Retirement Withdrawal Strategy

[slec7166]

Hi All,

I would like to seek your view about your strategy of the withdrawal when you start your retirement journey, says from age 65 onwards.

in addition to the monthly CPF life payout, how much do you intend to withdraw (of course, if also depends on how much you want per month)? Do you withdraw 4% of your total savings yearly? If it is 4%, your savings can last you 25 years (65 + 25 years = 90 yo).

Any comments?

 

[reddevil0728]

Hi All,

I would like to seek your view about your strategy of the withdrawal when you start your retirement journey, says from age 65 onwards.

in addition to the monthly CPF life payout, how much do you intend to withdraw (of course, if also depends on how much you want per month)? Do you withdraw 4% of your total savings yearly? If it is 4%, your savings can last you 25 years (65 + 25 years = 90 yo).

Any comments?

really depends on how much you want to spend? No one-size fits all.

what's the point of drawing more and putting in the bank???

 

[chrisloh65]

Hi All,

I would like to seek your view about your strategy of the withdrawal when you start your retirement journey, says from age 65 onwards.

in addition to the monthly CPF life payout, how much do you intend to withdraw (of course, if also depends on how much you want per month)? Do you withdraw 4% of your total savings yearly? If it is 4%, your savings can last you 25 years (65 + 25 years = 90 yo).

Any comments?

There is a very simple way:
First decide how many years (Y) you want to retire.
Then determine how much you have (=A) at the time of retirement.
Then the amount you can withdraw p.m. = A / (Y*12)

Above is just a rule of thumb. In reality, if your A is big enough, you would have significant investment returns (if you invest your capital), which will more than offset the costs of inflation (which in theory means you could withdraw more, say at increase of 2% p.a. vs the same initial amount). For more detail planning, you need to use a spreadsheet to plan out annual investment returns and expenses.

 

[rrr2015]

Hi All,

I would like to seek your view about your strategy of the withdrawal when you start your retirement journey, says from age 65 onwards.

in addition to the monthly CPF life payout, how much do you intend to withdraw (of course, if also depends on how much you want per month)? Do you withdraw 4% of your total savings yearly? If it is 4%, your savings can last you 25 years (65 + 25 years = 90 yo).

Any comments?

i think it's not necessary to withdraw 4% during retirement unless you need to.
if you plan your draw-down using 4% rule, as long as your withdrawal is below <4% during retirement then all is well.

 

[kickass22]

Just my two cents. An example of how I think about these.

1. First, you need to have an idea of how much you need for your core needs. This would the basic necessities such as food, utilities etc...etc... when you retire.

2. 2nd, You need to have an idea of how much you need for your non core needs aka wants. This would be for example, travel, luxury good and services, etc....

3. Third, You need to match the specific needs to the specific funds. Example you need a very stable fund for your "Core Needs" so no matter there is market drop by 50% or whatever, your funds are not affected. These could be in for example SRS bonds or CPF Life funds etc....

4. Fourth, You would then match your "No Core Funds" to other specific funds. These could be from your Stock portfolio or other non stable funds. When the market is down , you can decide not to touch these funds and when the market is up , you will withdraw this depending on how your decumulation strategy that you have. E.g You can decide when market is down you decide to withdraw 0% but rely on another fund that is earmarked for "No Core Funds" when market is down or you can decide to withdraw from the stocks but at a lower rate instead of 4% only 1% as you decide to ramp down the non core needs during this period.

Before you come up with your decumulation/retirement strategy. I would suggest you read up on concepts such as "sequence risk" to understand how to plan for retirement and decumulation of your funds.

The above seem simple to do, but requires a lot of thought and the plan/strategy is an evolving one that you keep on revising even during retirement.

The last one is your behavior or how you react during bad or good times in the market and knowing your/family expected lifestyle.

Hope my two cents helps . These are basically my views only, not saying the best way to do it.

 

[zoneguard]

in addition to the monthly CPF life payout, how much do you intend to withdraw (of course, if also depends on how much you want per month)? Do you withdraw 4% of your total savings yearly? If it is 4%, your savings can last you 25 years (65 + 25 years = 90 yo).

