SmallChange

Turning 55 - and enjoying financial freedom

Preserve what you possess and let the power of compounding help you grow your assets

There is something poignant about savouring the waning days of light and warmth in autumn, as the long days of summer draw to a close and winter appears on the horizon.

It is sunny all year round in Singapore but I try to make a trip overseas to experience autumn whenever I can. This year, I got to enjoy some of the most gorgeous fall colours I've ever seen as I wandered around the woodlands of Arashiyama, which lies on the outskirts of Kyoto, the ancient capital of Japan.

The sight of the trees, whose leaves had turned lovely shades of red, orange and yellow, was so pretty it could have come straight out of a fairy tale. And breathing the crisp cool autumn air as I traversed the woodlands to enjoy the scenery turned out to be an invigorating experience.

What gave added meaning to the autumn experience was that I had turned 55 this year - reaching what many would consider to be the threshold of the autumn of their lives.

That the autumn season can turn out to be so lovely convinces me that for those of us reaching the autumn of our years, life can be as bountiful, if not more so, financially and otherwise, as we harvest the hard-earned fruit of our past labour.


Fall colours in Arashiyama near Kyoto, Japan. Like autumn, mid-life is the autumn of our years and a season where we start to harvest the fruits of our labour. One major decision to make at this point of life is to look for investments that will enhance overall financial well-being. ST PHOTO: GOH ENG YEOW

For most of us, the earlier stages of our lives preceding autumn are all about building a career and working hard to earn money in order to provide a living for ourselves and our families. Life can be summed up as achieving, accomplishing and accumulating.

Some of the happiest middle-aged people I have encountered are those who have planned creatively for other options later in life... But it is the way they manage their finances that intrigues me. Rather than continue to accumulate assets, their chief priority is to preserve whatever they possess and allow the magic of compounding to grow their assets.

But as we reach our 50s, the focus changes. Some of us may want to have a slower work pace. The finishing line for the full-time jobs we hold also beckons, with the approaching minimum retirement age of 62.

However, it's impossible to go from full-time work to full-time leisure just like that when one turns 62. I have seen instances of friends and relatives sinking into depression, or finding themselves struck with some serious illness, soon after retirement when they have nothing worthwhile to occupy their time.

Instead, some of the happiest middle-aged people I have encountered are those who have planned creatively for other options later in life, sometimes to the extent of changing careers, and still planning to work for another 15 to 20 years on what they enjoy doing.

But it is the way they manage their finances that intrigues me. Rather than continue to accumulate assets, their chief priority is to preserve whatever they possess and allow the magic of compounding to grow their assets.

Reflecting on their experience, one major decision now that I have reached the threshold of autumn myself is to change the manner I invest in order to enhance my financial well-being. What simplifies matters is that I have no outstanding loan to pay off, so the objective is to ensure that capital preservation takes precedence over merely aiming for a high investment return.

Equity investments have served me very well thus far. Indeed, the performances of some counters such as ComfortDelGro and Jardine Cycle & Carriage have been so extraordinary that I have been able to reap returns that were several times over the original costs of my investments over the decades.

But I have also had my fair share of lemons among the stocks I hold. The long ride in the stock market had been far from smooth, encountering as I did five major financial crises since I started working 30 years ago. Hence the desire for an investment that offers a steady return and will not make me feel nauseous each time the stock market goes on a roller-coaster ride.

One insurance agent friend tried to persuade me to liquidate some of my stock investments to buy an annuity-like plan offering a lump-sum payout when I turn 65 and monthly payments after that till I am 85.

But the catch is that the insurance plan's internal rate of return is only 1.9 per cent. That is hardly higher than the interest rates I am getting on my fixed deposits.

Investing in bonds would also seem like a logical alternative since it gives a steady return. But the handful of bonds traded on the Singapore Exchange do not offer much of a choice.

It is also possible to buy a "wholesale" bond via my bank relationship manager. Some of them offer very attractive yields of 6 per cent or more. The snag is that each purchase may set me back by $250,000 or more.

Another issue is that these bonds are issued by companies whose shares I would not want to touch with a barge pole. And if I don't want to buy their shares, I see no reason to purchase their bonds no matter how enticing their yield may be.

In the end, I find that the Central Provident Fund is the best option in offering me financial security while giving a level of return I am comfortable with, unless inflation takes off in a big way.

As I turned 55 this year, a sum of $161,000 - the so-called Full Retirement Sum - was transferred from my CPF Special Account to the newly created CPF Retirement Account. After this sum has been set aside for my basic retirement needs, I can choose to take out whatever remaining balances I have in my CPF Ordinary and Special Accounts if I want to.

I also took up the option to top up my Retirement Account by $80,500 to raise the sum there to $241,500, which is the Enhanced Retirement Sum (ERS) this year. The carrot in doing so is to get an attractive risk-free return of 4 per cent on the additional money that I put in.

Assuming that the ERS is raised by about 3 per cent a year, that will enable me to make further top-ups to my Retirement Account by that quantum every year for the next 10 years. It will enable the sum in it to escalate to almost $500,000, including accrued interest, by the time I turn 65.

That, I thought, was the end of the story where beefing up my financial security using CPF is concerned.

Then I found out that I could put money into my CPF Ordinary Account by making a partial or full refund of the CPF savings which I had withdrawn to buy my home, as well as the accrued interest on the withdrawn sum, even though I haven't sold the property.

That opened up an entirely new ball-game for me. If I find myself with surplus cash, should I keep it in the bank where the best fixed deposit rate I currently enjoy is 1.4 per cent, or use it to repay CPF in order to enjoy the much higher 2.5 per cent interest that I can get in my Ordinary Account?

There is another attraction: Since I am past 55 and I have already set aside the Full Retirement Sum in the Retirement Account, I have the flexibility to withdraw the money any time if I need it. This effectively turns my CPF Ordinary account into a high-yield savings account.

Of course, the best option would be to continue to keep the money liquid in a bank if there is a possibility of interest rates going up sharply after Mr Donald Trump takes office as US president. This is because Singdollar interest rates closely track US interest rates.

But I have an awful hunch that interest rates will continue to stay low for a long time, as the ageing population and declining birth rates across the developed world combine to depress economic growth and consumer spending.

This is despite any short-term boost to interest rates from the fiscal stimulus in the form of big tax cuts and huge infrastructural spending promised by Mr Trump when he takes office.

In that case, I may be better off just keeping any excess cash I have in the CPF Ordinary Account. Even at a relatively paltry interest rate of 2.5 per cent, the money in it would have grown by almost 30 per cent in 10 years after compounding.

So, in the end, for better or worse, I find myself writing out another cheque to CPF - this time to refund part of the CPF savings which I had withdrawn to buy my home.

One interesting upshot is that after doing all these various adjustments to my finances, I feel liberated financially as I get ready to enjoy the autumn of my years. Like the gorgeous fall colours I saw in Arashiyama, the best season in life may lie in my autumnal years.

A version of this article appeared in the print edition of The Sunday Times on December 18, 2016, with the headline 'Turning 55 - and enjoying financial freedom'. Print Edition | Subscribe