Are Your CPF Savings Enough For Your Retirement?


Singaporeans often lament about the substantial sum of money that’s stashed away in our CPF savings. This is money that stays out of reach and out of sight (but not quite out of mind) until we reach our retirement age.

While many Singaporeans express disdain over the rising Full Retirement Sum, how many of us actually stop to consider how financially prepared we need to be in order to retire comfortably?

The current Full Retirement Sum is set at $176,000, which may seem like a large sum to many of us. But think about it — is this truly enough to support us post-retirement?

To get a better idea about planning for retirement, we spoke with Evy Wee, the Head of Financial Planning & Personal Investing at DBS Bank.

Planning is Key

Evy Wee, Head of Financial Planning & Personal Investing, DBS Bank

According to Evy, Singaporeans should plan ahead in order to be financially prepared for retirement. Apart from daily living expenses, she urges Singaporeans to factor in the probability of sickness or deterioration in health later on in life.

“Data shows that we face a certain decline in our later years, especially in the last decade of our lives.”

Evy explains that having sufficient funds to cover disability and illness in the future is of utmost importance, as medical inflation is inevitable since medical costs will continue to rise.

“The cost of medication, a knee-replacement surgery, or a hospital stay will cost more in 20 years compared to today.”

Only the Basic Standard of Living

Singaporeans should also not rely on CPF alone for their retirement. According to Evy,  CPF funds may be insufficient to support an individual throughout his or her lifespan post-retirement.

She cites the use of the CPF Ordinary Account for housing as one reason why the full Retirement Sum may not be sufficient to support Singaporeans after they retire.

“The use of CPF Ordinary Account monies for home loan repayments may have depleted the amount available at the point of retirement.”

If a CPF member chooses to downsize their home prior to retirement, they should bear in mind that they need to repay the accrued interest on their original home loan.

This significantly reduces the amount you get to take out from your CPF Ordinary Account after purchasing the smaller home.

Evy believes that CPF provides only a “basic standard of living in retirement.” Monthly payouts issued to CPF members are fixed. Evy explains that with this system in place, “inflation will erode the value of the payout over time.”

The inflation rate for this year is at 1.37%, as compared to 1.04% in 2018 — the hike in the rate of inflation serves as a reminder that costs will continue to climb. As such, our savings for retirement must keep pace with steeper costs and a higher standard of living.

Depending on how much the CPF member has in their account, their monthly payouts after the age of 65 can range from anywhere between $350- $1,200.

If you’re new to the fact that your CPF funds may not allow you to retire comfortably, your next question might be…

“What Can I Do To Prepare For Retirement?”

Evy suggests two main ways that may help ease Singaporeans into a happier retirement. The first way to prepare for retirement is to bolster your insurance plans to ensure sufficient coverage into old age.

The second means of preparation involves sourcing for additional streams of income.

When done together, these may be effective solutions to pave the way towards a smooth retirement.

Since medical inflation is inevitable, Evy suggests that Singaporeans add riders to their existing insurance policies using CPF. She believes this will help Singaporeans avoid struggling with medical expenses during their senior years.

“Putting these in place when you are younger (and healthier) could make a big difference to the medical expenses you need to bear later on.”

“How Can I Bring In More Income?”

The second option proposed by Evy involves finding extra ways to earn money.

She suggests endowments, dividends from stock or unit trust investments, rental income and capital appreciation from investments using cash or SRS funds.

When choosing products to invest in, Evy points out a few considerations to make. Firstly, novice investors should pick “products with built-in diversification” as such products allow for better risk management.

Evy advises Singaporeans not to put all their eggs in one basket. She recommends that Singaporeans invest in products such as exchange-traded fund (ETF) or unit trusts (UT), as investing in these products “gives you exposure to a range of companies locally and/or overseas,”  thereby spreading your risks.

She also highlights that Singaporeans who wish to invest should take not of financial considerations.

Investors should be keenly aware of their risk tolerance and avoid investing in products whose minimum sum exceeds their budget. Options with lower minimum sums are a suitable choice for investors with a smaller budget.

When Should I Start Planning?”

It’s easy for younger Singaporeans to feel like retirement is nowhere near, but it’s never too early to start planning for it.

Evy says that “small well-informed decisions made today can make a significant positive difference down the line. The younger you are, the more you can use the longer time horizon to your advantage.”

“With longer life expectancies and increasing costs of living, it is definitely prudent to start planning and take action at the soonest opportunity.”

She has three main tips to offer YP readers when it comes to paving the road towards their golden years.

“What Are Some Steps I Can Take?”

Tip 1: “Take an honest look at your finances and draw up a simple personal money-in-money-out balance sheet. “

Doing so allows you to gain a better understanding of where you are financially. This is also a useful way to track expenses and identify areas that you can cut spending on.

Tip 2: “Start to plan for growth.”

Begin investing fixed amounts regularly. These amounts should not interfere with your daily expenses. Invest wisely by doing your due diligence on products you are investing in as this will lead you towards making informed and confident decisions. An additional point Evy raised as part of her second tip was to “stay steadily invested” and to “avoid panic when the markets rumble”.

Stay steadily invested for the long term and avoid panic when the markets rumble.

Tip 3: “Set up different accounts for different goals.”

“Top-up these accounts round-robin rather than sequentially,” is Evy’s expert advice. As it can be very tempting to put off saving for retirement, having different accounts for various financial goals will prevent you from procrastinating.

The moment your monthly dough reaches the bank, set aside a decent percentage towards retirement and other long-term financial goals.

Evy suggests that Singaporeans should “apportion a percentage” of their monthly dough towards retirement and other long-term financial goals.

Featured Image: Business Times

Would it be wise to invest with your CPF? Find out here.