Planning retirement for my parents

27 May 2014 
SOURCE: SG Young Investment

​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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