Why retirement is not an option for some people?

Ever since I went on a low carbohydrate diet, I have been consuming more protein and fats. 

One of the things I do eat from time to time is fish and I enjoy Batang fish quite a bit.

This evening, I paid almost $5 for my fish dinner:

150 grams of Batang fish. 

Just nice for a grown man or at least for me.

A dusting of turmeric powder, a sprinkling of garlic salt and some butter. 

1 minute in the microwave oven at 800 watts, followed by a drizzle of extra virgin olive oil and it is good to eat.

Yummy.

Anyway, as I was walking home from the supermarket, I tossed some numbers in my head.




$5 doesn't seem like a lot of money but to someone who makes $100 a day, that is 5% of his daily pay. 

(Once upon a time, that was my daily pay too.)

Considering the fact that $20 goes to his CPF, $5 is actually 6.25% of his take home pay. 

This is quite a big percentage.





Let us say this person depends solely on his CPF savings to fund his retirement and let us say he hit the FRS 10 years ago and CPF Life pays him $1,380 a month from today for life, he would get $46 in pocket money a day. 

In such a case, $5 is going to be almost 11% if his daily allowance!

The price of Batang fish would probably increase over time too.

Of course, he probably won't be eating Batang fish everyday but it is just an example to show how our CPF savings are probably not going to be enough to retire on.

If we depend solely on our CPF savings for retirement funding, it is quite possible that we would have to continue working beyond age 65.




This is for CPF members who have the FRS at age 55 too as this fishy example shows. 

For CPF members who do not have the FRS or even the BRS at age 55 and if their CPF is the only source of retirement funding, the chance of them ever being able to stop working is almost non-existent.





To people who are still unhappy with having money locked up in their CPF accounts and who want their CPF money returned to them because they have no savings to retire on, you have to wake up. 

You cannot retire. 

You have to continue working.





Related post:
CPF Life payout estimator.

Exploit the CPF-RA for a lump sum payout? (And HardwareZone Money Mind on how to hack the CPF-SA?)

Reader:
Need your advise, my SA is able to meet the MS (FRS), was thinking of opting for the enhanced option (ERS) for CPF life at 55 which is next year. 

There after, at age 65 think of pledging my HDB for the 85K to get back the money. In that way, i am able to earn the 4% interest for the $85K for 10 years, your kind advise please thanks.

AK:
You have to decide at 55 if you want BRS, FRS or ERS. You cannot change your mind at age 65.




Reader:
In a way i am not, but getting back the money of $85K at 65 after pledging. thanks.

AK:
The transfer to the CPF-RA is irreversible. So, think carefully what you want.

The money in the CPF-RA will fund CPF Life which will give you a monthly income for life. You won't be allowed a lump sum withdrawal from the CPF-RA.

Reader:
But spoken to CPF on this and they said its possible to get the $85K with pledging? thanks.

AK:
Yes, at age 55, if you opt for BRS, you can take out all the money in excess. This is probably what they meant.








"On your 55th birthday, we will create a Retirement Account for you. Savings from your Special Account and Ordinary Account, up to the Full Retirement Sum, will be transferred to your Retirement Account to form your retirement sum which will provide you with monthly payouts. For higher monthly payouts, you may also top up your Retirement Account up to the Enhanced Retirement Sum." (Source: CPF)


"Top-ups under the RSTU Scheme are irreversible and irrevocable." (Source: CPF)

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From my Facebook wall.

Kelvin Tan:
What do you think of this plan as a form of hack, which might make sense if you have most of the FRS sum in your OA.

-At age 54, before your birthday, invest all your SA, after leaving aside 40k, into a government T-bill.

-Let your RA formed largely out of your OA.

-Redeem T bills and have the money return back to your SA.

-Profit!

AK:
Unfortunately, I don't think it works that way. At 55 years old, once we have put aside the FRS or BRS in our CPF-RA, (if) we will have to close our CPFIS-OA and CPFIS-SA (if any), we can continue to hold these investments in our name directly or if we choose to liquidate our investments, the money will be paid to us directly and won't go back into our CPF accounts.




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Lee Keh Yi: 
CPF FAQ says: 
"You can continue to invest even after age 55, as long as you have set aside the Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge in the Retirement Account."
CPFIS is not auto-close at 55. 

Another FAQ says 
"You may apply to close your CPF Investment Account and transfer your shares to your own Central Depository account after you have reached 55 years old and have set aside the Full Retirement Sum or the Basic Retirement Sum with sufficient property pledge in the Retirement Account." 

Note -> *may*, not *must*

AK:
Ah, I see. 
But if the CPFIS account is closed, the investment is held directly under our name or if liquidated, the money is paid to us and does not go into our CPF accounts.




Lee Keh Yi: 
The "hack" that Kevin described was discussed on HWZ Money Mind forum. 

The conclusion was that it would probably work: 

there is nothing in *current* CPF regulations that stops it from working. 

Some of the participants in the discussion will reach 55 within a year. 

If they try it out and report back like they said they would, we'll know for sure :)

AK: 
I read from the CPF After 55 booklet that if we terminate the CPFIS and liquidate the investments, the money will be paid to us directly. 

I doubt it goes to our CPF accounts. 

It is on page 15. 

Quite clear on this unless I have misread again.

Lee Keh Yi:
the "hack" is intended to make CPF draw the RA-FRS from our OA rather than our SA at 55 (by investing the max SA that we can). 

After RA-FRS is formed (ie 55yo), liquidate the SA investment and return the funds to SA. 

Thereafter we can enjoy the 4% interest from SA. 

All this should work, provided we are able to meet FRS via OA

AK:
Yes, I understand the strategy. 

Well, nothing beats actual field test especially when others are going to be the lab mice. ;p




Lee Keh Yi:
HWZ money mind had examined this very closely, looking for pitfalls in the theory, but we couldn't find anything in the *current* CPF regulations that stops it. 

Yup, it remains a theory, until someone tries it, crosses the 55 mark and can either confirm or refute the theory with their own experience ;)

AK:
I am always ready to learn from someone else's experience. 

It is less troublesome and sometimes less painful. :p



Related post:
BRS, FRS and ERS.