Manage your cashflow

Build your nest egg for at least 20 years or more and enjoy a com­fort­able retirement.

Most of us strived hard dur­ing our work­ing years to build our retire­ment nest egg. How­ever, we must also not neglect the impor­tance of man­ag­ing our money pru­dently dur­ing our golden years. This is so that the funds can last us for at least 20 years or more from the time we retire. Here are a few tips on how to do that:

TIP 1: Draw up a monthly bud­get and stick to it

You should work out how much you can afford to spend each month. First, cre­ate a list of all your sources of income that will form your total retire­ment funds. This should include your CPF sav­ings, invest­ment hold­ings and per­sonal savings.

Sec­ond, divide your total retire­ment funds by the num­ber of years you want your funds to last, then divide by 12 months. This is a quick esti­mate of the max­i­mum amount you can spend each month with­out tak­ing inter­est and infla­tion into con­sid­er­a­tion. For a more com­pre­hen­sive cal­cu­la­tion, you can refer to the “Man­ag­ing your retire­ment funds” work­sheet on the Mon­ey­SENSE web­site, use the retire­ment cal­cu­la­tors on the CPF web­site or seek pro­fes­sional advice.

Third, use the tem­plate below to record your cur­rent monthly expenses and see how you can cut back. Ask your­self these ques­tions before buy­ing anything:

• Do I really need it?
• What if I don’t have it?
• Are there alter­na­tives that may be cheaper?

TIP 2: Man­age your CPF sav­ings carefully

Just before you reach 55 years old, you should decide how you wish to man­age your CPF savings.

With­draw­ing your CPF

You have two options: 
1) You can with­draw a lump sum from your Ordi­nary Account (OA) and Spe­cial Account (SA) after set­ting aside the full Min­i­mum Sum in your Retire­ment Account. You should care­fully con­sider what you intend to do with the funds upon with­drawal. Do note that the CPF sav­ings are for your old age needs. If you with­draw your CPF sav­ings, make sure that you man­age the money care­fully so that these sav­ings together with your non-​CPF sav­ings should see you through your retire­ment years.

2) Or you can do noth­ing and sim­ply leave your sav­ings in your CPF accounts to earn guar­an­teed risk-​free inter­est. This is espe­cially so if you are financially-​independent or still work­ing. It is gen­er­ally advis­able to post­pone your with­drawal until a later date as this means you can con­tinue to build a larger nest egg as your CPF sav­ings con­tinue to earn interest.

Man­ag­ing your CPF Min­i­mum Sum

The CPF Min­i­mum Sum pro­vides you with a monthly income to sup­port a basic stan­dard of liv­ing dur­ing retire­ment. The Min­i­mum Sum is cur­rently $117,000 (as of 1 July 2009). It will be raised grad­u­ally until it reaches $120,000 (in 2003 dol­lars) in 2013, and will be adjusted yearly for inflation.

Depend­ing on your year of birth, you can either: 
i. Join the CPF LIFE Scheme which will give you a monthly pay­out for as long as you live; or
ii. You may remain on the Min­i­mum Sum Scheme.

You will receive a monthly pay­out from your Draw Down Age, which is between age 62 and 65 depend­ing on your year of birth. A mem­ber who turns 55 now can expect to receive 1,040 per month for about 20 years if he sets aside the $117,000 fully in cash as his Min­i­mum Sum with the CPF Board . If he joins, for exam­ple, the CPF LIFE Bal­anced Plan, he could get between $912 and $1,007 per month for life, depend­ing on inter­est rates.

More infor­ma­tion on CPF LIFE is avail­able at www​.cpf​.gov​.sg. You may also like to attend the talks con­ducted by CPF Board. Infor­ma­tion and reg­is­tra­tion details are at http://​www​.cpf​.gov​.sg/​S​e​m​i​n​a​r​/​d​e​f​a​u​l​t.asp

TIP 3: Con­sider hous­ing matters

As a gen­eral guide, you should aim to pay off your hous­ing loan by the time you reach 55 so that you min­imise your debt oblig­a­tions in your golden years. How­ever, if you have an out­stand­ing hous­ing loan upon reach­ing 55, do con­sider how you intend to con­tinue pay­ing the instalments:

i. Do you intend to con­tinue work­ing? Do note that the total CPF con­tri­bu­tion rate for mem­bers aged 50 and older will be reduced to 28.5%; and then reduced fur­ther ie. to 20% for those aged between 55 and 60. This means that there will be less CPF for hous­ing pur­pose, espe­cially when you con­sider that only about 45% and 57% respec­tively of the total CPF con­tri­bu­tions above will go into the Ordi­nary Account .

ii. The need to set aside the CPF Min­i­mum Sum. This may reduce the CPF sav­ings avail­able for housing.

iii. Do you intend to make a lump sum with­drawal of your CPF at 55?

Depend­ing on your sit­u­a­tion, you may need to use more cash to pay your hous­ing loan if the CPF avail­able for hous­ing is reduced after 55. Visit the CPF web­site at www​.cpf​.gov​.sgto find out the fac­tors affect­ing home­own­ers aged 55 years and above when using CPF to repay hous­ing loans.

TIP 4: Con­sider post-​retirement employment

There are many advan­tages in being employed dur­ing your golden years, be it part-​time or full-​time. Work­ing keeps you active and helps you to be men­tally alert. It also pro­vides a source of income, which can help you grow your retire­ment funds.

If you are think­ing of start­ing a small busi­ness, do remem­ber that there are risks involved. Ask your­self if you know enough about the busi­ness prospects and if you can have the capac­ity to stom­ach losses and risks. You should also note that many busi­nesses take sev­eral years to break-​even to stabilise.

** This arti­cle was con­tributed by Mon­ey­SENSE, a national finan­cial edu­ca­tion pro­gramme for Singapore.