Work out your CPF sums for retirement

Experts advise keeping your money in CPF, and adding private plans, investments if needed
By Mok Fei Fei, The Sunday Times, 15 Feb 2015

Why it’s wise to keep money in CPF

Proposed changes to the Central Provident Fund (CPF) promise more choices on how your retirement savings will be managed.

Instead of having all CPF members meet a standard Minimum Sum at 55 to receive a monthly payout for the rest of their lives upon reaching 65, they will soon be able to choose the level of payouts and savings needed.

It's not a small sum by any means.

At $155,000 now, the amount rises to $161,000 for those turning 55 from July this year.

An advisory panel set up to explore enhancements to the CPF system has made recommendations that have been accepted by the Government.

Those turning 55 next year will be given three choices.

One is to opt for the Basic Retirement Sum of $80,500, which would give monthly payouts of $650 to $700.

A person with the Basic Retirement Sum at age 55 would be able to see it grow to about $126,500 by the time they turn 65.

The second option is to keep it at the Full Retirement Sum of $161,000 for monthly payouts of $1,200 to $1,300. The Full Retirement Sum will grow to some $245,500 over 10 years.

Third, you can choose the Enhanced Retirement Sum of $241,500 for monthly payouts of $1,750 to $1,900. The Enhanced Retirement Sum will grow to around $364,500 over 10 years.

A lump sum withdrawal of up to 20 per cent of your retirement savings will also be allowed when you reach 65.

If you defer your payout starting age, you will get 6 to 7 per cent higher monthly payouts for every year deferred, up to the age of 70.

With greater flexibility, you need to take more care in making choices.

The Sunday Times checks out some sums you should be working on before deciding on a plan.

Know which plan you are eligible for

An important part of the "retirement adequacy" equation is the role of home ownership in complementing your CPF retirement savings, with a big part of your CPF savings used to buy your property.

The value of the home can be unlocked, for instance, by leasing it out to earn rent, downsizing to a smaller unit or enrolling in a Lease Buyback Scheme.

Those without a property face challenges.

They would struggle for "retirement adequacy" - a phrase used to mean having enough funds for retirement - as they would not have income options and may need to fork out money for accommodation.

It also means they would not be able to go for the Basic Retirement Sum and would need to set aside the Full Retirement Sum.

A Central Provident Fund member can withdraw his savings above the Basic Retirement Sum if he has pledged his property or has enough "CPF charge", which is the amount of CPF savings used to buy the property.

If you do not have a property or do not wish to pledge your property, you can withdraw only your savings above the Full Retirement Sum.

Essentially, the pledge or charge means you have to return the pledged amount or charges plus interest to your CPF account when you sell your property.

Your ownership of the property is not affected by the pledge or the charge and when you die, it will remain as part of your estate.

Data showed that for active CPF members who turned 55 in 2013, about 55 per cent could meet the Basic Retirement Sum requirement.

Some 35 per cent had enough for the Full Retirement Sum while 21 per cent could meet the Enhanced Retirement Sum.

By 2020, however, those who can meet the Basic Retirement Sum is expected to rise to 70 per cent.

Those who have lower CPF savings than the Basic Retirement Sum will have lower monthly payouts.

Check both returns and risks

If you have the means, you may be thinking of opting for the Basic Retirement Sum to withdraw the rest of your CPF savings.

After all, some may look at the promises of higher returns from other asset classes and feel they have a better chance of growing their nest egg while taking into account any increased risk.

Past performance is not a certain indicator of the future, but historically, stocks in the United States have provided an average annual return of nearly 10 per cent going back to 1928.

US government bonds have given an average annual return of some 5 per cent over that period.

CPF savings, meanwhile, earn guaranteed interest rates of 2.5 per cent in your Ordinary Account and 4 per cent in your Special Account and Medisave Account.

An extra 1 per cent interest will be paid for the first $60,000 of your combined savings, of which up to $20,000 can come from your Ordinary Account.

When you turn 55, the savings from your Special and Ordinary Accounts will be transferred to a newly created Retirement Account, which also earns 4 per cent interest, with an extra 1 per cent on the first $60,000.

Financial planners, however, say it may be wise to keep your money in CPF and to go for the Enhanced Retirement Sum if you can afford it.

"In the current interest rate environment, CPF Life offers the best and safest annuity rates, which the private sector is unable to match," said Manulife Singapore chief marketing officer Hitesh Shah of the national annuity scheme.

Risk is another factor to consider. The vagaries of the stock and bond markets mean there could be big fluctuations in your returns and you may suffer losses in some years too.

"They need to be mindful that all investments come with associated risks," said NTUC Income field division vice-president Kwek Chok Wen.

"This option (of private investments) will only pay off if they are able to achieve better returns from investing on their own."

Age should also play a part in your decision, as you would have less time to accumulate wealth after withdrawing your CPF savings at age 55 or 65.

