Retirement Withdrawal Strategy

[dork32]

I think there is also a formula for varying/escalating withdrawals.. ? Let me go play with it…!

if you understand zone guard formula, this is a geometric progression with
first term (a) = payout
Sum(S) = principal
common ratio (r) = 1/(1+r)
number of terms (n ) = number of payout
Sum = a+ a/(1+r) + a/(1+r)^2 + .....

if you want an escalating plan, eg 2%,
then the common ratio becomes (1+0.02)/(1+r)

you can plug in the sum formula to calculate the

 

[twosix]

With unlimited number of withdrawals and almost instant withdrawal using paynow, just take out if one needs the money. there is no need to purposely take out the money if one does not need it. money in cpf still gets to earn cpf interests.

 

[BBCWatcher]

And if you make a withdrawal from CPF, do it on the first day of the calendar month. You don't earn any CPF interest for partial months, and you might earn a bit more bank interest for the days or couple weeks the withdrawal sits in your ordinary bank account.

 

[dork32]

And if you make a withdrawal from CPF, do it on the first day of the calendar month. You don't earn any CPF interest for partial months, and you might earn a bit more bank interest for the days or couple weeks the withdrawal sits in your ordinary bank account.

first is a few days of interest in the bank is really very little. i will not really go chase after the small number.

second thing is this suggestion is good only when you have 0 cpf contribution. many of us continue to work after 55. my company tends to credit cpf at around 15 or 16th every month. cpf gives interest based on the lowest balance of the month. if you really got ocd and really like to chase after the few cents, then withdraw after the employment contribution is in.

 

[BBCWatcher]

"Why not?" If you're going to withdraw, enjoy as much free money as allowed.

Your second part makes perfect sense. The same philosophy applies to managing your MediSave balance. If you're expecting a MediSave withdrawal -- to pay an insurance premium for example -- and plan to make a Voluntary Contribution to MediSave, and if you're already able to make that VC (already have room below the BHS and CPF Annual Limit), then make the VC just ahead of the withdrawal. You'll retain a bit more CPF interest that way.

 

[highsulphur]

Does it mean once you the monthly amount you get from amortising your assets till 95 is enough to cover your current expenses, you should be able to retire? In a very crude sense. You probably just need to focus on beating inflation especially medical costs

 

[BBCWatcher]

Does it mean once you the monthly amount you get from amortising your assets till 95 is enough to cover your current expenses, you should be able to retire? In a very crude sense. You probably just need to focus on beating inflation especially medical costs

No. Per Singapore's latest life tables there's a >11% chance if you're alive at age 65 you'll also be alive past 95, and that's for males using past mortality experience. (For females the percentage is even higher, and future mortality experience is highly likely to be substantially more favorable for both sexes.) Those (>11%) are terrible odds for reasonable financial planning. Age 95 simply isn't long enough, unless you have high confidence you'll undershoot (i.e. you're in poor health).

....And now you know why the government is so focused on foundational longevity insurance and increasingly focused on escalating life annuities specifically. Very properly so. Singaporeans are among the longest living people in the world, and retirement financial planning definitely needs to be realistic.

 

[zoneguard]

Does it mean once you the monthly amount you get from amortising your assets till 95 is enough to cover your current expenses, you should be able to retire? In a very crude sense. You probably just need to focus on beating inflation especially medical costs

In my view retirement finance is the nastiest problem in finance as you need to deal with inflation, longevity risk, investment returns and spending changes from retirement till the end of life when medical expenses will dominate.

Say from 55 to 95, straight line amortization means P/40 or 40 years of expenses if that amount meets expenses. 2.5% withdrawal rate. Should be good enough to deal with the 4 factors above if P is at least 50% invested in equities.

 

[Okenba]

In my view retirement finance is the nastiest problem in finance as you need to deal with inflation, longevity risk, investment returns and spending changes from retirement till the end of life when medical expenses will dominate.

Say from 55 to 95, straight line amortization means P/40 or 40 years of expenses if that amount meets expenses. 2.5% withdrawal rate. Should be good enough to deal with the 4 factors above if P is at least 50% invested in equities.

I think if you're looking at past 70, it can be quite straightforward. Because CPFlife takes away a lot of uncertainty. Especially if you choose Escalating Plan. (Lessens the issue of longevity risk as well as inflation risk.)

If you plan for medical emergencies and perhaps end-of-life care, that will also sort out spending changes (especially since studies show that day-to-day spending probably decreases in the longer run for retirees.)
And if your spending is covered, then investment returns really don't matter. And for those with kids, we can just gift more to them earlier and leave that as a problem for them to solve.

But CPFlife really helps to remove (or lessen) quite a bit of uncertainty for retirement planning.
Though there is probably a cost to having that uncertainty removed. IE. Some may feel that they can do better than CPF life. But that choice will come with more uncertainty.

 

[kickass22]

i learnt this formula when i was in sec 3. it is the sum to nterms formula for geometric progression

I failed my math is secondary school. Was never good at it and thus do not understand geometric progression. Definitely one of my core weakness. But as an adult, I try to discover these things again as a challenge for me.

Just wanted to add that for retirement planning and investment, basic arithmetic is more than enough and the wonders of technology can help you do the hard calculations. However for experts who are seeking "Alpha" etc.... maybe you more than just basic arithmetic.

 

[kickass22]

In my view retirement finance is the nastiest problem in finance as you need to deal with inflation, longevity risk, investment returns and spending changes from retirement till the end of life when medical expenses will dominate.

