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It has been a while but here is another wonderfully crafted guest blog by EY as she asks some questions which we might be afraid to ask ourselves:
Is having a CPF LIFE payout of $2500/month sufficient?
Which do you prefer?
Let your desired quality of life determine your retirement sum?
or
Let your retirement sum determine the quality of your life?
In Singapore, quality of life does not come cheap. More so if we are projecting decades into the future.
Based on 3% annual inflation rate, what we can buy with $2500 today will cost us $5234 in 25 years’ time, $6068 in 30 years’ time, and $8155 in 40 years’ time.
Those of us intending to depend solely on CPF LIFE payout for retirement should do a reality check. Even in the case where we could set aside the Enhanced Retirement Sum (ERS) which is 3 times the Basic Retirement Sum (BRS) and 1.5 times the Full Retirement Sum (FRS).
I have produced a reference table detailing the CPF LIFE payout using the CPF LIFE Payout Estimator based on the FRS and ERS that are adjusted for 3% inflation each year. To derive a more conservative payout projection, I have chosen the uppermost range for ‘Annual Value of Property’ and ‘Annual Assessable Income’.
CPF LIFE Payout
(https://www.cpf.gov.sg/cpf_trans/ssl/financial_model/lifecal/Life_Estimator.asp)
Annual Value of Property (AV): More than $30,000 Annual Assessable Income (AI): More than $60,000 Gender: F
From the table, the FRS will likely be around $236,000 and ERS around $354,000 in Year 2029 when I turn 55 years old. Considering that my current SA balance is >$170,000, and if I continue to be economically active for at least another 5 years, I should have no problem achieving the ERS. This would translate to a CPF LIFE payout of approximately $2300 - $2600 per month at my drawdown age of 65. (NB: The CPF LIFE payout of $2300 - $2600 is extrapolated from the Year 2028 ERS payout as the CPF LIFE estimator caps input for calculation at $350,000)
At 65, what I receive from the CPF LIFE Payout is likely worth only $1131 - $1279 in today’s dollars.
Fast forward to 80 years old in Year 2054, my CPF LIFE Payout is probably worth only $726 - $821 in today’s dollars.
So, if I wish to maintain a quality of life equivalent to $2500 in today’s dollars, I would need an increasing income stream to make up for the loss of value due to inflation. The table below outlines the additional income I need at the various age to combat the 3% inflation that is chipping away the value of my money.
Looks like the comfortable retirement that I desire will have to be fuelled by a lot more hard work now and in the next 10 or even 20 years!
Related posts:
1. Changes to the CPF system. BRS, FRS and ERS.
2. Achieving Level 1 financial security.
3. Upsize $100K to $225K in 25 years.
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