Take responsibility for one's own retirement needs.

Take responsibility for one's own retirement needs.

MR MUHAMMAD Rasyid Abdullah laments that he needs more assurance on the future retirement sum needed in his Central Provident Fund (CPF), citing that the Minimum Sum has risen 437 per cent from $30,000 to $161,000 in 28 years, and wonders if $800,000 is needed by 2055 ("More assurance needed on future retirement sums"; yesterday).

The Minimum Sum of $30,000, set in 1987 and unchanged for many years, was deemed inadequate for basic retirement as Singaporeans began to age.

With proper financial analysis, it is not difficult to see why $30,000 would be inadequate, even in the 1980s, for basic retirement needs.

In the 1980s, the starting pay for graduates was below $1,000; today, the starting pay for graduates is more than $3,000, a 200 per cent increase. Median household incomes are also much higher today.

At $161,000, the Minimum Sum, renamed the Full Retirement Sum, is barely catching up with what an individual will need for standard retirement needs today.

This sum would give an individual $1,200 to $1,300 a month for life from age 65, under CPF Life, a generous annuity plan not matched by any other private, commercial ones in the market.

Using the average long-term inflation rate of 3 per cent, in 2055, the Full Retirement Sum needed would be around $525,000. The Basic Retirement Sum would be around $260,000.

The assurance sought by Mr Rasyid on what is needed for retirement can be answered only by himself. It will depend on his economic ability in his next 40 years, his consumption pattern, what he expects to spend post-retirement and his investment risk appetite, among other considerations.

It is good that he has started thinking about retirement adequacy, and it is never too early to start saving.

The Straits Times / Forum Letter           Published on 13 March, 2015

By Christopher Leong Chi How