29 July 2019

Where Does a $120,000 Annual Retirement Income Go To?

I am most grateful to a reader who shared his monthly expense figures. I'm not even sure if I should say "he" or "she"? But for convenience, I'm going to just call him Adam (A).

[To: 'Adam' - Give me a shout out if prefer to be called by another name?]

It looks like Adam's household is made up of a couple, an elderly and a maid.  Not sure if there are any children? In contrast, my situation (B) is that of a couple and two children.  While the specifics are not the same, there are high similarities - i.e. four persons in the household, close to retirement.

I took the liberty of regrouping Adam's data so that I could make reasonable comparisons.

Expenditure Item  A   B 
Condo maintenance   $      330  $      295
Car/transport related  $      670  $      594
Property tax  $      280  $        33 A's is for 2 condos
Utility, broadband, phone  $      350  $      474 B's includes replacements
Insurance  $      300  $        40 B's exclude Medishield using CPF-MA
Food/meals, groceries, households  $   1,500  $   2,392
Medical  $      100  $      750
Gifts, clothings, misc  $   1,750  $   2,286 B's include contributions to parent
Donations  $      150  $        53
Condo maintenance (investment property)  $      350
Maid (to look after elderly parent)  $      650
Maid levy and medical  $      150
Travel  $   1,500  $   2,110
TOTAL  $   8,080  $   9,027

One key difference is that Adam has a second property, an investment property, from which he is earning rental income. And he has a maid to look after an elderly folk.

Adam also mentioned that he owns a car, which he views as essential to ferry the elderly. And he is concerned whether there is enough money to buy a replacement in time to come. This is clearly something he needs to prepare for. Buying a replacement car is a hefty investment, perhaps $100,000? This is an expense that is going to happen once every 9 to 10 years. But as one age, perhaps we would reach a point where it is no longer safe to even drive one? But the removal of car-related expenses (road tax, car inspection, insurance, maintenance, fuel, parking - they really add up!) would be substituted by other public transportation expenses.

Going through the data, I was wondering if I might have missed out something in my insurance. Wifey and I do have Integrated Shield plans, ElderCare plans, and property insurance. But nothing else. With the income stream from our investment portfolios, there didn't seem any reason to need anything else for retirement. With most of it paid via CPF-MA (and therefore not reflected in above), there is little cash involved, for now.

Our medical expenses are higher, as both wifey and I have certain conditions that require regular treatment. That explains the much higher medical expenses compared to Adam's.

My family is probably spending a lot more on food (groceries and meals out) and household expenses. That is something of a lifestyle desire. Or perhaps we are just eating too much and growing fat!? Hah.

Adam's family has been fortunate, investing early in their career in property and shares, and that has paid off.  My family started investing late, much of that only in our 40's, in shares and some unit trusts. It was too late to go into properties, but we were lucky to have gotten a decent condo at a fairly low price.

Adam's family is also comparatively more generous with tithing/donations. This is an area I am prepared to contribute more on if my investments pay off.

My family's travel expenses are higher. Perhaps Adam's family travel expenses do not include one or two persons in the household? This is probably seen as a major luxury item. But it is certainly something meaningful to my family, exploring the world around us. For sure, this is an item that some flexibility can be exercised on if financial circumstances vary - especially, during market downturns.

In time to come, my family's expenses will drop significantly once the children are working and eventually, moved out.

In summary, neither hit $120,000 a year, although close to. But with inflation, both surely will soon.

22 July 2019

End of Life - What happens to the CPF?

While we are still growing up in our twenties, CPF is just a 'sinkhole' where part of our salary ends up in. Goes in, never come out.

Over time though, as we progress towards our thirties, it becomes the source upon which we can only be glad that there is money to help pay for our housing.

And when you are getting closer towards retirement in your forties, you think about how to accelerate the build-up of CPF to get the desired retirement funds desired. As well as tax-deductible top-ups to reduce the burden of taxation.

In our fifties, we start to want to know how the CPF money will fund CPF LIFE to support our retirement.

By the sixties, we are looking forward to finally collecting CPF LIFE payouts.

But what about upon death? I know it's morbid. But that is really something important to take care of as well. A CPF nomination needs to be made to determine how the CPF money would be distributed.

What's the significance?

A CPF Nomination covers:
  • CPF savings in the Ordinary, Special, Retirement and Medical Accounts
  • Unused CPF Life premiums
  • Discounted SingTel shares
A CPF Nomination does not cover:
  • Properties bought using CPF 
  • Payouts from Dependent Protection Scheme
  • Investments in CPF Investment Accounts - i.e. CPFIS-OA and CPFIS-SA.
Well, years ago, Pa and Ma both did their respective CPF nominations. That was a good thing. Trouble is, nobody knew who they actually nominated!  Over time, we did eventually figure out that they had nominated each other. Perhaps they should have told somebody or have the information attached to a Will for reference?

When Pa passed away some years back, CPF Board automatically issued a cheque of the balance left in his CPF in Ma's name and sent to her home address. No actions were required from anybody. Apparently, when the death certificate was applied, it automatically triggered notices to various government agencies, including CPF Board. And CPF Board took action to process accordingly and the nominee would receive a cheque within two weeks.

More recently, Ma passed away too. Unfortunately, her nominee was my Pa. So how?  Since he was no longer around.

  • We looked around for a recent copy of her CPF statement. Took a while to find it.  There wouldn't even be one if you had accepted the paperless option! The CPF statement would indicate if she had made a nomination, and in which year. So that was a clue.
  • We considered checking her CPF online, but she didn't even have a Singpass account to begin with! Best to have one. 

