The other day, my son found the tin of coins I keep in my drawer. It was filled to the brim with assorted coins accumulated from overseas trips, random loose change and even old arcade tokens.
His eyes widened and he gasped, "Daddy, you're rich!"
My wife and I had a good chuckle over the incident, but it also got me thinking.
The coins in the tin are barely worth a hundred dollars. But to a six-year-old, an entire tin of coins seems like a lot of money.
Eventually, as he grows up, he will learn that my coins are worth much less, and that I'm not really 'rich'.
When it's time for him to manage his own finances, I want to encourage him to do so according to his own values, priorities, and means – including decisions where I'm involved. For instance, I don't want him to feel pressured to give me a retirement 'income' every month.
Ultimately, all this reflection led me back to my own current financial situation – I'm not 'rich' as my son believes. Am I ready for my own retirement, without expecting any help from my son in the future?
Planning for my own retirement
As a Singaporean, my CPF savings make up a significant portion of my retirement savings – after all, I've been contributing to it since I started working.
Over the years, my CPF savings have multiplied through compound interest in the three accounts. From the age of 65 onwards, I can start to receive my monthly CPF LIFE payouts, which will provide me with a stream of income for as long as I am alive.
This will ensure that I will not run out of retirement income to cover my basic needs. And this brings me to my next point…
Maximising the CPF LIFE payouts
As I thought further about my retirement goals, I came to two conclusions:
1. The more money I accumulate in my CPF accounts, the better
This will mean more money in my retirement nest egg, which means I will get to enjoy a higher retirement income each month.
2. The later I begin my CPF LIFE payouts, the better
This is because my retirement savings will grow with compound interest, thereby allowing me to enjoy larger monthly payouts each month.
It's easy to figure out how to maximise my CPF LIFE payouts based on the two points above.
As a benchmark, the CPF Board has provided three tiers of retirement savings amounts for our reference– the Basic, Full, and Enhanced Retirement Sum respectively. Based on my own retirement goals, I can gauge how much I should aim to save up by the age of 55.
Of course, another option is to continue growing my CPF savings beyond the age of 55, either by continuing to work past that age with regular CPF contributions, or by making voluntary top-ups myself.
After all, CPF offers attractive interest rates, meaning my savings will continue to multiply with time.
Members who turn 55 will also enjoy an additional 1% interest on the first $30,000 in their combined CPF balances. This is on top of the prevailing Retirement Account interest rate of 4% and the additional 1% interest on the first $60,000 of combined CPF balances applicable to all CPF members.
Interest rates for members 55 and above |
Interest rate (p.a.)|
|Amount above $60,000||4%|
3 reasons to continue saving with CPF at 55
3 things all Singaporeans should know about their CPF when they turn 55
Here's why I think CPF LIFE is awesome
What about retirement 'wants'?
Of course, retirement isn't only about staying at home and keeping to a basic lifestyle in order to scrimp and save every cent. I also want to enjoy a fulfilling life which allows me to spend meaningful time with my friends and family over a nice meal, engage in my favourite hobbies, and perhaps go on a holiday to Europe, my dream destination.
All of these fall into my retirement 'wants', separate from my basic needs. And I need additional savings to be able to enjoy these activities.
My CPF savings alone may not be sufficient to cover both my needs and wants. I intend to look into other investment strategies, such as various financial instruments, or even the
Supplementary Retirement Scheme (SRS), which offers substantial tax relief and tax-free investment.
Investment takes time to research, and I plan to do just that – spend time figuring out which tools will work best with my own risk appetite and capital.
How saving 10% of your income and your annual bonus can change your retirement completely
3 credit mistakes you must avoid in retirement planning
A self-sufficient retirement is entirely possible
At the end of the day, I'm intending to rely on my own savings and my ability to plan for retirement. I'm also glad I've started planning for my retirement, while I'm still in my mid-30s, as I have the benefit of time to multiply my savings through compound interest, especially those in my CPF accounts.
I may not be rich in the conventional sense, but eventually, I hope to enjoy a retirement that is rich in meaningful experiences with my loved ones.
Writer's Profile: Mark Tan is a full-time writer, father, and baking enthusiast. As a result, he has become an armchair expert on a wide variety of topics ranging from personal finance, parenthood, stress management, and French pastry.
If you're interested to learn how you can make the most of your CPF savings, do register for CPF Board's upcoming talk 'Journey towards Financial Security'
Date: 16 Feb 2017
Time: 7.30pm – 9.00pm (Registration starts at 7pm)
Venue: National Museum of Singapore, Gallery Theatre