Help with parents retirement amount

[Buzztiger]

My Dad is 58 yrs old this year. He will retire at age 65. I just realised that he has not planned for his retirement ! He has savings of $100,000 which he keeps as fixed deposit every year. CPF RA account has about $170,000. He has HDB housing loan of $97,000 left to pay ( he pays using CPF ).

At his age, I don't know if he can even get a retirement insurance plan. Lets say he needs $1000 a month for 20yrs after retirement, which amounts to $240,000. I think he will still fall short of the amount required. Is there anyway to use the savings to lessen the impact like maybe get endowment insurance plan or invest some money ?

 

[lzydata]

I think you need some expert advice if you want specifics, which no doubt will come along soon. So here's my amateur opinion.

Housing loan - plan is to pay it off before he retires?

Retirement plan - based on his age, he will automatically be enrolled in CPF LIFE? Based on this simple estimate, it seems that even his current RA can give him a monthly payout of exceeding $1k when he turns 65. Someone aged 55 in year 2021 and Full Retirement Sum $186,000 will receive $1,430 to $1,530 a month when he turns 65 (Standard Plan).

https://www.cpf.gov.sg/Assets/members/Documents/RetirementPayouts.pdf
And these monthly payouts are for the rest of his life, not just 20 years like the old Retirement Sum Scheme.

I think the simplest way for you to help him out is to do cash top-ups to his RA, as there is still a gap between the current balance there and the maximum (the Enhanced Retirement Sum). Then he will get higher CPF LIFE payouts at 65 onwards.

 

[zoneguard]

$100K cash is sufficient to pay off the HDB loan if he wish to do so.

At 65, the RA balance will grow from $170K at 58 to $225K and provide a CPF LIFE monthly payout of $1,250 for life under Standard plan. For Escalating plan, payout starts at $980 at 65 and goes to $1,470 at 85 and $1,790 at 95.

If CPF LIFE meets your dad's needs, there is nothing to do except you/he can top-up his RA up to ERS to increase the payout . ERS increases every year.

 

[wwenze]

You never give $$$ monthly?

Anyway your dad still got 7 years of work, tiagong median income is 60k, don't worry.

 

[BBCWatcher]

When his RA has $170K in it at age 58 that's going to give him a CPF LIFE income stream. If he'd like to increase his retirement income then that's the single best way to do it: put more money into CPF RA. He has plenty of room to add funds to his RA, something over $100K of room until he would hit the limit (the Enhanced Retirement Sum).

He has over 7 years (over 84 months) of income from work, including CPF contributions, if he's able to continue working and earning an income until his 65th birthday. Those CPF contributions will continue to go into his CPF accounts, and the funds in his SA and OA (in that order) can be withdrawn any time he wishes. I suggest he consider using those funds to support his retirement from age 65 to 70, then start CPF LIFE payouts thereafter.

If he has a housing loan that means he has a HDB flat. He may be able to monetize his HDB flat using the HDB Lease Buyback Scheme or HDB Silver Housing Bonus.

It looks like he's in decent shape, actually. Taking some of the $100K in fixed deposits and pushing it into CPF RA would improve his retirement outlook considerably, but otherwise I think he'll do OK.

 

[BBCWatcher]

$100K cash is sufficient to pay off the HDB loan if he wish to do so.

Shouldn't do that. A CPF RA top up is a much better deal than accelerating repayment of the 2.6% HDB loan, which is under the Home Protection Scheme anyway (I assume).

At 65, the RA balance will grow from $170K at 58 to $225K and provide a CPF LIFE monthly payout of $1,250 for life under Standard plan. For Escalating plan, payout starts at $980 at 65 and goes to $1,470 at 85 and $1,790 at 95.

As mentioned, I'd defer to age 70 and use cash+CPF SA+OA to bridge to 70.

If CPF LIFE meets your dad's needs, there is nothing to do except you/he can top-up his RA up to ERS to increase the payout . ERS increases every year.

Bingo, agreed.

 

[BBCWatcher]

Housing loan - plan is to pay it off before he retires?

That's a given. HDB loan terms are designed not to go into classic retirement years.

