Friday, October 26, 2012

Income For Retirement

About a month ago, circa 19 September, Deputy Prime Minister Tharman Shanmugaratnam told delegates at the Singapore Human Capital Summit that the Singapore median male earner who enters the workforce today will be able to achieve an Income Replacement Rate (IRR) of over 70% through his Central Provident Fund (CPF) savings. For the female median earner, the equivalent IRR is 63%. The IRR for the median OECD economies is 66%, while the World Bank recommends a range of between 53% and 78%.

Christine Benz explains that most retirees spend substantially less than 75% or 80% of their previous working income because many of the commuting expenses, outside meals, and working clothes are no longer necessary. Most likely, big ticket commitments like housing loans and the kids' university education would have been done with. And in the American context, retirees need not pay taxes for Social Security and Medicare. On that score she quotes Aon Consulting's Replacement Rate Study, which concludes that in 2008, a 78% income replacement rate would allow a 65-year-old with $60,000 pre-retirement income to retire in 2008 with the same standard of living he or she had while working. The assumption is that 15% of pre-retirees' income have been saved regularly during the working years in preparation for retirement.

Our mandatory CPF contribution rate should, theoretically, put us in good stead. Except that in our situation, retirees continue to co-pay for their Medicare through the chunk eaten up by Medisave, plus premiums for additional cover like Medishield. And then there is the Goods and Services Tax.

Tharman's premise for the IRR numbers include the overpriced housing board flat, an illiquid source of funds which can be made available only by downgrading or pursuing a refinancing exercise. Assuming the house has already been fully paid for by then. He calls this "Our strategy to help them monetise the values of their homes in retirement." Tharman also pointed that many older Singaporeans have low CPF balances and are unable to achieve the IRR that "the study" has found. These older folks bought houses at significantly lower prices, unlike the younger generation who is already seeing COV (cost over valuation) figures in excess of $200,000. We are told "details of the study will be released in the near future", but the released date was not indicated. Have you seen "the study"? Except for those still entitled to state provided pensions, one suspects the true picture of the IRRs may not be as pretty as painted.

18 comments:

  1. Nearly dropped off my chair when I first read the announcement by the DPM.

    He was quoting a "study" & mentioned that it will be "released" in due tine.
    Well, me think that report is still works in progress.

    Pardon my pessimism, but that study may never be de-classified. We just have to take the DPM's words.

    Believe, a hella of lot of us could not and would not. At least on this subject.

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  2. Tharman is a lier. $1000 income can buy a flat. He is just another George Yeo who goes with the flow. Vote him at your own risk.

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  3. The fact that CCP is trying to learn how the political system works here cannot be good news.

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    Replies
    1. this is a very good point to bear in mind!

      this system worked in a diff time, when diff pple - pple with integrity and moral values, who were not blown away and worshipped money - were in charge.

      we are seeing the debilitating effects of an out of date system, that has been pursued for far too long (30 yrs too long) on our country.

      Delete
  4. The powers that be has turned the CPF on its head. Instead of providing comfort in your last years it has become a millstone round your neck.

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  5. CPF = Cash to Pay Funeral

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    Replies
    1. Cash to Pay after Funeral lah

      Delete
    2. CPF = Cash Payment to FamiLee

      Delete
  6. Why so excited about the Tharman study?
    You think the study will show that CPF is inadequate and that the government needs to spend more time, money and effort in looking after Sinkies?
    In your heart, you already know what the study will say.
    In your heart, you already know what the NatCon report will say in 2 years time.

    What part of wayang do you not understand?

    Source: The Coxford Singlish Dictionary
    WAYANG
    Originally a Malay word meaning "theatre performance", it now means an act of pretence.
    "Eh, we all saw you take his wallet. Don't come and wayang, okay?"

    http://www.talkingcock.com/html/lexec.php?op=LexView&lexicon=lexicon&alpha=W&page=1

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  7. You trust this Tharman shit with his IRR? The credulous in me want to believe, but the cynic in me says to believe the opposite. Anyway this is part of the ongoing soap in Sing-opera, wayang and hype Singapore style.

    I heard some US educators came here to look at our PCF kindergartens. US kids watch out. The pressure cooker starts young here.

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  8. Even our basic fundamental right to use our CPF retirement funds as we wish at age 55 has been forcefully taken away from us. Then they restrict it to become a monthly withdrawal without even giving us a chance to voice our disagreement. Even worst than the Communist PRC!

    Someone remarked at how greedy our politicians are, not really much different from those UMNO corrupt politicians trying to milk whatever they can during their terms of office.

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    Replies
    1. For those reaching 55 in 2013 onwards, your monthly payout in 2023 onwards isnt guaranteed- so long they declare the life annuity scheme insolvent.

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  9. "Even our basic fundamental right to use our CPF retirement funds as we wish at age 55 has been forcefully taken away from us. Then they restrict it to become a monthly withdrawal without even giving us a chance to voice our disagreement."

    That's what the General Elections are for.
    GE 2011.
    60% say they heck care about their CPF money.

    GE 2016.
    This is your chance to voice your disagreement again.
    Will you do it alone?
    Or will you recruit your friends & relatives to vote your disagreement along with you?

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    Replies
    1. Post GE 2011 we are seeing much being done for the people. I think 65 to 70% is attainable by the incumbent in 2016. Won't be surprise if even higher.

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  10. A rose by any name would smell nice, shit by any name smell like shit. A large portion of Singaporean that enter the workforce would not be able to retire comfortably with overpriced HDB and ever rising medical cost eroding our CPF and low saving rates eroding our private saving

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  11. what the heck!!!!!!!!!!!!!!!!

    i am not getting my hands on my CPF, my HDB house is paid for, when my kids are independent I am going sell my place take the money and go live elsewhere come visit my kids three times a year......2016 is make or break if we give them the two third majority again we are screwed for another 50 years

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    Replies
    1. Your one vote will not be enough.
      When 60% of your friends & relatives voted for the PAP.
      You must convert at least one of your friends or relatives into an Opposition voter.

      Delete
    2. At their worst showing 60% still felt they have done a good job. That says a lot for them..must be truth in such confidence shown them.

      Delete