Well, apparently, if the nominated parties are no longer alive, the CPF money gets transferred to the Public Trustee who will investigate and distribute the money according to the Intestate Succession Act. That would take about 2 to 4 months to conclude, and there is some fee involved. It takes a bit longer. I hope it works out.

Related Information:
For a quick overview: CPF Pamphlet on Losing Loved One
And for more details: CPF Guide on Preparations for Death
If you're hearing some nonsense, read this: Government Debunks False Message
For a quick idea of the Intestate Succession ActDealing with the CPF Monies of Someone Who Has Passed Away

15 July 2019

Can You Top-up CPF-RA Beyond FRS to Achieve ERS After Age 55?

Here's something that I've been puzzling about regarding the CPF retirement sum.

Say you only managed to accumulate enough for a Full Retirement Sum (FRS) of $176,000 by age 55. But you actually wanted to achieve the Enhanced Retirement Sum (ERS) of $264,000. Can you still do so somehow later?

Up to age 55, you can contribute to the Special Account (SA) up till the FRS amount. And at age 55, the Ordinary Account (OA) and Special Account (SA) are then poured into the Retirement Account (RA). But let's suppose you didn't have any money left in the OA, and the SA had $176,000. So the resultant RA would only be $176,000.

Post-55 though, you can contribute to the RA up to the ERS amount.  But how do you move from FRS to catch up all the way to ERS? Is it a matter of topping up the difference of $88,000?  I think not.

This article offers some clue (see page 9): CPF Retirement Planning Booklet - Be Ready With CPF.
"The retirement sum that you set aside at age 55 will grow with interest over time. The table below shows how much your retirement savings will grow to at different ages. If you would like to have a specific level of monthly payout, these are the estimated RA savings you should set aside at the various ages. Do note that the amount you can top up to is capped at the current Enhanced Retirement Sum for members aged 55 and above." 
For the ERS of $264,000 at age 55, it is $393,400 at age 65. This means that in the course of 10 years between age 55 and 65, you can contribute to the RA up till $393,000 at age 65, in order to catch up to the equivalent of FRS.  Whereupon, the estimated payout would then be $1,960 to $2,110 per month.

Is this the correct interpretation?

CPF Retirement Booklet - Your Assurance in Retirement

08 July 2019

Phone Smashed in the Land of the Rising Sun II - The Outcome

So I mentioned how Wifey's phone got smashed up during our trip to Japan (Phone smashed in land of the Rising Sun).  Thankful that we were reminded that this should be covered by our travel insurance.  We had completely overlooked that.

Thank goodness for travel insurance!

Checking through the details, it seems the insurance we bought could cover up to a maximum claim of $500 for lost or damaged items. So we submitted a claim.

Not bad. Just received a cheque for $203. Considering that the phone is already two years old and would have depreciated in value, it was still a reasonable outcome.

Something is better than nothing right?

04 July 2019

Saving more with SP Utilities app and UOB One Card

With the recent liberalisation of power services, I think many would have switched out of SingPower (SP) by now.  If you have not, time to give it some serious thought (see Switched to Keppel Electric, saved some).

But there remain other utilities that are still serviced by SP. So here's a quick hack offered by SP to provide further discount on the remaining bill with them:

"Enjoy power on your fingertips with your UOB One Card. Paying your utilities bill is now an easy finger tap away via SP Utilities app. What's more, enjoy up to 6% rebate on your SP utilities bill with UOB One Card."  -- from advert e-mail from UOB."
Here's how:
  1. Download the SP Utilities app from your app store.
  2. Configure your SP account number.
  3. Select Payment Method to add UOB One Card as the primary payment option.

And that's it.

Switched to Keppel Electric, saved some
How can we stretch the interest on our bank savings account

01 July 2019

A Lifetime of Income for Retirement

Recent articles mentioned local survey results which suggested that an aged single could live off $1,379 per month. That works out to be $16,548 annually. A portfolio of $413,700 could generate that income perpetually based on 4% extraction (i.e. annual income needed x 25). But we need to understand that this is for a minimalist lifestyle for a single.

Referencing the last published Department of Statistics report on Household Spendings by Age Group, the average monthly household spending of those aged 50-59 was $4,837 (or $58,044 annually), and drops to $3,586 (or $43,032 annually) for those aged 60 and above.

But these were based on 2012-13 survey data. If we compound these with an estimated annual inflation of 1.5% (inflation has been low in recent years) for 6 years (from 2013 to 2019), the corresponding figures would be $63,468 (aged 50-59) and $47,053 (aged 60+) respectively.

Summary of data points:
For an annual spend of $16,548, perpetual income portfolio is $413,700.
For an annual spend of $58,044, perpetual income portfolio is $1,451,000.
For an annual spend of $43,032, perpetual income portfolio is $1,075,800.
For an annual spend of $63,468, perpetual income portfolio is $1,586,700.
For an annual spend of $47,053, perpetual income portfolio is $1,176,325.

So indeed a household spend of $120,000 annually would be quite a FAT FIRE to retire on. It should be pretty comfortable.

Somebody mentioned to me that assuming he retires at 65 and lives for another 25 years, he would need $3,000,000!  $120,000 x 25 = $3,000,000.  And if he was to retire earlier, he would need even more. So if he was to plan for 30 years, that would be $3,600,000!

I said no, that's not correct. Using the rule of 4%, he would only need $3,000,000 to generate a perpetual lifetime income of $120,000 annually.  $3,000,000 x 4% = $120,000.

And thanks to a little hack, all thanks to CPF, it's not even necessary to have $3,000,000 to generate $120,000 annually.