I should also point out that there's some tax relief available for RA top ups since the RA is below the Full Retirement Sum. So if he and a couple children each top up at least $7,000, there's $21,000 of combined tax relief ($7,000 per depositor) available. Of course it's possible and desirable to top up more, a lot more, but below the FRS tax relief is available.

 

[fr33d0m]

What kind of HDB?

if worry about HDB loan, can always downgrade.

 

[Buzztiger]

I started working last year and lost my job last year itself coz of pandemic. Now I hopping from temp job to temp job. After get stable job I can help top up his RA. So the savings of $100,000 keep as fixed deposit is better ? Or put into endowment plan ?

 

[BBCWatcher]

So the savings of $100,000 keep as fixed deposit is better ? Or put into endowment plan ?

Neither. I believe we're all suggesting he take at least some of that $100K and deposit it into his CPF RA. He's getting less than 1% in fixed deposits (I assume) and can get a much better result via RA. Heck, any way he gets dollars into CPF is better than his fixed deposits. If he insists on being able to withdraw then he could repay dollars used for housing to his Ordinary Account, and that'd earn 2.5% interest. (No, not my recommendation, but he could.)

 

[Value.Matrix]

I started working last year and lost my job last year itself coz of pandemic. Now I hopping from temp job to temp job. After get stable job I can help top up his RA. So the savings of $100,000 keep as fixed deposit is better ? Or put into endowment plan ?

Why into endowment or annuity? CPF Life is the best annuity currently (without leverage). Best bang for money while able to help cashflow is top up RA account.

If he wants withdrawable money, can still do voluntary contribution to his 3 accounts, as OA and SA money can be withdrawn anytime like fixed deposit. (And i am assuming his medisave is full at BHS now).

Housing refund is the last thing to do as it gives only 2.5%

 

[ian123]

Retirement Account is a gamble. You get a rate of return of 4% (IRR) only if you make it to beyond 80-85 years old.

If you die earlier, the actual rate of return is worst than Special Account.

I would suggest topping up Special Account after 55 instead.

Interest in Special Account of 4% is yours to keep!! Interest accumulated in RA is not yours. The interest earned in RA is put into a pool and shared.

Those who can live beyond 95 years old benefit most. Breakeven at around 85 years old. And those who dont make it past 85 years old, its better to channel money into the SA after you hit 55 years old.

I just did the entire exercise with SA account shielding and all.

 

[reddevil0728]

Retirement Account is a gamble. You get a rate of return of 4% (IRR) only if you make it to beyond 80-85 years old.

If you die earlier, the actual rate of return is worst than Special Account.

I would suggest topping up Special Account after 55 instead.

Interest in Special Account of 4% is yours to keep!! Interest accumulated in RA is not yours. The interest earned in RA is put into a pool and shared.

Those who can live beyond 95 years old benefit most. Breakeven at around 85 years old. And those who dont make it past 85 years old, its better to channel money into the SA after you hit 55 years old.

I just did the entire exercise with SA account shielding and all.

The only way to top up sa after 55 is via VC right. So also not direct.

 

[jkohlc2]

you are their retirement plan

 

[purpleberry]

Retirement Account is a gamble. You get a rate of return of 4% (IRR) only if you make it to beyond 80-85 years old.

If you die earlier, the actual rate of return is worst than Special Account.

I would suggest topping up Special Account after 55 instead.

Interest in Special Account of 4% is yours to keep!! Interest accumulated in RA is not yours. The interest earned in RA is put into a pool and shared.

Those who can live beyond 95 years old benefit most. Breakeven at around 85 years old. And those who dont make it past 85 years old, its better to channel money into the SA after you hit 55 years old.

I just did the entire exercise with SA account shielding and all.

SA account has a limit of 180k? Been a while since I have revisited this.

 

[BBCWatcher]

Retirement Account is a gamble. You get a rate of return of 4% (IRR) only if you make it to beyond 80-85 years old.
If you die earlier, the actual rate of return is worst than Special Account.

I would suggest topping up Special Account after 55 instead.

Nice idea, but you're not allowed to do that. Your only discretionary choice age 55+ to get some funds into your Special Account is via an "all three account" Voluntary Contribution which must fit within the CPF Annual Limit. Even under worst case assumptions a Retirement Account yield beats that.

If you want to chase the highest CPF yield the best option age 55+ is a Voluntary Contribution to MediSave which must fit within both the CPF Annual Limit and Basic Healthcare Sum.

