WHAT DOES THIS EXTRA AMOUNT MEAN FOR YOUR RETIREMENT?
Generally, with the boost in CPF savings, experts expect more people to be able to achieve the Basic Retirement Sum by the time they turn 55, or even set aside more to qualify for the Full and Enhanced Retirement Sums.
Back to the 35-year-old example, having additional funds of about S$170,000 will help this person to “meet or exceed” the Basic Retirement Sum by the time he or she turns 55 in 2043, Mr Selvam said.
The Basic Retirement Sums beyond 2027 have not been announced. Assuming that it continues to go up by 3.5 per cent a year, EY calculations show that it will likely be an estimated S$198,000 by 2043.
While significantly more than the Basic Retirement Sum of S$99,400 in 2023, the additional CPF funds, assuming they were left untouched, will mean that this person only needs another S$30,000 to achieve the Basic Retirement Sum.
Echoing a similar sentiment, DBS Bank’s head of financial planning literacy Lorna Tan said: “With the compounding effect, the increase in CPF salary ceiling would enable the middle-income to achieve their Full or even Enhanced Retirement Sums.”
While it is good news that more people will be able to accumulate larger amounts in their CPF and in turn receive bigger payouts for their retirement, it is also worth noting that the estimated monthly payouts have not been increasing at the same pace as the retirement sums.
Mr Lee noted that while the retirement sums have gone up by 3.5 per cent annually on average, the payouts have grown by about 3.25 per cent a year, likely due to longer life expectancy.
“With people living longer, the payouts can’t keep up with the increase of 3.5 per cent if we want to stretch the savings for longer,” he explained.
“This means that the latest measure, with compounding effect, should help Singaporeans to keep pace with inflation in the long run but on our own, we still have to do more to prepare for retirement.”
This is especially so if individuals prefer a more cosy lifestyle in retirement, such as going on frequent vacations.
Ms Tan said: “Our desired retirement lifestyle differs from person to person. As such, the increase in CPF monthly salary ceiling will impact each member’s retirement adequacy differently.
“For most people, it is insufficient to depend solely on CPF payouts, which are meant to fund our basic expenses.”
Experts also suggested topping up CPF accounts, especially for those who are not affected by the planned changes to the monthly salary ceiling. These include those earning monthly salaries below the ceiling.
MoneyOwl’s solutions lead Daphne Lye recommended top-ups be done to the Special Account to take advantage of the high and “risk-free” interest rate. Top-ups should be done earlier in the year to earn more interest, added Ms Tan.
Building up other streams of retirement income beyond CPF will also be key, said experts.
They suggested investing in the likes of unit trusts, as well as dividend-paying stocks and real estate investment trusts (REITs), which can help to be a source of passive income during retirement.
That said, not all dividend stocks and REITs are the same, said Mr Lee. Investors still have to be mindful of sectors and individual company fundamentals, given how firms can suspend dividend payments during challenging times, he added.
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