Prudential Singapore chief marketing officer David Ng said: "One also needs to be aware of how their monies are invested.

"Private investments and annuity plans are usually subject to market forces and at this or a later stage in life, (they must consider) if they want to take chances with the possibility of volatility of markets."

You can also use your CPF savings to invest in approved financial instruments like bonds, stocks or insurance policies under the CPF Investment Scheme (CPFIS).

Decide how much you need

Aside from maximising returns from your savings, retirement adequacy very much depends on your level of spending as well.

Aviva Singapore director of product and marketing Daniel Lum said: "Understand the retirement lifestyle you want and assess how much you need to fund it.

"There are also individuals who prefer to have more cash at the beginning of their retirement years as they transition into a different lifestyle."

As a gauge for how much you need, you could look at the latest Household Expenditure Survey for 2012 and 2013, released last year.

The report found that the average monthly expenditure per member among retiree households was $623.60 if you live in a one- or two-room Housing Board flat.

The spending rose to $2,021.90 if you live in a condominium.

You can then work out if the monthly payout from your CPF savings is sufficient and make up any shortfall.

Manulife's Mr Shah noted: "Many people are starting to realise that they cannot rely solely on CPF alone for their retirement needs.

"From our latest Manulife Investor Sentiment Index survey, the findings revealed that running out of money in retirement is the top financial concern for Singapore investors."

Complement CPF Life with private plans

Assuming the amount you receive from your CPF Life payouts is not enough for your daily needs, you may want to set up a similar sort of arrangement where you can get stable sources of monthly income.

Financial planners say private retirement or annuity plans may be alternatives to complement your CPF Life scheme.

Tokio Marine Life Insurance Singapore chief executive Lance Tay said: "People should use their CPF accounts to earn high guaranteed returns and have cash, through which they can purchase private retirement plans to supplement their (CPF) retirement plans.

"We must advise people to do financial planning with a financial adviser to determine their needs and risk profile."

Such private plans could offer more flexibility in terms of liquidity, where you can withdraw your money for urgent needs.

Payouts could also come at an earlier age, with additional perks like annual bonuses and insurance coverage for disabilities and illnesses.

More people have been buying such private retirement plans, said Great Eastern Life chief product officer Lee Swee Kiang.

"We have definitely seen a greater interest in Great Eastern's retirement plans, which include both endowment plans and annuities over the last few years.

"We have seen a healthy double-digit growth year-on-year in terms of sales and are confident this trend will continue as the public's awareness of retirement planning has increased due to social media and efforts by the Government to educate."

Note that the returns of the products usually comprise a guaranteed portion as well as a non-guaranteed portion that is dependent on the investments' performance.

Guaranteed returns of private plans typically are around 2 per cent. Including the non-guaranteed portion, projected returns are estimated to be between 4 per cent and 5 per cent.

You could also cast your sights farther, said United Overseas Bank head of personal financial services Dennis Khoo.

"Other than annuity plans, investors with a moderate risk appetite can consider investing any excess funds in a range of assets comprising stocks, bonds and real estate investment trusts, which can potentially generate total returns above 5 per cent per annum."

Retirement planning
By Mok Fei Fei, The Sunday Times, 15 Feb 2015

Mr Colin Pakshong, a member of the government- appointed Central Provident Fund (CPF) Advisory Panel, is an independent actuarial consultant. He shares his views with The Sunday Times on how you can go about preparing for retirement.

Q: What should CPF members consider when deciding which Retirement Sum option to go for?

The key consideration is how much you want in payouts from CPF Life for your retirement.

So, it is about how much you think you will spend monthly while in retirement.

I would say that there is no "one-size-fits-all" answer; two members could have the same balances at 55, but their needs and expectations could be quite different.

We hope that the proposed changes give members a wider range of solutions that can work for them.


Q: How does CPF Life compare with private annuity plans?

CPF Life is very competitive. It is supported by special government bonds; so, for the same premium, it would be difficult for a private annuity plan to offer the same level of payout.


Q: How do the CPF Life's returns compare with stocks and bonds' returns?

The returns are also very competitive, particularly once risk is taken into account.

There will be some periods when a portfolio of stocks and bonds provides a better return, but over the years during which the payouts will be made, CPF Life is likely to provide better and much more stable returns.

Risk, in terms of fluctuating investment returns, is an important consideration; large differences in return from one year to the next, including the possibility of loss, would mean that monthly retirement income could vary greatly.

It's certainly possible that some members will earn higher returns (from stocks and bonds), but past experience from the CPFIS (CPF Investment Scheme) shows that most members would have been better off leaving their money in the CPF.

Even professional fund managers find it difficult to produce superior returns on a consistent basis.


Q: What are your views on how the recommended changes will affect Singaporeans' planning for their retirement?

