Is your CPF savings enough to give you a decent lifetime income?

As of 1st July 2006, the Medisave Contribution would increase from $90,000 to $94,600. The new amount will apply to CPF members who turn 55 from 1 July 2006 to 30 June 2007. For existing CPF members who just turned 55, they should have close to S$95,000 in their accounts.

For a person born May 1951, The CPF Minimum Sum applicable to him is $90,000.The projected monthly payout (retirement income) from age 62 is $711 and is estimated to last for 20 years.

This assumes that he has already set aside the Minimum Sum fully in cash when he is of age 55. The current retirement account interest rate is currently 4% pa, and is subject to change.

Assuming if this person spends about $18 for three meals a day, his monthly needs will be about $558, for food alone. This leaves him $153 from the monthly retirement income from CPF payout to handle all the other necessities? There are some necessities to be considered like medical insurance, bills and utilities etc. With the ever increasing GST hikes, it is unlikely to be sufficient for him.

Also, another point to note is that the CPF retirement income amount would be paid up to 20 years only! That is, up to the person’s 82nd birthday. What if this person lives beyond this age? That is why annuities were introduced. However, annuities have its disadvantages.

For the majority of Singaporeans who just meet the minimum sum, retirement is barely easy. As for those who have less than the minimum sum, it would even be harder for then to make ends meet. And this could be why many Singaporeans who reach retirement age of 62 are still working now and in the years to come.

It is therefore imperative for us, while we are able-bodied to work for a living, to learn how to manage our wealth through wise investments in a prudent manner that would ensure our financial security for old age.

~ by Ng Zhi Wei on May 4, 2008.