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Welcome to Part 3 –the final part of the three-part series “Are You Ready for Retirement?”. If this is your first time reading this series, you may wish to read Part 1 and Part 2 first.

Part 2 “Funding your Retirement” explored the CPF funding model as well as the personal funding model. The CPF model is the primary vehicle driving our retirement funding but it is a flawed model in some sense because its purpose of being a retirement account has been subverted by other social purposes of promoting home ownership that has resulted in the “asset rich, cash poor” syndrome that afflicts many of us who aspire to retire well and to live happily after 62 or 65.

The future is not scary if we know the worst case scenario. I don’t know about you but for Panzer, NOT KNOWING what is the worst-case scenario in my future retirement funding IS SCARY to me.

Part 3: Can I truly Retire

It’s a simple question. Yes or no?

Do or do not. There is no ‘try’.

– Yoda, the Jedi Master, “The Empire Strikes Back.”

The “brutal truth” that faces many of us is, “NO”.

You and I would probably NEED to work until 62 or 65 not so much because MONEY is not enough but rather CASHFLOW is not enough.

Why You and I (most likely) cannot retire at 55

The CPF funding model works only if you have amassed CPF monies way exceeding minimum sum (MS) of $120,000. Under existing rules, you can withdraw monies from your special and ordinary accounts if you have more than the MS. In addition, you can withdraw your medisave monies exceeding the medisave MS of $29,500.

If you have already reached MS for both amounts and continue to amass more from now until 55, then congratulations! Potentially you may be able to retire at 55 if your excess over MS can last your living costs from age 55 to 62/65 (7 to 10 years) when the drawdown age kicks in because MS income (for 20 years after 62 or 65) + CPF Life scheme provides you with income for life. No worries.

So if you can live off, say $2,000 a month for next 10 years from age 55 to 65, you would need $240,000 excess over CPF MS. The exact amounts depends on your desired or actual lifestyle expenses and of course the prevailing interest rates, investment opportunities, etc.

This assumes that:

[1] You have paid off your home mortgage and have a roof over head

[2] You have no other debt i.e. car loans etc.

[3] You can live within CPF minimum sum payouts for life

[4] You are healthy and have no major costs

[5] Your children can support themselves

However, one major factor affects our ability to accumulate monies in our CPF accounts beyond minimum sum. That is our residential home. Most people buy instead of rent their own homes in Singapore. This is because property values tend to go up over time (subject to cycles) and it provides one with a hedge against inflation (through saving on paying rental expense for rented housing).  Most of our CPF monies is locked up in CPF as you can use your CPF ordinary account monies to fund your residential home purchase (subject to certain caps).

You will realise by the time you hit 55 years of age that you actually DO have more money than CPF MS and can withdraw it ONLY IF YOU SELL YOUR RESIDENTIAL HOME. Thus, the “asset rich, cash poor” syndrome is due to our personal net worth being locked up in home equity. We can only monetise this to fund our retirement living expenses if we rent out our homes or sell it and downgrade to a smaller home.

Thus, one of the critical factor depending your retirement at 55 or 62/65 is whether you can unlock this home equity. If you are prepared to do it, you actually can retire at 55 or semi-retire, i.e. work a part-time job and downgrade your lifestyle. It is a possibility that can be considered because if your children have grown up or have moved out, this could be possible.

You and I can retire at 55 (or earlier) if…

We discussed personal funded retirement planning in part 2. Let’s say you find that at your current lifestyle, you can live off $2,000 a month (taking the assumptions above, i.e. no mortgage, no debt, no dependents etc), then retirement really is about saving and investing your capital to an amount that generates $2,000 income for life. If you can get a return of 5%, you would need capital of $480,000, about half a million. That’s half-a-million excluding your residential home.

If you get creative and find a place to stay (say move in with parents/children) then, this amount may not be so daunting. If you are in your 40s and intend to retire at 55, you have about 15 years to get your investible capital from whatever it is now to $480,000 in 15 years’ time. If you can get a return of say 5% now, then you would need to save $1,796 monthly for the next 15 years. The amount you have to save and invest now changes depending on interest rate, period and of course the capital you need. Lengthen the period for 5 years to 20 years, you need only $1,168 per month. Shorten it by 5 years and you need to save and invest $2,898 per month.

Life’s uncertainties

The above discussion basically illustrates how it is both POSSIBLE but CHALLENGING to retire at any age earlier than 62 or 65 even if you consider yourself middle-class. I’d like to take a more philosophical look at the whole retirement paradigm by introducing the life’s uncertainties into the mix.

I talked about the assumptions. In reality, there will be aged parents to take care of. We may have had our children later in life and even in our 50s have to support them through school. We may be hit by health issues or career derailment. You and I can plan and plan and plan but life can be full of unexpected events.

Even as the future is uncertain, NOT PLANNING for your retirement is to guarantee that you HAVE TO WORK UNTIL 62 or 65. Even if we assume that your are employed because you have not adequately saved and invested enough for retirement. This would be made worse should there be bouts of unemployment due to restructuring, down-sizing, health-issues, family issues etc. One may literally have to eat rice and salt during that time if MONEY IS NOT ENOUGH.

My take has been to work towards financial freedom and buy insurance to mitigate SOME but not all of the risks. So I buy some whole life insurance and hospitalisation insurance and had some mortgage insurance a while back when my home belonged to the bank instead of me. I take things one day at a time but work daily to move my investible net worth closer to my target towards financial independence. Every day in every way I move that much closer to my target of retiring when I want, how I want.

When there is a target I am working towards, it makes me less anxious about the future and more in control because at least if the worst-case scenarios happen, I am better prepared to SURVIVE it.

Retirement is yours to plan.

Do or do not. There is no ‘try’.

– Yoda, the Jedi Master, “The Empire Strikes Back.”

Be well and prosper.

Related Posts:

Are You Ready for Retirement [Part 1 of 3] - What is Retirement?

Are You Ready for Retirement [Part 2 of 3] - Funding Your Retirement

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