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Retirement 101- What the PAP does not want you to know

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
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.
 

Dreamer1

Alfrescian
Loyal
Just ask any Actuary,without government link,they sure tell you that people ruled by PAP are in a bloody mess.
 

Leongsam

High Order Twit / Low SES subject
Admin
Asset
No govt in the world takes adequate care of retirees.

Individuals need to learn early in life that they have to start planning for their own retirement from the day they earn their first dollar.

The formula is simple :

1) Plan to retire between 40 to 50 so you have at least a decade or more of good health to enjoy your retirement. Many have one foot in the grave by 67.

2) Take big risks at the beginning when financial and family commitments are few and far between.

3) Work for yourself. No employer is going to help you get rich. They've employed you so that they can get rich.

5) $5 million ensures a comfortable retirement but you should aim higher. $10 to 20 million is ideal.

6) Once you've made your first couple of million, the rest is easy.

7) Good luck.
 

KNNBCCB

Alfrescian (Inf)
Asset
Thanks CB Sam. (even i am rude to you ) :p
never thought your words could be so enlightening ! :smile:

No. 3 always hit my mind !!!
 

Papsmearer

Alfrescian (InfP) - Comp
Generous Asset
No govt in the world takes adequate care of retirees.

Individuals need to learn early in life that they have to start planning for their own retirement from the day they earn their first dollar.

The formula is simple :

1) Plan to retire between 40 to 50 so you have at least a decade or more of good health to enjoy your retirement. Many have one foot in the grave by 67.

2) Take big risks at the beginning when financial and family commitments are few and far between.

3) Work for yourself. No employer is going to help you get rich. They've employed you so that they can get rich.

5) $5 million ensures a comfortable retirement but you should aim higher. $10 to 20 million is ideal.

6) Once you've made your first couple of million, the rest is easy.

7) Good luck.

Sam, which wet dream fantasy is this of yours? I can tell you when in my 20s, everyone I know is aiming to retire with $5 million or more. The % of people actually able to do so is propbably less than 3%, dispite the best efforts of everyone. In order for you to achieve $5 million or as you mention $10 to $20 million, there has to be a high degree of luck involved, in addition to natural ability and hard work. Therefore, its not so easy as you stated above.
 

Leongsam

High Order Twit / Low SES subject
Admin
Asset
Sam, which wet dream fantasy is this of yours? I can tell you when in my 20s, everyone I know is aiming to retire with $5 million or more. The % of people actually able to do so is propbably less than 3%, dispite the best efforts of everyone. In order for you to achieve $5 million or as you mention $10 to $20 million, there has to be a high degree of luck involved, in addition to natural ability and hard work. Therefore, its not so easy as you stated above.

I didn't say it was EASY. If it was, everyone would be a millionaire many times over.

However, the problem with most people is they assume they'll fail without even giving it a shot. A defeatist attitude guarantees failure!:eek: 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.

In order to succeed in life, you have to believe that you are better than those around you... that you have more drive, more determination and a greater desire to succeed than the competition.

Risk mustn't scare you. Risk has to motivate you and innovative methods of dealing with the risk should be a source of inspiration.

You don't need a high IQ to make millions. Neither do you need astute business acumen. If these qualities were pre requisites, I'd still be working my ass off in Singapore worrying about my retirement.
 

Liquigas

Alfrescian
Loyal
If you are a simple person living a simple life, unmarried, staying alone and house already fully paid off, one can retire at age 50 with $200K in cash. It is achievable looking at the following breakdown:
Meal - $450 pm ($15/ day X 30)
Transport - $100 pm
Misc - $250 pm

You need spend around $10K a year and in 15 years till reaching 65, you need a sum of only $150K. To factor in inflation and exp on oversea holidays.. etc, you need no more than $200K. After age 65, CPF Life takes over assumimg you have the minimum sum. Not to forget that you can sell your house by then.

So for many of us without the million dollars in our bank account, not to worry too much lah!
 

Leongsam

High Order Twit / Low SES subject
Admin
Asset
If you are a simple person living a simple life, unmarried, staying alone and house already fully paid off, one can retire at age 50 with $200K in cash. It is achievable looking at the following breakdown:
Meal - $450 pm ($15/ day X 30)
Transport - $100 pm
Misc - $250 pm

So for many of us without the million dollars in our bank account, not to worry too much lah!

Unless you can get that $200,000 to work for you, it'll be gone in 20 years! Surely you're not advocating that it's perfectly acceptable to be destitute at 70 without a penny to your name!:eek:

Besides your budgeting allows for a nothing more than a mundane and pathetic existence. $800 per month is subsistence living today and will be absolute pittance in 25 years time as a result of inflation.

In order to plan for retirement, you need to understand the concept of present and future value.

You can do the calculations at http://buyupside.com/calculators/inflationjan08.htm

Enter $800, an annual inflation rate of 3% and a time line of 25 years and you get $382. In other words $800 of purchasing power today is the equivalent of $382 of purchasing power in 25 years time.

The calculator also tells you that you'll need $1675 per month in 25 years time to have the same purchasing power as $800 today.

Retirement must not be about living hand to mouth and having to count every penny. Retirement is all about enjoying life to the fullest with the limited time left. It's about flying business class in comfort. It's about buying the car you've always dreamed about before your eyesight fails and you can no longer drive. It's about traveling to the far flung reaches of the world to do the things that only those with a certain degree of wealth can afford to do.
 
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