CPF Enough to Retire On? What It Might Mean for Singaporeans:

Deputy Prime Minister Tharman Shanmugaratnam has announced a new finding: According to studies, younger Singaporeans can rely on their CPF for retirement. I know you’re expecting me to be all sarcastic about this, but no. I would never question anyone who knows how to buy a HDB flat on $1,000 a month. So, here are the implications, if your CPF is enough to retire on:


Road signs saying saving and retirement street

Personal finance is a journey. CPF is the petrol station your car breaks down 20 km away from.


Is Your CPF Enough to Retire On?

The MOM (Ministry of Manpower) has a new study showing that, for many young Singaporeans, it will be. The study won’t be released until the near future; but the results have already been announced. Because who cares about little things like numbers.

The study is based on our projected IRR (Income Replacement Rate). The IRR is the ratio of your retirement earnings to your pre-retirement earnings. It’s expressed as a percentage; so an IRR of 50%, for example, means you’ll make half of what you currently earn after retiring.

In Singapore, the median IRR is 63% for a female earner, and 71% for a male earner, thus providing AWARE with enough seminar material till 2050.

In most OECD (Organisation for Economic Cooperation and Development) countries, the IRR is 71%. So we’re average, right?


Old man giving V Sign

Two words about that, and the second one is “off”.


Not according to the DPM, who:

“…pointed out that Singapore’s IRR is “even higher” when taking into account the fact that most Singaporeans own homes, fully paid for, when they retire. Without the need to pay rent, cash is freed up for other living expenses, he said.

Should they monetise the value of the home – by downsizing, for instance – the IRR rises to well above the 71 per cent figure, he added.

Mr Tharman noted that for low-income earners, the IRR is higher, at about 81 per cent. Through Workfare, which supplements wages, this is boosted to 93 per cent.” – Asiaone News

Wow, I bet Citibank is embarrassed now.  Anyway, assuming the new study is accurate, this is what it might mean for Singaporeans:


1. Fewer Foreigners…Maybe

In a few decades, we won’t have enough young workers to support our ageing population.

This is one of the main justifications for the government’s pro-immigration stance: If we don’t get more immigrants, we might be strapping laptops to our wheelchairs and working at 80.

But as blogger Lucky Tan also observes, the new study (if correct) would mitigate the need for large numbers of immigrants. Singapore’s pro-immigration stance assumes our elderly won’t have sufficient income, and must depend on young earners. But if CPF truly provides an IRR of 63% to 71%, this assumption is incorrect. Our senior citizens can cope just fine on their own.


Old man carting cardboard boxes

They can’t cope without our youthful stamina. Now carry my camera; it’s heavy.


Now we have an either / or situation: Either CPF is sufficient and this pro-immigration argument is wrong, or this pro-immigration argument is right and the CPF study is wrong.

If we choose to trust MoM’s findings, we have less reason to keep importing foreigners.

Yes, we could also argue that they’re both wrong, but that would lead to politics. Politics and I mix like penicillin and typhoid; let’s not go there. Or follow us on Facebook, and we’ll update you if we’re ready to discuss that mess.


2. A Change in Investment Planning

If CPF reliably provides for retirement, then Singaporeans have a lot of security. Assuming we take MoM’s findings to heart, I’m guessing most of us will reduce the amount we put in investments.

Up to this point, CPF alone has never been considered a retirement plan. Mr. Tan Kin Lian’s rule of thumb, for example, is to supplement your CPF with 15% – 20% savings, and invest a portion of it to beat inflation by 2%.


Grim reaper with scythe

Hi, I’m an insurance agent. Can I give you some advice about your financial future?


That’s because Singapore’s inflation rate tends to be around 4%, whereas the CPF interest rate is 2.5%. CPF gets beaten worse than Glass Joe in Punch-Out. That’s why we all scramble for high-growth funds, insurance schemes, etc.

But if the MoM study proves that maths is wrong the CPF can provide for retirement even with inflation, there’s no more worry. Some of us can enjoy our extra cash rather than invest it.

Let’s see how many people trust the study enough to think that way.


3. More Babies

If you can barely afford your own expenses, how are you going to raise…wait, I think I see where this is going.

Some might ask if this CPF study discourages having children. If CPF is sufficient for retirement, we wouldn’t need to raise children to support us, right?

Except who the hell thinks that way?

Apart from Ugandan warlords and Chinese sweat-shop owners, we don’t raise children because they’re good tools or income sources. For normal people, the reward of raising a child is raising a child.

And the barrier to raising that child is cost.


Santa meets kids in Singapore

No kids, I’m SINGAPORE Santa. Now, that Lego set will be $16.90, GST inclusive.


If the CPF is sufficient for retirement, a lot of the problem disappears. The money we invest in stocks, REITs, bonds, etc. can be freed up, and used for raising a family. We won’t worry that, if we raise a child, we’ll end up uncomfortable in our old age.

Which, I suspect, is the intended consequence of releasing this study:

To raise sufficient confidence for Singaporeans to have children. And if enough of us trust MoM (pun intended), that might just happen.

Image Credits:
401(K) 2012, Dee’lite, SimonSays-, digitizedchaos, Official U.S. Navy Imagery

Do you believe your CPF is sufficient to retire on? Comment and tell us why!

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