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Retirement 101- What the PAP does not want you to know
The PAP keeps drumming into the average sinkie that their housing is affordable, their health care is affordable, every thing is cheap and affordable. This does not gel with the facts. Sinkies need to wake up to some sobering facts. Where will their retirement fund come from, in an environment where all manner of cost of living is rising every year.
1)Equity in your HDB flat – The PAP says that you can always sell your flat to fund your retirement. The equity in your flat will pay for many years. The PAP conveniently does not mention why after a lifetime of contributing to a dedicated retirement fund called the CPF, do we still have to even consider the sale of our flat. And what about leaving the flat to your kids, is that all of a sudden not an option anymore. Selling the flat to fund retirement forces one to ignore the real estate market at the time of sale. Lets say you are at age 72 years and you need to sell the flat to access the equity. What happens if the real estate market is down that year? What do you do, wait for the next year and hope you can sell at a better price? Getting even $20K more for your flat is significant. Timing the market is difficult, and even after the sale of the flat, one has to rent another one. Again, there are additional costs. i.e. living in a mortgage free flat, or incurring rental costs that increase every year. Don’t forget that the equity realized from the sale of a flat is not just yours, but is shared with your spouse.
2)Your CPF savings – Yes, most people have some CPF savings. Most people don’t realize that the interest earned on their CPF is 2-5% below the inflation rate. In other words, if you put in $100 today in your CPF, in 10 years, you would have $90 or less in inflated adjusted dollars. Would your CPF be more if COLA rate was given to you, yes. Will this screw up your retirement, hell yes.
3)Your Medishield/Save will cover the costs of your medical expenses- Maybe, and only for 1 major event. The rest is out of pockets.
If you look at the life expectancy figures, you can see that a sinkie male expects to live 12 years or more after the mandated retirement age, whereas the woman can expect to live another 20 years or so. I am just going to make some educated assumptions here.
You and your spouse have $250K each in CPF
The equity in your flat is $400K
You each have $50K in your medishield accounts.
If you live frugally, maybe the both of you can survive on $2000 per month. That’s for food, water, power, transportation costs, etc. and assuming no mortgage payments. That’s $24,000 a year. If they sell their flats and have to rent, add another $1000 a month, or $12,000 a year. Therefore, if they sell their flat, it will cost them around $36,000 a year to retire.
If they each have one serious medical condition ie cancer, heart disease, etc. they can expect to pay minimum of $150,000 per person for hospitalization, surgery, etc. The chances of each one suffering a serious expensive illness is an almost certainty. That will be a total of $300,000 for this hypothetical couple. For the next 12 years after retirement, this couple will spend $432,000 ($36K X 12) plus another $300,000 in medical costs totaling $732,000. After the male passes away, the female will live another 8 years at maybe $30,000 a year cost. If they suffer 2 serious medical problems each instead of one, they will not have enough money to retire. As it is right now, the situation is extremely tight for them.
This couple could be considered a lucky couple, as the older generation paid under $100k for their flats. If you are a newer generation, say around 25 years old, and paying $450K or more for a new or resale flat, the odds of you having $400K in equity in your flat is not good given the initial high price. In fact, your flat will have to appreciate to over $1 million for you to realize $400K in equity. In addition, for the newer generation, their CPF accounts will not be as robust as prior generations as they have to take more money out to put the down payment on their high priced flats, and to pay the monthly mortgage. I really cannot see how the newer generations faced with these sort of numbers, rising cost of living, rising health care cost, and competition from FTs for good jobs can survive comfortably in their retirement. The worse fact of all is they cannot see this writing on the wall.
The PAP keeps drumming into the average sinkie that their housing is affordable, their health care is affordable, every thing is cheap and affordable. This does not gel with the facts. Sinkies need to wake up to some sobering facts. Where will their retirement fund come from, in an environment where all manner of cost of living is rising every year.
1)Equity in your HDB flat – The PAP says that you can always sell your flat to fund your retirement. The equity in your flat will pay for many years. The PAP conveniently does not mention why after a lifetime of contributing to a dedicated retirement fund called the CPF, do we still have to even consider the sale of our flat. And what about leaving the flat to your kids, is that all of a sudden not an option anymore. Selling the flat to fund retirement forces one to ignore the real estate market at the time of sale. Lets say you are at age 72 years and you need to sell the flat to access the equity. What happens if the real estate market is down that year? What do you do, wait for the next year and hope you can sell at a better price? Getting even $20K more for your flat is significant. Timing the market is difficult, and even after the sale of the flat, one has to rent another one. Again, there are additional costs. i.e. living in a mortgage free flat, or incurring rental costs that increase every year. Don’t forget that the equity realized from the sale of a flat is not just yours, but is shared with your spouse.
2)Your CPF savings – Yes, most people have some CPF savings. Most people don’t realize that the interest earned on their CPF is 2-5% below the inflation rate. In other words, if you put in $100 today in your CPF, in 10 years, you would have $90 or less in inflated adjusted dollars. Would your CPF be more if COLA rate was given to you, yes. Will this screw up your retirement, hell yes.
3)Your Medishield/Save will cover the costs of your medical expenses- Maybe, and only for 1 major event. The rest is out of pockets.
If you look at the life expectancy figures, you can see that a sinkie male expects to live 12 years or more after the mandated retirement age, whereas the woman can expect to live another 20 years or so. I am just going to make some educated assumptions here.
You and your spouse have $250K each in CPF
The equity in your flat is $400K
You each have $50K in your medishield accounts.
If you live frugally, maybe the both of you can survive on $2000 per month. That’s for food, water, power, transportation costs, etc. and assuming no mortgage payments. That’s $24,000 a year. If they sell their flats and have to rent, add another $1000 a month, or $12,000 a year. Therefore, if they sell their flat, it will cost them around $36,000 a year to retire.
If they each have one serious medical condition ie cancer, heart disease, etc. they can expect to pay minimum of $150,000 per person for hospitalization, surgery, etc. The chances of each one suffering a serious expensive illness is an almost certainty. That will be a total of $300,000 for this hypothetical couple. For the next 12 years after retirement, this couple will spend $432,000 ($36K X 12) plus another $300,000 in medical costs totaling $732,000. After the male passes away, the female will live another 8 years at maybe $30,000 a year cost. If they suffer 2 serious medical problems each instead of one, they will not have enough money to retire. As it is right now, the situation is extremely tight for them.
This couple could be considered a lucky couple, as the older generation paid under $100k for their flats. If you are a newer generation, say around 25 years old, and paying $450K or more for a new or resale flat, the odds of you having $400K in equity in your flat is not good given the initial high price. In fact, your flat will have to appreciate to over $1 million for you to realize $400K in equity. In addition, for the newer generation, their CPF accounts will not be as robust as prior generations as they have to take more money out to put the down payment on their high priced flats, and to pay the monthly mortgage. I really cannot see how the newer generations faced with these sort of numbers, rising cost of living, rising health care cost, and competition from FTs for good jobs can survive comfortably in their retirement. The worse fact of all is they cannot see this writing on the wall.
Have you made up your mind that you want to make 5 million? Have you taken the first step towards meeting that goal? If you haven't, you're NEVER going to get there. If you have, your chances of succeeding are a billion times better.
