Sep 23, 2007

Your Retirement Savings

And after all the hue and cry about the changes to the CPF system ... what are you going to do about it? Personally, I mean.

A couple of points, if they were not that clear to you previously, ought to have become somewhat clearer by now. Firstly, whether you like it or not, chances are that you WILL live to a ripe old age. Here's some calculations by Tan Kin Lian, done in an ST article on 21 Sep:

"Many people think their chances of reaching 85 are slim. But they are mistaken. I estimate more than 50 per cent of the population will live to age 85 and beyond.

You do not believe me?

The Department of Statistics' publication Population Trends has data for the death rates of each age group over a period of 25 years from 1980 to 2005. Death rates have been falling over this period by about 3 per cent yearly.

I did some projections based on that data, assuming the decline will continue. This is likely to be the case, at least for the next 10 to 20 years. It has been falling at this rate for the past 25 years. Why should it stop now?

Based on my projections, a male at age 55 today has a 57 per cent chance of surviving to age 85, and 32 per cent chance of hitting 95. The probability for a female is higher, at 70 per cent and 42 per cent, respectively.

If you still do not believe me, remember I am referring to people who are 55 years and less today. This group will have a longer life expectancy compared to that of the older people living today."
Secondly, for many Singaporeans, CPF money alone won't be able to sustain them through their retirement. If these Singaporeans also do not have children to support them (adult children being the traditional safety net for the aged, in Asian societies), then the challenge grows greater.

Whatever the government may do now at the policy level, understand that it's pitched at the subsistence level. A monthly annuity payout of $300 is really just to ensure that you'll have enough money to buy your bowl of rice every day with a few sticks of veggies and toufu in it. It's to make sure that when you're old and wrinkled, you don't have to die of starvation on Singapore's nice, clean streets and spoil the scenery for tourists.

So if you want to enjoy your retirement years in much better shape than that, Mr Wang suggests that you spend some time thinking about how to save, invest and grow your money more effectively.

There's no point complaining: "But I only earn $X every month now, and after I pay my utilities bill and my handphone bill and my mortgage and my car instalment and my food expenses and give $Y to my parents, I only have $Z left, I have hardly anything left over to save."

Because, folks, it's your own life. And you know our kind of government is definitely not the kind that's going to give you any free money on a silver platter.

So you have to find a way, that's all.

Me, I drew up my first financial plan for retirement, during my 3rd year of working life. A crude model, no doubt, since I didn't know very much about personal financial planning then, but it got me started.

What about you?

Here's an interesting exercise - think of five ways you could cut down your expenses, without compromising the quality of life that you're accustomed to right now. No, let's make it more interesting - think of five ways you could cut down your expenses, which would either not compromise your current quality of life, OR improve it.

27 comments:

Anonymous said...

Why you people have to age. Now create problems for PAPa to solve. Why?
See Japanese make handphone with large button.
Why you not innovative?
See We do not have same problem as the Japan as We don't have retirement fund scandal.
Be happy to be Singaporean K
if We say you die later you must die later or We fine you.

Anonymous said...

Quit smoking - save $300 a month. Quality of life improves because of better health.

Anonymous said...

Actually based on the methodology of Mr Tan Kin Lian's straight line extrapolation, people may eventually live to a few thousand years old or more.

Just that life is not so straightforward as statistical extrapolation.

But that's not the point. The point is that if there is no social security for people between 60's and 70's years old, why babble about 85 and over?

It is just a ploy of PAP to distract from the real problem - locking up of CPF for longer period.

But of course to insurance companies like NTUC Income, why there is business in annuity ; so some are already boot-licking PAP in the press.

George said...

Mr Wang,

Since you have have the data, of the 57% who are expected to touch 85 years old, how many will live 1, 2, 3, 4, 5, etc years beyond 85?

Do you have the data for the male:female ratio from age 55 onwards?

Thanks.

Mr Wang Says So said...

"Actually based on the methodology of Mr Tan Kin Lian's straight line extrapolation, people may eventually live to a few thousand years old or more."

