This year, one of the focus was on retirement. As such, the CPF system was brought up again. PM Lee jokingly said that during last year's national day rally, he was a real estate agent where he talked on issues of housing. This year, the real estate market is not doing well so he became a financial planner. He used a ficticious couple as an example and explained how the CPF system works including explanation on the minimum sum, pledging of property and lease buy back scheme etc. I thought he did a very good job in presenting the CPF in a simple and relatable way which most people can understand. Interestingly, after his speech yesterday, there were more searches on the CPF on Google which increased the number of page views on my various CPF posts i wrote previously. PM Lee manage to get people interested in the CPF.
How much do you need for retirement?
The amount we need for retirement is very subjective as it depends on individual circumstances. PM Lee did a poll during the NDR and most felt $2000 per month is just enough for retirement. In order to receive this $2000 monthly amount from the CPF, one needs to have about $250,000 in their CPF account at the age of 55. This is much more than the current minimum sum of $155,000. As such, PM Lee said that the current minimum sum is actually not that high as one will only be able to have ~$1200 monthly with $155,000. If that person pledges his or her property and draws out half of the MS, then he'll only be able to have $600 monthly which is even lower.
Increase in MS to $161,000 from year 2015
The next increase in MS was announced during the NDR. PM Lee added that he does not see the need for futher major increases to the MS beyond this. This may be good news to many people and young people will not have to worry about the MS increasing to a level far beyond which locks up their money inside the CPF.
However, we have to take note that since the MS will not have further major increases, we could still be only having $1000+ monthly from the CPF 15-30 years from now. Will this amount be enough for our retirement by then?
This should trigger the people of Singapore and especially young people to plan for retirement above and beyond that of the CPF. Previously, people mostly relied on the CPF for retirement and do not have much of their own personal savings because they thought that CPF is already a savings for retirement.
What if you don't have enough for retirement?
There are a few ways to find other sources of income if we do not have enough for retirement. PM Lee said one can continue to work, get support from their children, use their own savings or get money out of their house. Probably that's why the government can be more relax on the CPF since they figured out there are other ways for retirees to get income.
Monetising your house
We know that a house is an asset which can be used to generate income. PM Lee provided a few ways in which we could get money out of our house. We can rent out one room, rent out the whole flat and stay with children, sell the flat and move to a smaller apartment (e.g studio apartment), or take advantage of the lease buy back scheme.
The lease buy back scheme has been extended to 4 room flats where one can sell the remaining lease and get back some money. For a 4 room flat, it is estimated that if you sell 35 years lease to HDB, you'll get $27,500 cash plus $800 per month subsequently.
More changes to the CPF yet to be announced in detailed
Other changes to the CPF include a silver support scheme where low income seniors will receive an annual bonus from the government from age 65.
There will also be flexibility to withdraw CPF monies in lump sum subjected to limits. More to be announced by the Ministry of Manpower on a later date.
Conclusion and my thoughts
Singaporeans have been asking the government to give back their CPF monies. From what I see, the government has indeed heard the feedbacks from the public and is trying to make the CPF system more flexible. As we are given the choice to withdraw more from the CPF, we have to bear in mind to plan for our own retirement. If we withdraw and spend more now, we will have lesser for the future.
Running out of money in your old age will be a sad case. Some have to continue working even in their 70s and 80s, some quarrel with their children and others have to find other means just to put food on the table. These are real cases which I believe is vwry real in our society.
Many want to know how to plan for retirement but few know where to start. Before they know it, it may have already been too late. A national financial education and literacy program in schools and institutions will help instill the right values towards money and inspire young people to be financially prudent at an early stage of life.
What are your views on the national day rally? How do you feel about the changes to the CPF? Feel free to comment and discuss below.
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1. All about CPF minimum sum and CPF life