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How to make my money last longer? A senior's example.

Monday, February 2, 2015

The very first question I was asked during the meeting with readers last Saturday was, "I am 60. What can I do to make my money last longer?" 

Well, in our golden years, I feel that we probably want to be less adventurous when it comes to money matters and I shared some of my thoughts with everyone at the event. This blog post coincidentally exemplifies one of those thoughts. I don't know if the lady who posed the question on Saturday will be reading this or not but I hope she does.

My dad might not be the most financially savvy person I know and he has some bad money habits but he has very good work ethics. He belongs to a generation of hard working Singaporeans who refuse to stop working. He is almost 70 years old and, yes, still working.




My dad used to spend money very easily, too easily, and, for many years, I was very worried. I wondered whether he would have enough money for retirement. So, in my own retirement planning, I factored in the cost of my parents' upkeep, just to be safe.

For a long time, my dad was also very suspicious of the CPF but, in his old age, as he fears not having enough money for retirement, he started believing in the system instead of joining the Hong Lim Park "Return our CPF" protests. Well, this is largely due to my nagging.

Son nagging at father? Bad AK! Bad AK!

This morning, my dad sent me a message:

"Son, my cheque to CPF cleared already."

I logged into his CPF account just now to take a look.




My dad continued to work beyond 55 years of age and, in so doing, accumulated more funds in his CPF account. Any voluntary contribution he makes now can be considered as short term savings as he is allowed to withdraw money from his CPF account once a year while still working and anytime he wants once he stops working. 

The funds will enjoy interest rates of 2.5% (OA) and 4% (SA) per annum in the meantime. No fixed deposit rates in Singapore can beat these.

If you are a senior or if you have loved ones who are seniors, this might be something worth considering and sharing if they are trying to achieve retirement adequacy.

IMPORTANT (added 4 Feb 15):
For seniors 55 to 65 years old, please read comment by Sally Tan in the comments section below.

Related post:
Retirement: Buying a AAA rated bond.

18 comments:

pansy t said...

a little confused here as I thought the gov combine OA and SA into RA once we hit 55.

is there a min amt to be kept in the accounts even though your dad is well over the retirement age? is he able to withdraw from SA once a year too?

i wonder if the gov has a max amt for VC ( just like for us! ) for the elders. truly there is no place in the market that guarantees 4%. If we can withdraw any amount once a year, it works almost exactly like a 1 year fd!

AK71 said...

Hi pansy,

At 55, a RA will be created for us. Money from the SA will be moved to the RA to meet the prevailing MS. If insufficient, money from the OA will also be moved to the RA.

Thereafter, if there should be any amount remaining in the SA and OA, the money could be withdrawn once a year if the CPF member is still gainfully employed or anytime he wants if he is retired.

How much VC we can do depends on the total contribution cap for the year. For 2015, it is $31,450. So, take away our mandatory contributions and the balance is what we are allowed to do VC for. :)

Remember, not all the VC goes into the SA. Most of it goes into the OA. So, most of the VC will get 2.5% while the rest gets 4% per annum. :)

This CPF handbook will be useful to you: Reaching 55.

AK71 said...

You might also be interested in videos regarding reaching 55 and CPF Life:

Videos.

Solace said...

Instead of giving monthly allowance for retired parents. One can also make arrangement with the elders to top up to the RA account instead.

The children gets to enjoy tax relief for the money they top up and the parents get to enjoy higher interest rate for a higher payout over time.

Some parents might need some convincing, enlighten one will lead to a arrangement that benefits both.

BP said...

My dad was the pioneer generation which he had withdrew all oa and sa as that was before the minimum sum scheme, if i were to do VC into his cpf. He could withdraw it anytime? Or once a year? Or would the money he locked in as it doesnt meet ms?

Machi said...

Hi Ak,

Is there a way to email you or is this the best way/platform to ask questions? I feel like I am asking questions in the wrong blog topic. SORRY! :)

Would like to ask you what is the best (Cheapest) way to buy US shares from Singapore?

I searched online and there are so many different information - like convert SGD to USD from one bank first and then transfer USD to US online brokerage like Optionsxpress.
But no one seems to be able to give a clear guide.