I think a very good first step is getting more Singaporeans to take an active interest in their retirement planning, and I believe that many fellow Singaporeans will take the time to find out about what is being offered and realise that there is a wide range of choices.

I hope that there will be more of a focus on payouts in retirement and a better understanding of the effect that withdrawals will have on retirement income.


Q: How can Singaporeans ensure they are retirement-ready as CPF Life alone may not be sufficient?

There are two key steps: start early, and improve our personal financial literacy.

The earlier we start planning and investing for retirement, the better; and if we know more about financial matters, we're likely to understand our options better and consequently make better decisions.

If you can commit around $240,000 at age 55...
By Mok Fei Fei, The Sunday Times, 15 Feb 2015

Retirement plan: CPF Enhanced Retirement Sum

- Payout duration: Lifetime

- Payout age: 65

- Payout (monthly): $1,750 to $1,900

- Total payout till average life expectancy of 83: $378,000 to $410,400

Retirement plan: Great Eastern's Lifetime Income Annuity

- Type of premium: Single

- Payout duration: Lifetime

- Payout age: 62

- Payout (monthly): $1,290 (guaranteed)

- Total payout till average life expectancy of 83: $325,080

Retirement plan: Tokio Marine's TM Infinite VIP

- Type of premium: Single

- Payout duration: Lifetime

- Payout age: 60

- Payout (monthly): $300 (guaranteed) + $600 (non-guaranteed) = $900

- Total payout till average life expectancy of 83: $248,400 (including non-guaranteed)

Retirement plan: Manulife 3G

- Type of premium: Annual of $23,933 over 10 years

- Sum insured: $240,000

- Payout duration: Till age 99

- Payout age: 65

- Payout (monthly equivalent): $400 (guaranteed) + $374 (non-guaranteed) = $774

- Total payout till average life expectancy of 83: $167,184 (including non-guaranteed)

Retirement plan: Tokio Marine's TM Retirement PaycheckLife

- Type of premium: Annual of $48,000 over five years

- Payout duration: Lifetime

- Payout age: 65

- Payout (monthly equivalent): $727 (guaranteed) + $727 (non-guaranteed) = $1,454

- Total payout till average life expectancy of 83: $314,064 (including non-guaranteed)

Source: CPF, Great Eastern, Manulife, Tokio Marine

Note: Policyholders' estate would typically get bequests from the sum insured or any principal minus payout and interest accrued. The list of insurers is not exhaustive as comparable figures or plans were unavailable from other insurers.

Top issues: Old-age support, living costs, health care
By Jacqueline Woo, The Straits Times, 17 Feb 2015

HAVING enough to retire, health care and cost of living pressures have emerged as the top concerns for Singaporeans, going by the Government's pre-Budget 2015 feedback exercise.

The three issues accounted for about one-third of all feedback received - 2,900 responses in all.

The Budget will be delivered by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam at 3.30pm on Monday. Parliament will start sitting at 2.30pm that day.

The feedback exercise, run by the Government's citizen engagement arm Reach and the Ministry of Finance, sought views on areas that Budget 2015 should address.

Many called for more government support in old age, as concerns mount over having enough funds upon retiring to cope with rising living costs, particularly if housing loans are not all paid up.

Some want greater withdrawal flexibility from the Central Provident Fund (CPF) scheme upon retirement, while others said early CPF withdrawals should be allowed on a case-by-case basis to cater for unexpected needs.

Some also suggested not cutting the employer CPF contribution rate for those aged 50 and above, to encourage more seniors to work while helping them save more for their retirement.

Dr Amy Khor, Senior Minister of State for Health and Manpower and Reach chairman, said the recent recommendations from the CPF advisory panel will help address some of these concerns.

"We look forward to a second set of recommendations... due later this year, and in totality, we hope that Singaporeans will have greater peace of mind about having enough for their old age."

Health-care issues were also prominent in the feedback. Some fear medical and hospitalisation costs becoming more unmanageable, especially for patients with chronic and life- threatening conditions. Others felt the deductible for MediShield Life and private health insurance should be lowered.

But Dr Khor said that under MediShield Life, the compulsory basic health insurance scheme set to replace MediShield, all Singaporeans will be "covered for life with better benefits, and premiums will be made affordable with premium subsidies".

On the cost of living, many sought more financial aid to subsidise "everyday goods and services". Some said daily necessities should be made more affordable, especially for the jobless, the lower income and the elderly.

Many also felt their salaries had not kept pace with inflation.

Parents fretted about rising education costs, and sought subsidised childcare fees for middle-income families and free childcare for low-income ones.

Dr Khor said the Government is looking at the rising cost of living through various measures.

"But a key way to help Singaporeans cope with the cost of living must be to enable and equip them with the relevant skills, so that they can have better jobs and better pay," she said.

A live webcast of the Budget speech will be available on www.singaporebudget.gov.sg and the Singapore Budget mobile app, available for download on the Apple and Android platforms.