Is the savings invested or in cash?
These retired actuaries have a series of spreadsheets and use this as their basis.

 

[reddevil0728]

Is the savings invested or in cash?
These retired actuaries have a series of spreadsheets and use this as their basis.

Why need to make it so complicated though?

the question is not so much about how much one can afford to spend?

but how much one wants to withdraw.

 

[zoneguard]

Why need to make it so complicated though?

the question is not so much about how much one can afford to spend?

but how much one wants to withdraw.

William Sharpe described spending down assets in retirement as “the nastiest, hardest problem in finance".

I asked OP a question on whether the savings is invested or not. 4% withdrawal or 25 years before the savings are depleted if they are not invested and the drawdown isn't inflation adjusted.

 

[BBCWatcher]

It’s not too difficult, actually, when there’s a competitive life annuity market. Just go price an escalating life annuity to “sanity check” your drawdown plan, whether or not you buy the life annuity.

 

[chrisloh65]

It’s not too difficult, actually, when there’s a competitive life annuity market. Just go price an escalating life annuity to “sanity check” your drawdown plan, whether or not you buy the life annuity.

From my knowledge and investing experience, I came to realize that buying life annuity is the most stupid thing to do, ha ha! Good try, insurance agent or salesman (or "financial planner" which they like to be called now)!

 

[chrisloh65]

William Sharpe described spending down assets in retirement as “the nastiest, hardest problem in finance".

I asked OP a question on whether the savings is invested or not. 4% withdrawal or 25 years before the savings are depleted if they are not invested and the drawdown isn't inflation adjusted.

Yes you right. To get to those details will require a spreadsheet. It is good to set up a spreadsheet so that a person can update it as times go by because inflation changes and investment returns also changes (particularly now in the low interest rate environment and investment returns tend to be lower, particularly for bonds).

 

[Shiny Things]

If you’re asking “how much can I withdraw from my retirement lump sum without running too much risk of running out of money”, 3% per annum is a good rule of thumb.

Though, it might be worth asking a slightly different question: “How much do I need per month to be able to retire?”. Once you add up the income from CPF Life, and a 3% stream from drawing down your retirement nest egg, you might find that it’s not quite enough for you to live comfortably, and you’ll need to work a little longer to build your nest egg up—or, alternatively, you might find that it’s more than enough to live comfortably, and you can afford to retire a little early!

 

[JetStorm]

Interesting, I havent thought that far yet... depending on my total networth... if I have no income, I will first withdraw from my SRS for the next 8 to 10 years... followed by my cash investments if I need extra cash, then balances in my cpf oa and sa. Hopefully what I need can last until age 70, where cpf life payout kicks in.

 

[qhong61]

Interesting, I havent thought that far yet... depending on my total networth... if I have no income, I will first withdraw from my SRS for the next 8 to 10 years... followed by my cash investments if I need extra cash, then balances in my cpf oa and sa. Hopefully what I need can last until age 70, where cpf life payout kicks in.

Payout starts at 65. Pls don't extend.

 

[andyhtc]

I guess SRS is a good strategy if one retires in the 50s and draws down in cash until CPF Life kicks in at 65.

However, if the SRS is in an investment, then there is this constraint in red text below if one wishes to hold on to the investment:

Can I make SRS withdrawals in the form of investments (i.e. transfer investments out of SRS account), and if so, how can I make such a withdrawal? Prior to Jul 2015, all SRS withdrawals must be made in cash. From Jul 2015, SRS members will be able to apply to their SRS operators1 to withdraw an SRS investment by transferring the investment out of their SRS accounts (e.g. into their personal Central Depository (CDP) account), without having to liquidate their SRS investments. This is only applicable for the following types of withdrawals, which qualify for the 50% tax concession: a. withdrawal on or after the statutory retirement age prevailing at the time of an SRS member’s first contribution (prescribed retirement age); b. withdrawal on medical grounds; c. withdrawal in full by a foreigner who has maintained his SRS account for at least 10 years from the date of his first contribution; and d. actual withdrawal made by an SRS member or his legal personal representative (if he is deceased) from his SRS account, after the SRS investment that is to be withdrawn had earlier been deemed withdrawn upon death or after the expiry of the 10-year withdrawal period2. All other withdrawals from an SRS account, including premature withdrawals, must be made in cash. Except for the four types of withdrawals highlighted above, where savings in the SRS account have been used to acquire investments, the investments must be liquidated before the sales proceeds are withdrawn in cash from the SRS account. For a withdrawal of type a, b or c above, an SRS investment that is withdrawn will be valued by the SRS operator or the financial product provider (where applicable) and its value will be brought to tax. This is similar to the treatment for cash withdrawn from an SRS account. For a withdrawal of type d above, the earlier deemed withdrawal would have already been subject to tax. The date of withdrawal of an SRS investment is the date on which your SRS operator approves the withdrawal. Table A provides details on the date of approval by your SRS operator. Table B provides the dates that would be used for the purpose of valuation. https://www.ifaq.gov.sg/mof/apps/fc...b1gSuoYW7sXMUpUL+nQEIhnhS1hlVsGBU=#FAQ_133074

 

[zoneguard]

I guess SRS is a good strategy if one retires in the 50s and draws down in cash until CPF Life kicks in at 65.

It doesn't matter if the SRS withdrawal is in the form of cash or investment, so long the withdrawal is before the statutory retirement age, 100% is subject to tax and 5% penalty for early withdrawal is imposed.

https://www.ifaq.gov.sg/mof/apps/fcd_faqmain.aspx#FAQ_1391

When can I make a withdrawal from my SRS account?
Any time. However if you make a withdrawal before the statutory retirement age prevailing at the time of your first contribution, 100% of the sum withdrawn will be subject to tax. A 5% penalty for premature withdrawal will also be imposed. The penalty applies to all withdrawals except those made under exceptional circumstances:

 

[andyhtc]

It doesn't matter if the SRS withdrawal is in the form of cash or investment, so long the withdrawal is before the statutory retirement age, 100% is subject to tax and 5% penalty for early withdrawal is imposed.

https://www.ifaq.gov.sg/mof/apps/fcd_faqmain.aspx#FAQ_1391

Oh... I did not realise this part. I am exploring early retirement in my 50s so more backup cash flow will be useful.

 

[semiret]

I'm 56yrs single which have retired for more than 3 yrs. What I intended to do is from now till CPF Life starts payouts at 65yrs. I'll use my savings for living expenses. I kept CPF savings( OA & SA ) un-touched after deducts FRS from my CPF ACs at 55yrs. When I reached 65yrs, I'll withdraw everything from OA & SA. Used the sums to divides by 20yrs( I expected to live till 85yrs ). I also have a insurance starts payout at around 63yrs for 10yrs which will covered me to around 73yrs. Depending on my health conditions at 65yrs. I might pushback to divide the CPF sums which I'll withdrew at 65yrs by few yrs. The reason I'll withdraw everything from CPF at 65yrs is when you getting older your health will likely deteriorates. Even you got lots of money you also can't enjoys much. The above mentioned is what I planned for my retirement. Everyone have their own approach towards retirement. Just my thoughts.

 

[zoneguard]

When I reached 65yrs, I'll withdraw everything from OA & SA. Used the sums to divides by 20yrs( I expected to live till 85yrs ).

Withdraw only the sum you need from SA/OA for expenses each year as OA at 2.5% and SA at 4% should keep up with inflation. If you withdraw the lump sum and keep in the bank, inflation will erode the value of your savings as bank interest definitely cannot keep up with inflation.

I hope you had some plans to deal with inflation between now to 65 - with bank interest so low, your money is losing value every day if it is just kept in the bank.

 

[BBCWatcher]

Payout starts at 65. Pls don't extend.

No, the "do nothing" default for CPF LIFE is that payouts start at age 70. If you want payouts to start earlier you have to instruct the CPF Board to do that.

It's very financially attractive to start payouts as late as allowed (age 70). If you're able to wait, you should (with rare exceptions).