Would you have any experience in this area or could you direct me to someone who does?

Many thanks

AK71 said...

Hi BP,

My parents are also of the pioneer generation but they had RAs created for them by the CPF when they turned 55. I guess your dad must be much older than my parents. :)

My understanding is that if your dad didn't have a MS he had to meet and was able to withdraw all his CPF savings, any VC to his OA and SA now can be withdrawn at any time if he is no longer gainfully employed.

However, you want to check with the CPF Board to be sure. Let us know, OK? :)

AK71 said...

Hi Machi,

I am afraid I do not have any experience in this area.

You should give your broker a call and find out from them. I think they should be able to point you in the right direction. :)

Retiring VerySoon said...

Hi AK,

Please be rest assured that the lady has read this article and very happy to have gone for the meeting on Saturday.

She found the meeting very fruitful and expresses her thanks to AK and everyone there for being so patient, answering in great detail the question she posed.

AK71 said...

Hi RVS,

Hey, thanks for letting me know. I am glad. :D

Machi said...

Thanks AK!

AK71 said...

Hi Machi,

What did I do? :o

But you are welcome. :)

Sally KG Tan said...

AK,

Thank you for sharing your financial knowledge in the blog. I was quite keen to do a Voluntary CPF contribution of earning a higher interest rate between 2.5% to 4%, until I found out the below from CPF Board.

The Allocation % of the VC to the 3 accounts viz OA, SA and Medisave varies with Age Group. For Retiree in the Age group of 60-65, the % allocation to Medisave is a hefty of 65% ! We all know that Medisave account cannot be withdrawn.

So one has to be mindful and check CPF online what will be the allocation % of your VC according to your age group before deciding whether to do a VC or park your money FD.

For those who want to earn a higher 4% interest, one can opt for Topping up of Minimum sum instead of Voluntary Contribution . Contribution made under Topping up of Minimum Sum will go straight to your retirement account that earns 4% pa currently. However, you cannot withdraw lump sum, it only increases your monthly payout instalment once your reach your withdrawal age. You can top up to the current MS limit of $155K. MS increases each year and 2015 will be $161K. Again, you cannot withdraw lump sum, but it will increase your monthly payout or bequest to your beneficiaries.

The above is what I learned from both by calling CPF board and confirmed in their website as well.

Sally KG Tan

AK71 said...

Hi Sally,

Thank you so much for sharing the details. Much appreciated.

I have overlooked a very important point and that is my parents' MAs are maxed out. So, their VCs go only to their OA and SA.

I will make a note in the blog post so that readers will read your comment. Thanks again! :D

bb said...

hi AK!
thanks for your sharing! and like you, i believe in CPF as an effective retirement vehicle. (thank goodness your dad didn't join the #ReturnOurCPF looney fringe ^.^;)

anyway would like to share a link that i've just read. bertha is an ex-ST editor abs i love her post-ST writing. she's written a post about the changes announced today, and i thought it's too important to miss ^^

here, hope to share her post so that people can be leas confused!

https://berthahenson.wordpress.com/2015/02/04/cpf-minimum-sum-in-small-medium-and-large/

AK71 said...

Hi bb,

Well, I think that the CPF is an important tool in helping us achieve retirement adequacy but I don't think that it is an effective retirement vehicle. I am of the opinion that it cannot carry all our retirement needs comfortably.

So, other than the CPF, there is still a need to grow our nest egg by saving more money and growing it through prudent investment.

Thanks for the link. I enjoy reading her articles too. :)

Sally KG Tan said...

AK

Thanks and I learned something from you today I.e. If my Medisave account balance is already at maximum, any VC contribution will not go to medisave account any more but instead will channel to my OA and SA . This will probably affect my decision now as I think I have maxed my me dosage account . May I know what is the current maximum medisave account ?

Thanks Ak

Sally

AK71 said...

Hi Sally,

Effective 1 July last year, the Medisave Account minimum sum is S$43,500, if I remember correctly.

If your MA is already at maximum, then, any voluntary contribution you make will go only to your OA and SA. That is good news for you. :)

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