Tuesday, May 27, 2014

Planning retirement for my parents

Readers who read my blog would know that i've been researching and writing on issues related to CPF for the past 1 week. As mentioned in my previous post, CPF is for retirement. My post on CPF was also mentioned in a blog post by Singapore's manpower minister. It is a surprise that my blog has reached to greater audiences out there. In planning for retirement, we cannot forget that there is such thing called the CPF. This is part and parcel of what we have as Singaporeans.

Thus, i decided to take a look at both my Dad's and my Mum's CPF account to see if they are prepared for retirement. There were a few issues which i discovered and if it was known earlier, they could have more money to retire now. Nevertheless, it's always never too late to start now.

The CPF probe begins

My parents both were self employed for a period of time and so they do not have much CPF savings. A portion of it was also used to pay for the housing loan instalments which they have already finished paying a few years ago.

To be automatically put into the CPF life scheme, one needs to have $40,000 in his OA + SA at age 55 or if did not meet the requirements at age 55, then one needs to have $60,000 in his RA at draw-down age. The draw-down age is the age where you start receiving monthly payouts from CPF. For most Singaporeans, it is at age 65 now. For more information on the CPF life scheme, read my previous post: All about CPF minimum sum and CPF life

Mum's CPF

My mum turned 55 last year and she did not meet the $40,000. As such, she was not automatically put into the CPF life scheme. At the current levels of CPF savings she has, she would only get a monthly payout of $250 at age 65. However, she can still opt to join CPF life. Under the CPF life scheme, she would receive monthly payouts till death. This is better than the previous scheme which provides a monthly payout for only 20 years.

I came out with a plan and based on the various calculations, if my mum joins the CPF life scheme, she can expect to receive $320 monthly for the rest of her life compared to only $250 for 20 years. I found out that she had used her CPF OA and SA for some investments 7 years ago. The investment from the OA account lost about 2k while the investment in the SA made a meagre $600. We have decided to sell the investments and return it back into the respective account. Then, that amount can be transferred to my mum's RA account to earn a guaranteed 4% return. By 65, the losses would be made back with a bit more extra.

Dad's CPF

As for my Dad's CPF, he will only turn 55 next year and also does not have much savings in the CPF. I noticed that he had less than $40,000 in his SA so after discussing, we decided to transfer some monies from his OA to his SA to enjoy the higher interest at 5%. After all, no matter what, he can only take out $5000 when he reach 55 and the rest will be transferred to the retirement account(RA). For those of you who're reaching 55 or have parents who are reaching 55 years old, you can transfer monies in your OA to your SA up to the current minimum sum to enjoy the higher interest. Even if you're young, you can consider to transfer also. But remember when you transfer from your OA to SA, the transfer is irreversible. Your SA cannot be used to pay housing loans so before you make any transfers, check whether you need the money in your OA account in the future?

Importance of cash savings

Of course, CPF is only one part of retirement planning. As most people pay their housing loans using CPF (including my parents), most do not have enough in their CPF to retire on. This is when your own savings come into place. Fortunately for my parents, they were frugal and saved up some money in their bank accounts. It was not a lot but i think it would be enough for them to survive on. I would definitely consider to put their retirement savings in at least a fixed deposit to earn higher interest than the current savings account . It is not the time for them to invest in any risky investments including stocks at this stage now.

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Related Posts:
1. Queries on CPF minimum sum - Pledging your property
2. All about CPF minimum sum and CPF life


  1. Thank you for this nice post.
    I like this kind of post ,
    Because it gives me clear and beautiful ideas about this topic.
    I hope your prosperity.

  2. Many may not like to hear the hard truth.

    CPF minimum sum which is NOT inflation adjusted is just SMALL part of our retirement planning.

    1. Hi Uncle CW,

      Agreed. Many people surprising think that they don't need to save additional and just take out cpf money will be enough for them to retire. Many do not want to receive monthly payment but want to take out everything at one shot. Many want to enjoy now and suffer later. Maybe they don't know they will suffer.

  3. Hi SGYI,
    I have reached 55yrs last yr. I have decided to opt for cpf life. However, I have reached the minimum sum of $149K+. CPF, upon my opt-in to cpf life, CPF board transfered from my retirement ac of $74K and leaves the balance of $75k+ in R.A.
    Will my retirement ac and Cpf life be accrued any interest. Can i withdraw the interest from both accounts. Am confused

    1. Your CPF Life will start paying you upon reaching 65.

      SA and RA earn 4%

      You can't touch RA but you can withdraw RA.

      Did you attend CPF reaching 55 seminar?

      If not, good to attend.

      I also attended

    2. Hi,

      The amount for cpf life is transferred in two instalments.

      Some information I got from cpf website:

      "When you are 55 years old, we will deduct your RA savings up to the Minimum Sum Cash Component (MSCC) that applies to you as the first instalment of your annuity premium. The rest of your RA savings will stay in your RA. Your MSCC is half of the MS that applies to you.

      One to two months before your drawdown age (DDA), we will deduct the rest of your RA savings as the second instalment of your annuity premium. This will include any new money that you have built up between your 55th birthday and your DDA. The new money can be from any top-ups, transferring of funds from other accounts into your RA, interest earned or refunds from selling property or investments.

      When you reach your DDA, you will start to receive monthly payouts from the annuity fund. The annuity fund is also known as the Lifelong Income Fund. In this context, it consists of the annuity premium, the interest earned on the annuity premium and the 1% extra interest earned by members on the CPF LIFE Standard Plan"

      You can't withdraw any interest or any sum on both accounts. It will be transferred fully to the annuity pool by the time you reach age 65. I hope this clarifies your doubts.

  4. SGYI,

    You are doing a great job here! Love the real examples of your parents.

    I remember many years ago at the bus interchange for buses to MY, there's an uncle that charge 50 cents to fill in the immigration form for travellers.

    I think CPF may need to review their website design and content. If not, I think I will bring my stool and sit outside CPF building - charge $1 per question from the confused public!

    1. Hi SMOL,

      Haha, then you can make a lot of money from the more than 50% who are confused. CPF system is already hard for me to understand. I spent days and nights just to read up on it. If the system can be more straight forward it would be good.

  5. Hi,
    Thanks for the info,
    Am surprised that I can't withdraw the interest earned on the R.A
    So sad

  6. Hi,

    The interest earned will be factor in when you get your monthly payout. Effectively, you'll receive higher monthly payouts because of the interest earned.