Say from 55 to 95, straight line amortization means P/40 or 40 years of expenses if that amount meets expenses. 2.5% withdrawal rate. Should be good enough to deal with the 4 factors above if P is at least 50% invested in equities.

In that statement above, there are so many uncertainties, how is a straight-line amortization gonna help? It helps from a planning perspective, but I think you need to built a few safe guards as well as plan for changes based on changing circumstances ( if there is a need too)

 

[dork32]

I failed my math is secondary school. Was never good at it and thus do not understand geometric progression. Definitely one of my core weakness. But as an adult, I try to discover these things again as a challenge for me.

Just wanted to add that for retirement planning and investment, basic arithmetic is more than enough and the wonders of technology can help you do the hard calculations. However for experts who are seeking "Alpha" etc.... maybe you more than just basic arithmetic.

you are right that you are a real idiot if you try to derive all the formulae. You are so right that there are many functions and apps that were written. Using these apps would be a lot more convenient.

The problem comes in when you dont want the standard case, as in when you want to find out the payout based on a 2% escalating plan. You will realize that no one has written such an app. with this, you may need to apply the mathematical principles to solve the problem. of course if you do not have ocd, then an estimate would do.

also for me, mathematics is not fun. i see many people betting at football, playing system 8 at toto, buying 4d. to me, i will use mathematics to analyze everything. i realize that singapore pools is the greatest con group. whatever you do, they win. many uncles enjoy gambling. they take it as their hobby. mathematics has taken the fun out of gambling for me

 

[dork32]

"Why not?" If you're going to withdraw, enjoy as much free money as allowed.

i do agree that it is free money. but it is really very insignificant.

some guy here is suggesting that you should be withdrawing so much. let say i withdraw 1000. the bank is giving me 0.05% interest, ie 50 cents per year, or 5 cents per month. I would not be too disappointed if i lose 5 cents.

 

[dork32]

also for me, mathematics is not fun. i see many people betting at football, playing system 8 at toto, buying 4d. to me, i will use mathematics to analyze everything. i realize that singapore pools is the greatest con group. whatever you do, they win. many uncles enjoy gambling. they take it as their hobby. mathematics has taken the fun out of gambling for me

one example, of losing my fun is this. eg Toto this week 10 million. some guy in your company/ family will suggest this: lets pool our money to buy toto. lets buy system 12. it increases your chances of striking. even if you do not strike group 1, the payout of system for 3+1 is also higher.

the following is total crab if you do your maths
1. It is good to pool your money
2. System 12 is good coz it increases the chances of striking
3. The payout of system 12 is higher that normal quick pick

i see the anticipation and excitement of my colleagues during such events. i really do not enjoy such things coz i calculate too much. sometimes i wish i could be as naive as my friends and enjoy the occasion.

 

[wira]

how about buying private life annuity plan to supplement CPF life ? does it make sense to reduce uncertainty ?

ie. you get $2000 /mth from cpf life
purchase private annuity to get additional $1K/mth

that should be sufficient for basic necessities.

extra expenses for vacation, big purchases can then be withdrawn from investments pool

 

[hwmook]

how about buying private life annuity plan to supplement CPF life ? does it make sense to reduce uncertainty ?

ie. you get $2000 /mth from cpf life
purchase private annuity to get additional $1K/mth

that should be sufficient for basic necessities.

extra expenses for vacation, big purchases can then be withdrawn from investments pool

That will probably be what I will do for my wife, buy some annuities to make sure she can fixed amount monthly.

 

[wira]

That will probably be what I will do for my wife, buy some annuities to make sure she can fixed amount monthly.

yeah i would feel more secure to have a fix monthly payout of around $3K-$4K/mth till you die to meet basic needs.l

only problem is private annuity to pay $1K/mth till you die will cost at least $400K single premium ?

 

[Okenba]

yeah i would feel more secure to have a fix monthly payout of around $3K-$4K/mth till you die to meet basic needs.l

only problem is private annuity to pay $1K/mth till you die will cost at least $400K single premium ?

$3-4k/mth is doable with CPF life. No need additional annuity.
Just wait to 70 for payout. And top-up to ERS every year.
Payout should be maybe even above $4k/mth.

 

[dork32]

yeah i would feel more secure to have a fix monthly payout of around $3K-$4K/mth till you die to meet basic needs.l

only problem is private annuity to pay $1K/mth till you die will cost at least $400K single premium ?

karak made a calculation for you. 500k premium will give a payout of 2.4k a month for 30 years. by proportion 250k will give a payout of 1.2k a month.

moral of the story, dont waste time on private annuity. chrisloh already tell you that. do a proper shielding on your cpf sa at 55. it will be much better than private annuity.

 

[BBCWatcher]

how about buying private life annuity plan to supplement CPF life ? does it make sense to reduce uncertainty ?

$3-4k/mth is doable with CPF life. No need additional annuity.
Just wait to 70 for payout. And top-up to ERS every year.
Payout should be maybe even above $4k/mth.

I agree with Okenba. Start CPF LIFE payouts at age 70 (the default), top up your Retirement Account to the ERS within your 55th birthday month, keep topping up your RA every time the ERS is raised, and you'll have a pretty decent CPF LIFE income stream.

If you still need more longevity insurance then you might consider a private life annuity, probably Manulife's (if Singapore dollars) last I checked.

It's also possible for some people reading this forum to go work abroad for enough years to qualify for a foreign government's life annuity (pension). If your career allows that sort of approach, and if it otherwise makes sense, great. Some countries have treaties with one another called "totalization agreements" that allow you to add up time spent in treaty countries to qualify for retirement benefits.