Nah. A long time before that, the curves for life expectancy will start levelling off. For example, one day they may start levelling off at, who knows, age 90, or 95, or 105 or 100 or 130.

However, they are not levelling off right now. That is, they are not levelling off at age 81 or 82 etc.

Mr Wang Says So said...

"The point is that if there is no social security for people between 60's and 70's years old, why babble about 85 and over?"

There isn't social security for age 85 and over either.

The way they ensure you don't die and make an ugly scene in the street, between age 62 and 85, is through the Minimum Sum pay out.

The way they ensure you don't die and make an ugly scene in the street, after age 85, is through the annuity pay out.

Mr Wang Says So said...

"But of course to insurance companies like NTUC Income, why there is business in annuity ; so some are already boot-licking PAP in the press."

Tan Kin Lian, by the way, has retired. He is no longer CEO of NTUC Income.

Mr Wang Says So said...

"Since you have have the data, of the 57% who are expected to touch 85 years old, how many will live 1, 2, 3, 4, 5, etc years beyond 85?

Do you have the data for the male:female ratio from age 55 onwards?"


I don't have the data, I'm not in the insurance business. TKL does give projections for this:

of the people who are aged 55 or less today:

57% of males will reach 85 years;
32% will reach 95 years etc.

Anonymous said...

The Gahmen talk cock only!

The reality is there is already no job security for everyone especially those in their 40's ~ 50's, so what's the use of legislation for those in the 60's ?

For the last few years, even stat boards such as LTA has been employing a lot of people on a contract basis.

No amount of legislation is going to change the mindset of employers where what matters most is the bottom line.

Anonymous said...

"For example, one day they may start levelling off at, who knows, age 90, or 95, or 105 or 100 or 130."

Precisely! We can't tell at what age the general leveling off will start just by simple extrapolation.

In fact, there are imponderables that might enter to make life shorter than now. For instance the WHO is reporting that death by cancer is rising by with phenomenal rate.

"Global cancer rates could increase by 50% to 15 million by 2020"

http://www.who.int/mediacentre/news/releases/2003/pr27/en/

Anonymous said...

'mental cases' are up in tandum with 'higher standard of living'. people not only have to deal with wages that mostly assured of subsistance living, they now have to worry wheather they are mentally sound or not. but then again, can you blame mental disorder for your financial lack later and hope that the benevolent hands of the superscale wages come up with another brilliant plan for erm..rescuing the 'mentally poor'?

hmmm....

Starbucks said...

As a baby boomer, from every dollar I earned from my first paycheck onwards, forty cents went into the CPF (the percentage varied over the years, as you guys know). When I withdrew my CPF, I was, still am, debt free. So why are so many Singaporeans cash strapped? One main difference, I did not fall for the "asset enchancement" trap. The HDB subsidy is no better than the NKF subsidy for their dialysis medication. There lies the answer for the money woes.

Anonymous said...

Whatever the case, I think it would be prudent to be overprepared rather than underprepared.

You can't say for sure whether you'll kick the bucket at 70 or 85. For all you know you might be fortunate (or otherwise depending on how you look at it) enough to croak at 100.

Whatever the case, being prepared sure as hell beats being caught like a deer in headlights. That involves due diligence financially at the front end, it's not the easiest thing to do, but it's certainly simple.

George said...

"57% of males will reach 85 years;
32% will reach 95 years etc."

Mr Wang,

How do we intrepret the above which is by no means clear?

Do we add 57% and 32% = 89% will live to age 85 at least? Not likely isn't it?

or, of the 57% who will touch 85 years, only 32% of these 57% will live to age 95, ie for every 57 people who live to age 85 years, only about 18 (32%) of them will be around to celebrate their 95th birthday?

For the sake of discussion if we assume an average cohort size of 20,000 55 years old, it will theoretically translate to 11,400 people who will be still around to celebrate their 85 years birthday, and of these 11,400 people only 3,648 will live to celebrate their 95th birthday.

Is that also how you would intrepret TKL's stats?

khirsah said...

