The Favourite Question – got enough money to retire?

These few weeks, months, years, whichever, we constantly get blasted by news/articles from all areas that it is not easy to retire, or rather it may be impossible etc etc etc. I have seen so many that I think you can just google them up, tons and tons and tons, not going to link them up for now. Yawn.

So, it was inevitable that my Pa started saying rather strange things like, “I think I will work until I am so old, cham“, “I think I can only retire if I have $500,000“. May I say he can get overly influenced by all the hearsay? He has not even look at his own numbers in totality and do some check and balance. But like what I mentioned before, my Pa did not go through much formal schooling and is unable to understand much English, so I don’t blame him for being not so savvy about this. This is when I can put my very basic financial knowledge to some good use. After all, it is finally time to repay him and my Ma for the efforts put in to raise me and put me through university. I know under about me, my life apsirations sound very airy fairy, but I am actually a business graduate and I was working for a good number of years to know how to use excel spreadsheet and calculator. Hah!

Some background, my Pa is 58 years old while my Ma is 56 years old. I also have an elder Sis who is married. We are both financially independent (obviously right, at this age?). My Pa plans to retire end of this year i.e. start retiring from Jan 2015. And we stay in a 4-room flat. My parents are both very simple and down to earth people, so it really helps in their retirement planning, especially in the financial sense.

1. I estimated my parents’ monthly expenses together with them

My Ma is a simple stay at home housewife, while my Pa is just a simple driver who started doing some dangerous job requiring manual labour like painting ship in shipyards in the early 80s. Then, in mid 80s, he took up this driver job (it’s a specialist driver job), and started working for a pay of $1,000. His pay has raised slow and steady,although still lower than the median income in Singapore, he has paid up for the 4 room HDB flat we are staying in with his CPF. Hence, cash outlay for a monthly house mortage repayment is not required (I’m really proud of them in this matter!). Based on current dollars, we estimate their joint expenses amount to about $1,500.

Food/Eating out – $500 (my parents prefer homecooked food, so eating out is usually with us siblings, which we split the bill)
Transport – $200 (based on public transport $3.50 each round trip x 20 times x 2 person = $140, $60 for taxis, my brother in law drives so my Pa can borrow a car in times of need. When they turn 60, they can even apply for monthly concession pass for senior citizens at $60 )
Mobile Phone/Phone Line – $100
Travel – $400 (I spreaded travel expenses across 12 months for easy calculation, this will provide $2,400 for each per year. It’s not a great amount, but our whole family take a trip once a year within Asia, furthest Australia because they are not able to withstand long flights beyond 7 hours. Usually my Sis and I top up part of the holiday expenses for them too)
Misc (anybaos, token $ for my grandma, clinic visit, clothes etc) – $300
Utilities – $0 (it is about $150 now so we siblings are likely to split it)

2. I used a simple excel spreadsheet and input yearly cash/CPF inflow and outflow (taking into consideration inflation in expenses)

At the bottom of the page, I worked out their monthly expenses with 4% inflation adjusted, i.e. $1500 x 12 = $18,000 is 2014 dollars. By 2015, the same things must be bought with $18,000 * 104% = $18,720. This continues for every year, in fact the sum of the total expenses (inflation adjusted) comes up to a whopping $731,626 by the time my Pa is 82 and my Ma is 80! But, this doesn’t mean my Pa cannot retire, what matters more is the yearly cash outflow.

Every month, my Sis and I contributed to the family allowance (amount A), plus once my Pa turn 65, he will be getting the CPF Life payout of about $550 (B). My Ma is a housewife so she has very minimal CPF, below the limit that she don’t even has to set aside the CPF Minimum Sum. Hence, I have decided to make an effort to top up her CPF Retirement Account with $200 every month, with a 5% interest for the next 8 years. With a small existing lump sum, this can grow into a nice small money nest that she can continously draw down $250 (C) per month until she is about 81. The total of $800 may not sound alot, but it plays a good part in reducing their cash outflow. I worked in the CPF life payout here for easier computation.

Retirement Expenses adjusted for inflation

Then, at the top of the page, I created a simple cash flow table, for every year from now until my Pa turns 80 years old. There was a small CPF lump sum that he withdrew when he turned 55 (as x in table below), and they have since kept it as emergency funds. My Pa continued working so some portion remained, so he will only start drawing out the monies from his CPF account when that has been drawn down, obviously because the bank pays much lower interest versus CPF. Below is just a sample cash flow table, I assumed someone earning about $2,800 a month and had continued working after a lump sum CPF withdrawal at 55 years old. CPF Medisave Account Minimum Sum will also be met. I used my Pa’s plans as part of the life eventing planning, for example, he currently has a car to make monthly payment for until end of the year, and he still has some insurance to pay for in cash, but for this year, as a broad assumption, both the expenses can be covered by his income for now. Next year onwards, these can cause a cash outflow.

Retirement Cash Flow

My Pa has some insurance that will mature when he turns 60, so when that happens the final amount will go back to his CPF OA. It will stay there until cash in bank runs out, to clock up more interest! Hence, I will add in this as an addition under CPF OA for him. Then when his cash in bank runs low, he can start his withdrawal from the CPF account. Basically help your parents track the major inflow and outflow for both cash and CPF.

3. Further find ways to boost the moolahs

The numbers are planned for until my Pa is 80 and my Ma is 78. If so, then HOWWWW you will ask me, because the average life expectancy of Singaporean Males is 81 while that of Females is 85. That’s a shortfall of almost 7 years for my Ma. And what if medical needs arise? Based on a brief check, I feel that my parents are adequately covered by their health insurance, and my Pa’s CPF MA minimum sum, although I do note that both my parents may need to dip into my Pa’s account. I will do a deeper analysis on their possible healthcare financial costs the next round. A review is also timely in view of the new Medishield Life that will be implemented around end 2015. Meanwhile, I have been encouraging them to stay healthy and happy! That’s probably the best prevention and cure.

As for the extra boost needed to further plan for longevity like 90 or 100 years old, there are indeed some alternatives on hand:

a. The numbers were planned on the basis that my Pa being fully retired and not having any income. In actual fact, he had planned for his own retirement until 62 years old then, but his current work is too labour demanding for his age and health, so I highly encourage him to retire soon. Knowing that he may not be able to sit still at home for long (OK that’s a joke, but he really has few hobbies, his emotional well being will be another area I want to touch on), it is likely that he will take on a non labour demanding part time driver job. Even if it fetches him just $600 a month, it will minimise his cash outflow greatly and allow the some of the CPF savings to compound some more interest. This can extend his CPF draw out for another 3 years.

b. My Pa drives a modest Toyota now which he got it much cheaper back then, by early 2015 when my Pa retires, he is unlikely to need the car much so there is a possibility of selling it. That should fetch a decent $35,000 to $38,000; I made some guesswork based on used car selling prices now.

c. The allowance from my Sis and I will be giving are not adjusted for inflation periodically yet. With some adjustment, it will minimise the cash layout too.

d. Lastly, we are also considering a downgrade to a 3-room flat since I will be moving out after getting married end of the year. But there are resale fees and costs involved and I have yet to review this fully. This will be reviewed eventually.

Maybe, next year, we will do another review, but meanwhile we are quite contented with what we see. My parents are doing decently fine. After all, we can’t be pin pointing everything down to precision in life.

So, yes, they are ready for retirement.