all stays the same), and after I have bought the AIA Smart Lifetime policy on Z (which will pay her a monthly allowance until she is 100), and when Z turns 21, she is no longer our responsibility.
She can continue to live in the flat.
PL will be 62 and will have quite a bit in her CPF, and we will head off to Australia to retire on PL’s CPF money! Leaving Z behind with the flat, her AIA payout, and a retirement fund.]