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Are we worried about retirement adequacy in the right way?

Thursday, July 30, 2015

If we have a plan on achieving adequate retirement funding but have trouble executing the plan, we should be worried. If we do not have a plan on how to achieve retirement adequacy, we should be very worried.

This was a conversation with a reader on FB:

Hi AK, was talking to my friend about the pros of cpf, but they were saying we will not be able to fully withdraw the amount, and if we pass on before we totally withdraw all out, it will be pass to the child and it goes on.. what do u think about it?

Assi AK
Why would we want to make a full withdrawal?
The minimum sum goes into an annuity that pays us a monthly allowance for life from age 65.
If your friends do not believe in buying an annuity to fund their retirement, then, I can understand.

A clever fellow in Hong Lim Park.
They are worrying they will not be able to withdraw the full sum.
They should be worried that they might not have adequate retirement funding from age 65. 
They are worried about the wrong thing.
Knowing that I will have a meaningful monthly income for life from age 65 gives me some degree of assurance when it comes to the topic of retirement adequacy.

Source: CPF Board.
So how do they calculate the monthly income age, from 65 till ?

Assi AK

Source: CPF Board.


Ok. They reply me with a few question

 "My question is will we get our entire cpf sum back whether it's thru annuity etc"
By my friend
I started typing numbers and I deleted. He can go and do his own calculations to see for himself why CPF Life makes sense. Don't be lazy. LOL.

As he seems to be fixated with getting back all his savings in his CPF account, I will simply show him how most of the money in my CPF-SA is from the government. At age 55, whatever I have in my CPF that is above the minimum sum, I can withdraw.

The minimum sum which is really money from the government will go into CPF Life to fund my retirement for life from age 65.

Ask him what would he do if he were allowed a 100% withdrawal? What would he do to ensure that the money will be able to fund his retirement for the rest of his life?

Worry about the right things in the right way.

Related post:
Proposed changes to the CPF system.


qook said...

Hi AK, this is not the right post to comment under, but just wondering if you were planning any blog post about the recent plunge in commodity-sector stocks? E.g even blue chips like Sembcorp Ind has fallen to 3.60. I still believe in fundamentals of the company and that sentiment driven weakness should be seen as opportunities to buy. But when I see stocks like Noble and Golden Agri plummeting (of which I have positions in both), I'm starting to lose my steel. Although I have been been through this before during GFC when it seems like the world is going to end, but in the end it was the deal of the century to be buying. What should we do in times like this?

AK71 said...

Hi qook,

I don't know if I would be blogging about this but I have blog posts on similar stuff in the past before. You would have to look for them though.

I would say that we should not be worried if our investments are fundamentally sound and are able to stand up to scrutiny. If we can clearly explain why we are invested in a business and why we think it is probably a good investment, then, as its stock price falls, it should become even more attractive to investors.

However, if we are unable to do so, then, we don't really know what we are investing in and why. Then, we might panic because we are mostly investing in an unknown. The only thing that is definitely known to us is the stock price and it is falling. Sell or buy more? Don't know. Press the panic button. See?

Of course, whether we are right or not in our reasoning is something else.

I am not invested in Olam or Noble. I do have a sizable investment in Wilmar. I don't know enough about Olam or Noble to comment on them but I do feel that Wilmar makes a good long term investment. Although they are all commodities businesses, I am sure they are all run with varying degrees of tact.

I never liked the CEO of Olam based on my experience with CitySpring Infrastructure Trust. Friends who have researched Noble warned me about their constant fund raising exercises. With Wilmar, there are many things to like about the CEO and the way he is driving the business. There is clarity in his strategy. It isn't a patchwork.

To keep it short, I am comfortable enough (even quite impressed) with Wilmar to add to my long position if its stock price should weaken from here, all else remaining equal, because I believe in what Mr. Kuok has done and is doing to the business. I believe that Wilmar is worth more today than, say, a few years ago.

If you have the same conviction about Noble, then, you should be buying but it has to be a conviction backed by well reasoned arguments and not just a feeling. :)

Unknown said...


Do you think Wilmar Int is a buy at today price. I would like to have a second opinion, especially yours which I respect.Thanks


AK71 said...

Hi Victor,

Unfortunately, this is one kind of questions which I would avoid answering. :)

All I can say is that I am accumulating on weakness. The close it gets to $3.00, the better it is for me. ;)

AK71 said...

Devan Z said...
Minimum sum in year 2008 was $106,000. FRS in year 2018 is $171,000. If my math is correct (im quite bad at it), then that is about 4.9% increase per annum which is higher than the return rate for SA which is 4%.

The "hypothetical" situation had happened before, and nobody can confirm it will not happens again. Is it still wise to top up cpf? Or would it feels like a never ending chase to reach the shifting goal post of FRS and eligible payout age.

Perhaps it might work for some people (those approaching 55) but might not work for all (those in their 20s or 30s)? Just trying to get a balance view on things.

Blogger AK said...
What I know is that we have to plan for a financially secure retirement.

What I know is that the CPF is risk free and volatility free.

What I know is that with inflation, we will need more money in future to retire more comfortably.

I am comfortable with having a bigger annuity (i.e. money locked up in the CPF-RA) to help ensure retirement adequacy.

This is what I meant by working with what I know.

Those who save more in their CPF earlier will, no doubt, make the government work harder to help them meet the FRS.

Those who don't do it will have to work harder later on in life.

There should be no debate on this. ;)

AK71 said...

See also:
CPF SA time and income lost due to peer pressure.

AK71 said...

As Df says...
Those who can't meet minimum sum should be more worried that their savings aren't sufficient for day to day needs after 65 than that they can't withdraw it in full.

It boggles my mind how so many keep ranting about how they will end up having to pick up cardboard in their later life because of that (and getting only 600-1200/month) as opposed to being able to take the whole 80-160k out in a lump sum.

AK71 said...

Jackson Yang says...
My eye fixed at $350k FRS liao... because that's what math told me when I include 3% annual

Jack James says...
You are 19 years old now ?
Year 2054 will have S$351,000 🤣🤣

Jackson Yang says...
Nope. For those who is 19 YO now, they will need $495k FRS when they reach age 55, consider 3% annual increment....

Jack James

AK71 said...

Yew Ngie says...
I projected abt 400k ERS by the time i retire.
Aim to hit it way before that

AK says...
Young people have the best asset on their side and that is time.
Gambatte! :D

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