The issue here is not about how good or bad the annuity is. It is about why making it compulsory? At least, that is the issue with me. If it is good, do more "promotions" about it than merely slapping us with that "it's good for you, go eat your vegetables!"

Anonymous said...

I think Tan Kin Lian's methodology to be too crude for policy making purpose.

We need to look into whether the improvement in life expectancy since 1980 is due to one-off improvements such as lower infant mortality, less traffic fatality (less motorcycles?), urbanisation etc.

We can look at certain developed countries such as Japan to get a sense of whether it is realistic for life expectancy to improve at 3% for the next 3 decades.

Jetreroy said...

Since the day our PM released news on the compulsory annuities, I have never doubt that any resistance from the people would stop it.

Hence I came to a conclusion: Just do your own financial planning and earn enough to live comfortably after retirement. Make any rubbish schemes they throw at us insignificant. That sure beats trying to change any of our government's policies...

Kaffein said...

I'm not against financial planning. I think most younger generation know or at least hear about it.

The grouse is: There is a generation who does not know about financial planning. During their time, many had no or little education. They trusted the government to see them through their senior years with the CPF scheme.

Now the government has turned around and said that their CPF is not enough.

Now where does that leave them?

For many of us (perhaps post-65ers), we are more edcaducated and will probably attempt to invest or save more. Or at best, migrate, as many had already done so.

And the government says these 'unfilial' sons have forgotten about their homeland and forsaking their roots.

Ahhh such irony.

Nevertheless, it's good that you have time and again highlighted the importance of financial savings and encouraging readers to work towards it.

Kaffein

Mr Wang Says So said...

"For the sake of discussion if we assume an average cohort size of 20,000 55 years old, it will theoretically translate to 11,400 people who will be still around to celebrate their 85 years birthday, and of these 11,400 people only 3,648 will live to celebrate their 95th birthday.

Is that also how you would intrepret TKL's stats?"


No, I interpret it as 11,400 out of 20,000 living to celebrate their 85th birthday,

and 6,400 out of the 20,000 living to celebrate their 95th birthday.

Mr Wang Says So said...

"The grouse is: There is a generation who does not know about financial planning. During their time, many had no or little education. They trusted the government to see them through their senior years with the CPF scheme.

Now the government has turned around and said that their CPF is not enough.

Now where does that leave them?"


I do understand your point, however, many members of this generation do have a certain advantage over, say, the post-65 generation.

They have children to support them. Whereas many members of the post-65 generation are, and will simply be, childless, or with one child only.

HaveAHacks said...

Actually, there's another interesting dimension to this. I will only turn 85 in 2052. The young scholars running the numbers for LHL will turn 85 in 2065. That means Singapore has to survive till 100 for them to see any annuity payout.

Do you think Singapore will survive till 100 ? My grandfather was born in China under the Qing dynasty which collapsed and was replaced by the Kuomintang, which also fell and was displaced by the Communists. By then, my grandfather had come under British colonial rule in Hong Kong, but Hong Kong, too eventually became an SAR - not quite Chinese, and not quite independent, either.

Interestingly enough, I found a web page on Chinese bond certificates issued between 1905 and 1937 - http://www.lokmanbooks.com/ChinaBonds/ChinaBonds.html. The reason these certificates still exist and were never encashed is because all the issuers, including the Imperial Chinese Government, defaulted.

Anonymous said...

Ok, while you guys are yapping on and on abt policies, I've thought abt how I can cut down on my expenses. I've been thinking abt this for several years already, having had to live on my own (nothign like being away from parents to make you think abt priorities!)Btw, you can yap on and on abt this policy and that policy but what diff is it going to make anyway? Are you going to *gasp* protest the govt policies in front of some building?
I dont eat out very much anymore - at the most its once a week, sometimes once every 2 weeks. Its good for your health too. I bring my own coffee to school, going to cancel newspaper subsription (why bother when I can read online), stopped hankering after brand name stuff, borrow books from the library instead of filling up my shelves, run/buy exercise equipment instead of going to the gym, got a good second hand car.. hmm, thats all I can think of right now. I expect bigger sacrifices soon like getting a good second hand car, fishing arnd for a good insuarance policy when I start work etc. So you might guess that Im still young-ish.. Yeap, and Im very concious of the fact that you cannot depend on anyone to take care of you. It just doesnt exist, I dont know what century you ppl grew up in..thinking that someone is looking out for you. *pfft* And oh yea, one way you can help secure your kid's future is by not pandering to their every wish - spoilt brats dont adjust very well in times of difficulties.

