Plan for retirement with 'pay' and 'play' cheques

Mr Soh Chin Heng, deputy chief executive officer (services) of the CPF Board (far left), and Mr Christopher Tan, a CPF Advisory Panel member, at the roadshow moderated by Ms Lorna Tan
Mr Soh Chin Heng, deputy chief executive officer (services) of the CPF Board (far left), and Mr Christopher Tan, a CPF Advisory Panel member, at the roadshow moderated by Ms Lorna Tan. PHOTO: CPF BOARD

Around 200 people attending a CPF Retirement Planning roadshow get tips on how to save and invest for their golden years

Central Provident Fund (CPF) members are encouraged to treat their nest egg as a cheque book that never stops paying. About 220 people heard this message when they attended a CPF Retirement Planning roadshow at Suntec City on Aug 27.

They were told that it is prudent to plan their golden years with part of their retirement income treated as the "die die must have" portion and the rest as the "good to have" portion. The "die die must have" portion is the so-called "pay cheque" which pays for life, and the "good to have" portion is the "play cheque".

Panel speaker Soh Chin Heng, deputy chief executive officer (services) of the CPF Board, highlighted the way the CPF plays an integral role in one's retirement "pay cheques". "The more you accumulate and the less you withdraw (from your CPF savings), the more you have and correspondingly the pay cheque is bigger," he said.

He posed the following question to the audience: "How much do you want your pay cheque to be?"

Mr Soh said he had transferred money from his Ordinary Account to his Special Account to earn the higher interest rate of 4 per cent. However, he cautioned that such transfers are one-way only.

LETTING YOUR NEST EGG GROW

The more you accumulate and the less you withdraw (from your CPF savings ), the more you have and correspondingly the pay cheque is bigger.

'' MR SOH CHIN HENG, deputy chief executive officer (services) of the CPF Board.

Other ways of boosting your nest egg include CPF top-ups with cash or CPF savings, and delaying your first CPF Life payout up to age 70.

For example, CPF members aged below 55 can top up their Special Account to the prevailing Full Retirement Sum of $161,000. Those above 55 can top up their Retirement Account to the prevailing Enhanced Retirement Sum of $241,500, which will generate monthly CPF Life payouts of about $1,900 when they reach 65.

A CPF Life plan with an escalating payout option to protect retirement savings against inflation will be available in the coming years.

Mr Soh considers the CPF Ordinary and Special Account savings the "best emergency fund" for members above 55 since they can get the monies within a few working days after application and also enjoy interest rates much higher than bank interest rates.

Another panel speaker, Providend chief executive Christopher Tan, reiterated that the CPF Special Account is a "very good" risk-free investment instrument with returns that many insurance plans and bonds cannot beat.

He added that for basic retirement, one needs to have three things - a fully paid-for house, medical expenses insurance to pay hospital bills, and a monthly income.

Mr Tan showed how to make use of different instruments such as annuities and investments, together with CPF Life, to plan for both the retirement pay and play cheques.

His investment tips include the importance of diversification, knowing one's risk appetite, and staying invested for the long term in order to gain from the power of compounding and to ride out market volatility.

He said as investment returns will be muted in the coming years, the cost of investment is extremely important, so be on the lookout for low-cost instruments such as index funds and the upcoming CPF Lifetime Retirement Investment Scheme.

After the talk, participants took the chance to ask about CPF top-ups, withdrawals and the CPF Life scheme.

A teacher, Mr Tony Lai, 42, said he considers himself financially literate but attended the session to find out more.

The next CPF roadshow event will be held at the Toa Payoh HDB Hub on Sept 17 and 18. Visit cpf.gov.sg/bigRchat for more information.

A version of this article appeared in the print edition of The Sunday Times on September 04, 2016, with the headline 'Plan for retirement with 'pay' and 'play' cheques'. Print Edition | Subscribe