Introduction

Are you on track to your desired retirement lifestyle? OCBC Financial Wellness Report 2022 has some interesting findings worth highlighting here.

OCBC FINDINGS – MOST RESPONDENTS ARE NOT ON TRACK

Have you ever wondered how much you would need to retire comfortably or in your desired lifestyle? Well, OCBC published a report “OCBC Financial Wellness Report 2022”https://www.ocbc.com/group/financial-wellness-index/understand-the-index.html  which covers partially on retirement sufficiency.

In this survey, the report had categorised 3 types of lifestyles: A, B and C as shown below in Exhibit 1.

This report also found that more respondents desired a better, thus a more expensive retirement lifestyle compared to its’ 2021 survey as shown in the left-hand box of Exhibit 2 below.

Although, more respondents have expressed the desires for better retirement lifestyle, upon studying the right-hand box of Exhibit 2, one would notice that less older respondents had expressed the desire to have a more luxurious retirement lifestyle. The writer is suggesting that as respondents get older, their abilities to sustain their desired retirement lifestyle become a real issue and hence a scaled down lifestyle expectation. Alternatively, there could be a changed in outlook of life or respondents had grown more prudent after experiencing a protracted fight against a pandemic.

Unfortunately, the reality is that not many Singaporeans are ready for retirement and as a matter of fact, will not be able to have their desired retirement lifestyle if they depend solely on their CPF Life alone as their main or only source of retirement income.

In the same OCBC Survey, it has been found that less Singaporean are on track with achieving their retirement plans as per Exhibit 3 below. Those who are on track exhibited three very important attributes. They are:

1. Contribute more regularly to retirement funds (the writer assumes this is a portfolio of CPF contributions and regular investment in a diversified portfolio of financial instruments which can be reasonably concluded from their diversified sources of retirement funds);
2. Have a good grasp of their monthly expenses; and
3. Diversified sources of income (which is a result of the writer’s assumption in point 1.).

To quote the report:¹ “Under the Central Provident Fund (CPF), small increments to the Basic Retirement Sum (BRS) and Full Retirement Sum (FRS) did not make a significant difference to the adequacy of retirement income. Payments based on the BRS cover around 55% of the single elderly household’s Minimum Income Standard (MIS) budget, while FRS payments are roughly equivalent to basic needs. The BRS and FRS are targets—not actual savings. In practice, only 65% of active CPF members who turned 55 years old in 2021 achieved these amounts.” This study seems to share the same conclusion with OCBC’s finding that many Singaporeans are not ready for retirement.

Not having enough money in CPF and leaving cash in bank is a “deadly” retirement combination. Why is it so? Not having enough in CPF Life makes life long monthly payout “meaninglessly small” in meeting daily expenses and cash in bank is the most easily eroded by inflation. Soon, a retiree will find his/her cash run out fast and the outcome would be going back into work if he/she is still healthy, but what are the options for those who could no longer work? With one or two child families a common sight these days, how much can children contribute to our retirement expenses when they have to manage their own living expenses at the same time?

Even having met CPF Life Enhanced Retirement Sum (ERS) brings little joy to those who are retiring judging from the projected CPF Life payouts as shown below. The current ERS (for those who are 55-year-old in 2023) is 1.5 x of FRS, which is 1.5 x $ 198,800 (please refer to BRS/FRS table in Exhibit 5 below) = $298,200. We can reference Exhibit 4 and gather that the estimated payout from CPF Life from the referenced ERS is around $2,400 (this is in today’s dollar).

Exhibit 4 Source: CPF Board https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwi94eC6tfiBAxXsTGwGHUV-DFEQFnoECCgQAQ&url=https%3A%2F%2Fwww.cpf.gov.sg%2Fcontent%2Fdam%2Fweb%2Fmember%2Fretirement-income%2Fdocuments%2FCPF_LIFE_Payout_Examples.pdf&usg=AOvVaw1gVYGTKfDR_CV_oXnp5Lsn&opi=89978449

Exhibit 5 https://www.cpf.gov.sg/member/infohub/educational-resources/what-is-the-cpf-retirement-sum

Therefore, in the writer’s opinion, using OCBC’s survey retirement expenses as the benchmark, living on CPF Life Enhanced Retirement Sum projected payouts alone would be pushing the envelope of retirement adequacy, let alone trying to live off payouts from CPF Life Full Retirement Sum.

Going Forward

If you have just turned 55 and is not on track, you still have time to gather your act together. Understand the three attributes mentioned above and figure out an action plan to close the gap. Unfortunately, for those who have turned 65 and have started to draw down on your CPF Life (I have no apologies for doing straight talking) your choices are limited to changing your lifestyle to fit into your budget and continue working as long as you are healthy enough to improve your retirement lifestyle outcome. For those who have yet to turn 55 or a long way before 55, start investing to achieve better financial outcomes.

Designate a portion of your income to be invested monthly on top of your CPF accumulation. For illustration only, below is an example where you invest $300 monthly on a product that gives a gross return of 5% per annum. You will have an additional $46,584.00 in your retirement fund if you are 55 this year.

If you are 25 year old this year, you would have a good option of stopping the regular investment regime after 10 years and allow the fund to continue be invested at 5% gross return for another 20 years until you reach 55. Your final amount would be $124,000.

Finally, be prudent in using your CPF monies especially for property purchases.

It is time to start planning for better retirement lifestyle outcome.  

Disclaimer:  All information are for informational purposes only and should not be relied upon as financial advice.