Anonymous said...

Mr Wang, I still prefer your Mr Wang Bakes Good Karma blog - please revive it and channel positive energies to more desparate Singaporeans trying to survive with its government who is equally struggling to keep Singapore alive and vibrant.

All of you out there, channel all your energies to make yourself happy while you are alive.

http://www.accesstoinsight.org/tipitaka/kn/snp/snp.1.08.than.html

:)

Anonymous said...

This appears Straits Times on 25 Sep. I think we should look at the size of our reserves and retirement funding.

Singapore's reserves: When will it be enough?
MANPOWER Minister Ng Eng Hen said: 'We are still a small island and our reserves are a strategic store that gives us weight in this world. We should not mortgage our future to serve present needs.' ('A huge mistake' for Govt to foot pension system'; ST, Sept 20).
Quite apart from what he meant by Singapore's 'weight in this world', this and Dr Ng's other statements raise important questions.

One can easily agree that the reserves should not be used to fund a universal pension scheme, and that they belong to both the present and future generations.

A recent press report gave Government of Singapore Investment Corporation (GIC) assets at US$330 billion (although at its website, the amount was given as 'well above US$100 billion') and Temasek's at US$108 billion, a total of US$438 billion or S$661 billion. Even assuming GIC assets at US$150 billion, the combined assets of GIC and Temasek would be US$258 billion.

Dr Ng should explain the Government's strategy in reserves accumulation. Is it a case of more, more and more? Is there a target amount in absolute terms or on a per-capita basis? He owes the public an explanation as there is widespread agreement (even among many MPs) that the Government should and, most importantly, could afford to do more for those who are hurting financially and to provide more subsidised care (medical or otherwise) for the infirm and elderly.

Over 25 years, GIC achieved an annual investment return of 9.5 per cent in US$ terms (8.2 per cent in S$ terms), which is 5.3 per cent above global inflation. On the other hand, Temasek achieved a return on equity of 18 per cent per annum.

The Government could comfortably use 1-1.5 per cent each year of the real returns of 5.3 per cent to meet current needs. This will make available S$4.05 billion to S$6.08 billion each year, based on a lower GIC asset figure of US$150 billion.

Dr Ng can still sleep well. Singapore's weight in this world will not only be preserved but also continue to increase and its reserves will continue to grow in real terms, albeit at a slightly slower pace.

Anonymous said...

Buon giorno,

I have a question, if say 50% of the population can live up to 85 and more...And the annuaity scheme can help them up to 85 only.

So which is also as good as saying that there is a profit of the other 50% right, since they die earlier and they pay the penalty right?

Mr Wang Says So said...

Yes. Annuities are essentially the flip side of life insurance.

With term life insurance, you make a huge profit if you die young (or rather, your dependents get the money). You suffer losses, if you live to a ripe old age.

With annuities, you make a huge profit if you die old. You suffer losses (or rather your dependents suffer the loss of the non-refundable $8,000 you paid many years ago for your annuity) if you die young (eg before 85).

Annuities, just like term life insurance, are not for you to accumulate wealth. For wealth accumulation, try investing in stocks.

Annuities and term life insurance (as well as other sorts of insurance such as fire insurance and health insurace) are for financial protection

- you pay premiums to protect yourself, in the event that a certain event (eg living too long, dying too young, or having your property destroyed by fire; or getting a serious illness) occurs in a certain time period (and it may or may not actually occur).

hunguptodry said...

1) why is our gov so unwilling to use the country's reserves for welfare?

2) what big event r these reserves waiting for?

3) who accumulated these reserves?

4) who has the right to spend it?