This is possibly one of the most important change in recent decade that will affect our retirement planning and definitely worth reading: Recommendations by the CPF Advisory Panel.
I view with much excitement the proposed option for the Enhanced Payout. With an Enhanced Retirement Sum of $241,500 giving a monthly payout of $1,750 to $1,900. For a couple that maxed this out, that would mean $3,500 to $3,800 of monthly income post-retirement at age 65. That's a hefty sum to meet retirement needs. The recommendations also suggested that this sum can be voluntarily topped up. I hope these can become tax-deductible as well.
I did a quick estimate, if I were to take the same sum of $241,500 (age 55) and achieve an annual rate of return of 6.5% for 10 years (age 65), and withdraw thereafter at 4% per year, I would only achieve $1,511 per month. Of course the difference in my model is one with a perpetual capital retention but with more market risks, whereas CPF's is comparatively risk-free and involves a draw down.
At the end of Chapter 2 of the report, there is a summary data from the household expenditure survey of retirees conducted in 2012/13 . Projected into the future, the per person expenditure works out to be $409.70, $669.70, $931.90, $1,364.90 and $3,170.10 for the respective quintile by 2026 (2% inflation assumed). Assuming at the top end, a retiree couple in 2026 would hence require $6,340. If $3,500 has been met via CPF retirement income, that leaves $2,840 to be met via other means. I figure that would mean an investment portfolio of $852,000 (i.e. $2,840 *12 months / 4%) generating 4% income per year.
Other options effectively retained the current Minimum Sum but renamed Full Retirement Sum at $161,000 with $1,200 to $1,300 monthly payout, and the Basic Retirement Sum at $80,500 (with property pledged) with $650 to $700 monthly payout. These provide options for those who are adverse to CPF holding the retirement savings and prefer to cash out.
CPF and the study team has done a great job in putting together the information packages that are reasonably easy to digest. It looks like MoM has accepted the recommendations. I look forward to the introduction of the Enhanced Retirement CPF package.
CPF - A Lifeline for Retirement