National Day Rally: 3 questions and answers on the Minimum Sum and retirement

1) What will the Minimum Sum be for those turning 55 next year?

For those turning 55 from July 1 onwards, the Minimum Sum will be $161,000. This is up from the current $155,000 level this year.

The new Minimum Sum level does not apply to older cohorts who turned 55 earlier. CPF members who do not meet the Minimum Sum need not top up the shortfall in cash, or sell their property to meet the Minimum Sum.

The good news is that Prime Minister Lee Hsien Loong said that there will not be "any major increases in the Minimum Sum" beyond next year.

He did say that the MS will still be adjusted from "time to time", to cater for higher incomes and spending as well as to protect against longevity.

But chances are the future MS hikes are unlikely to be as high as they have been over the past decade or so, when the MS was on average going up at about 6 per cent a year.

2) Is it easy to achieve the new Minimum Sum level?

It depends very much on one's income and expenditure.

If a CPF member is highly paid, he will reach the Minimum Sum faster than a less-well paid member. Likewise, it also depends greatly on how much one spends. In this case, the big item for most people is housing.

A study conducted by two National University of Singapore academics Associate Professor Chia Ngee Choon and Associate Professor Albert Tsui in 2012 found that most young workers entering the job market today would not have much of a problem meeting the prevailing MS levels.

This is based on the assumption that they do not overspend on housing. For instance, buying a $1 million condominium when one's income is only $2,500 a month.

A similar study done by Lee Kuan Yew School of Public Policy economist Hui Weng Tat also showed that graduates earning about $2,500 who went on to buy a five room flat worth $560,000 will only get 22 per cent of their last drawn pay at age 62 in CPF payments.

3) If you can't meet the MS, what options do you have?

The easiest option would be to pledge your flat to meet up to half of the MS requirements. For people hitting 55 next year, that would mean pledging $80,500.

But doing that would mean that your monthly payouts from CPF Life when you hit 65 will be half of what you would get if you had kept to the full value of the MS.

Under the default CPF Life plan, you would get between $680 and $750 if you had pledged your flat for half the value of the $161,000 MS. And you would get between $1,240 and $1,372 if you met the full MS level.

Most financial planners would say that even if you had met your MS, it would be unwise to only depend on the CPF for retirement. And if you did not meet the MS, then it would be even more crucial to ensure other streams of income.

There are other ways to supplement your CPF payouts to provide for a more comfortable retirement:

1) Continue to work beyond the retirement age of 65. PM Lee said the Government will look to extend the re-employment age.

2) Depend on your children to support you.

3) Draw on personal savings.

4) Monetise your assets, such as your flat.

This can be done by renting out a room in your flat, or renting the whole flat out.

Or you could sell your flat and buy a smaller apartment which would free up cash.

The Government is also looking to extend a programme which allows older Singaporeans to sell part of the lease of their HDB flats back to the Government.

The Government will pay them a sum of money which can be used for their retirement. The Lease Buyback Scheme also allows Singaporeans to continue staying on in their flat.

PM Lee said that this scheme will now be extended to four-room flats. In all, the expanded Lease Buyback will cover half of all flatowners in Singapore.

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