What’s your first reaction when you hear that the CPF Minimum Sum has gone up again? It’s probably similar to when I see a giant cicak run across my floor. I unleash the high-pitched scream of a gila person and then I run for my weapon of choice – the handy broom. All this excess drama allows me to maintain the illusion that I have dispelled that demon lizard. Then, when I least expect it, it shows up again.
Like that gecko from hell, news about the CPF Minimum Sum always seems to come at unexpected moments, disrupting our lives. We boo, we hiss, we complain that the gahmen is screwing with us once again. And we hope that if we make enough noise, the problem will go away.
But really, should you even care anymore? If I stop to think about it, the cicak I’m deathly afraid of is actually harmless. In the same way, after so much has been said about the CPF Minimum Sum increasing each year, have we taken a step back to see what the fuss is REALLY about?
Because, when you really think about it, the Singapore government is not out to get us. You heard right. I’m essentially saying that raising the CPF Minimum Sum is not a bad thing. Here’s why:
What is the CPF Minimum Sum?
The Minimum Sum is what the government hopes you’ll be able to live on by the time you retire. (If you ever retire!)
You have to set it aside when you turn 55. In 2015, you have to set aside at least $161,000. This amount is expected to last you for the rest of your life. How is this amount calculated? It’s based on providing an estimated payout of about $1300 a month for 10 years.
$1300 a month should be just enough to live comfortably and take care of your basic living expenses like utilities, food and transport. It’s literally the minimum amount you should aspire to have saved by the time you retire. But honestly, the government isn’t helping (some would say “forcing”) you to save out of the kindness of their hearts.
They’re doing it because very few people would actually save enough if left to their own devices. Just ask yourself what you did with this year’s GST Voucher. And they obviously can’t afford a whole nation of people who can’t afford to even survive after retiring because, well…. ok there are too many reasons for this, some of which involve economic equations that even I don’t want to try explaining.
What the government does assure you is that the money in your Retirement Account (RA) will “earn” interest of at least 4% per year. This means that your retirement fund will probably not diminish due to inflation. It also means it won’t really grow, but that’s really not a problem.
How do you want to live your life after retirement?
Ask yourself, if life were an examination, would you want to pass or fail? The government is telling you that with your CPF Minimum Sum, you’ll never fail. The question you want to ask yourself is – do I want my life as a retiree to get a “C” grade or an “A” grade?
If you rely only on the CPF Minimum Sum to live past 65, you’re barely “passing” at life. Not only do you have to spend only on the basic necessities, it also means that when you turn 75, you’ll have nothing left to live on. Let’s put it a little more coarsely – if you only have the CPF Minimum Sum to live on and you don’t die at the age of 75, YOU ARE SCREWED.
Now, here’s more bad news – Singaporeans on average live up to 82, and this number keeps increasing. Put simply, now in 2014, the CPF Minimum Sum set by the government is ALREADY NOT ENOUGH to live on.
But wait, you might say, that’s why there’s CPF LIFE.
CPF LIFE is a scheme that officially began last year to ensure that you’ll be provided for the rest of your life. In other words, even after your Minimum Sum is depleted at 75, you will still continue to receive the same monthly payout from the government for as long as you live. It’s like you’re being rewarded for staying alive!
But where will the extra money from CPF LIFE come from? How is the government ensuring that the interest rate will match inflation? Perhaps because the scheme is so new, there does not seem to be enough information available to answer these questions.
What we can say is this – regardless of where the extra money is coming from, the life that the monthly payout affords can only be described as “barely living”.
Die lah, then how?
Currently, the government is honestly wasting time discussing if there should be different CPF Minimum Sums for different people. The fact remains that, believe it or not, any increase in the CPF Minimum Sum is a good thing. We are assured that we’ll have at least the bare necessities to continue living in Singapore.
But ask yourself, is that really the kind of life you want after retirement? Living in a tiny studio apartment, and having just enough to eat and commute around the island? Ultimately, it should be you who gets to decide what kind of lifestyle you want. But that also means it’s your responsibility to make that happen, since the government is not going to decide one day to say “Here, we’ve thought about it and you can have all your money back.”
So don’t rely solely on your CPF for your retirement needs. Take concrete steps to grow your nest egg now. Educate yourself about the investment opportunities out there. A good place to start would be at the Investment section of our Learning Centre.
What are your thoughts on increasing the CPF Minimum Sum? Share them with us.