Interest in Special Account of 4% is yours to keep!! Interest accumulated in RA is not yours. The interest earned in RA is put into a pool and shared.

Yes, and it's shared with you, too. If you want to chase the highest "assured" yield for you and your heirs (assuming you have at least one you care about) then you could choose the CPF LIFE Basic Plan. If you then were to die at precisely the worst time from a yield point of view you and your heirs will end up with a ~3.2% p.a. yield. That beats the "all three account" VC.

I don't think you should think or do this way, not in general, but you could.

Once CPF LIFE payouts start you could continue to top up RA. If you "do nothing" those subsequent RA top ups will end up as Additional Monthly Payments (AMPs). Those dollars will earn a straight 4.0% interest rate as long as they are inside RA. Again, not necessarily a recommendation, but I'm presenting the yield figures and what's possible.

Those who can live beyond 95 years old benefit most. Breakeven at around 85 years old. And those who dont make it past 85 years old, its better to channel money into the SA after you hit 55 years old.

Again, nice idea, but you cannot actually channel dollars into SA specifically. That's not an option.

 

[karakorum1999]

SA account has a limit of 180k? Been a while since I have revisited this.

For the purpose of topping up your SA (from cash or OA) when aged 55 and below, the limit is the current FRS. That is, once SA reaches FRS and above, no such top ups are allowed.

However, your SA can always continue to increase from mandatory (from employment) and voluntary contributions (from VC to all 3 accounts), and these are also the only ways to increase your SA after 55.

 

[Okenba]

My Dad is 58 yrs old this year. He will retire at age 65. I just realised that he has not planned for his retirement ! He has savings of $100,000 which he keeps as fixed deposit every year. CPF RA account has about $170,000. He has HDB housing loan of $97,000 left to pay ( he pays using CPF ).

At his age, I don't know if he can even get a retirement insurance plan. Lets say he needs $1000 a month for 20yrs after retirement, which amounts to $240,000. I think he will still fall short of the amount required. Is there anyway to use the savings to lessen the impact like maybe get endowment insurance plan or invest some money ?

You can try the CPFlife estimator page.
https://www.cpf.gov.sg/eSvc/Web/Schemes/LifeEstimator/RECalculate
Even if he pays off the HDB loan now, he should still have enough for $1k/mth at 65, if he puts everything into RA now.

But no point paying off now. Might as well put more into RA so payout will be higher later.
And if he can work / wants to work longer, delaying payouts until 70 will mean higher payouts.
(Working longer also means he can continue to top-up RA while he is working.)

As for the possibility of 'not living long enough'. There is likewise the possibility of living too long.
But I think we only have to choose the plan just before we start the payout.
So at 65 / 70, evaluate how healthy we are, and choose basic (if not too healthy) , or escalating (v healthy with long-lived genes...)

So yeah. Overall, seems fine. If need more money, read up on how to monetise HDB.
Sell and buy a smaller unit, etc.

 

[Value.Matrix]

Retirement Account is a gamble. You get a rate of return of 4% (IRR) only if you make it to beyond 80-85 years old.

If you die earlier, the actual rate of return is worst than Special Account.

I would suggest topping up Special Account after 55 instead.

Interest in Special Account of 4% is yours to keep!! Interest accumulated in RA is not yours. The interest earned in RA is put into a pool and shared.

Those who can live beyond 95 years old benefit most. Breakeven at around 85 years old. And those who dont make it past 85 years old, its better to channel money into the SA after you hit 55 years old.

I just did the entire exercise with SA account shielding and all.

You just told us your lack of knowledge. If SA can be topped up after 55, well, who wouldnt?

Fact is you cant do it directly. Indirectly VC3A only a portion goes to SA.

Furthermore, AMP earns full 4%, while allowing cashflow for hdb loan repayment. Of course you can use VC3A to achieve it, but its honestly lower yield.

 

[andyhtc]

I'm planning to top up my mum's CPF account instead of giving her a cash allowance every month. Which CPF account to top up is better: SA or RA?

The main purpose is to reduce my income tax as she is still working and does not need any payout from her CPF, and she is not happy with the miserable fixed deposit rates for the cash allowance I have been giving her.