CPF savings insufficient for retirement: survey

[Musicwhiz]

I am surprised by these findings! 86% intend to hold life insurance (i.e. whole life) plans? After what d.o.g. mentioned about whole life, I can't imagine why so many would choose whole life over Term. And another surprising thing was that endowment is so popular, even though the returns are lower than say a passive index fund. That said, a decent investment philosophy should be able to garner about 4-5% per annum, and you don't have to pay fees to anyone!

Comments, please?

CPF savings insufficient for retirement: survey

By Travis Teo | Posted: 01 February 2011 1605 hrs

SINGAPORE: Singaporeans believe that they will have to work for as long as they can to supplement their retirement income. This is according to a survey by Citibank Singapore.

The bank added that respondents think their CPF savings are insufficient to support them through retirement.

According to the survey, seven in 10 believe their CPF savings will provide only some or little of their retirement income.

In response to that, Singaporeans are turning to alternative means to take them through their silver years.

Citibank said that the alternatives could include proceeds from investment and insurance products.

Out of these products, the survey found that the most popular is whole life insurance.

Some 86 per cent of respondents currently hold or intend to purchase whole life insurance.

It added that the next most popular products are endowment plans.

Overall, 52 per cent of respondents said they would continue to work for as long as possible.

Citibank Singapore's Head of Wealth Management, Shrikant Bhat, commented that as the life expectancy of Singaporeans increases, so will the amount of savings they need for retirement and there is awareness that they may have to postpone their retirement.

-CNA/ac

[arthur]

Insufficent personal financial knowledge + unwillingness for SPH media to publish these articles out in order to keep NTUC Income & company happy.
If everyone knows such knowledge.. I believe NTUC Income bosses' pay packages and bonuses would be suffering.

CHeers.

[kazukirai]

I am surprised by these findings! 86% intend to hold life insurance (i.e. whole life) plans? After what d.o.g. mentioned about whole life, I can't imagine why so many would choose whole life over Term. And another surprising thing was that endowment is so popular, even though the returns are lower than say a passive index fund. That said, a decent investment philosophy should be able to garner about 4-5% per annum, and you don't have to pay fees to anyone!

Comments, please?

Not many have the good fortune to seek and find this forum?

On a more serious note, the level of financial literacy in Singapore is appalingly low but who's to blame? Most parents aren't financial savvy and hence kids don't get good role models. Some kids are lucky enough to want to find out more themselves (I think more from my generation than previous ones) but most figure that they should leave that to the financially literate like Financial Planners and Bank Relationship Managers. Unfortuntely, most of these guys don't have the same interests as their clients...either that or they were sold on the same schmuck that they're selling.

---

Insufficent personal financial knowledge + unwillingness for SPH media to publish these articles out in order to keep NTUC Income & company happy.
If everyone knows such knowledge.. I believe NTUC Income bosses' pay packages and bonuses would be suffering.

CHeers.

On this note. Kind of ironic that Tan Kin Lian has become such a strong advocate of the least profitable part of insurance after he's left NTUC.

[mikh]

From above, there's nothing mentioned about survey methodology. Only Citibank being hawked. CNA generating news. Might want to take report with a pinch of salt although the results may not be surprising.

[jeremyow]

A slight wrong focus can bring about long term repercussions.

If the space rocket takes off at a slightly wrong angle from earth at the start, it could mean never landing on the moon as slight deviation compounded over longer distances can mean a magnified deviation from intended destination (assuming no way to change course once the rocket takes off).

Is being cash rich from withdrawing CPF savings at retirement a good choice or being asset rich at retirement a good choice? This is an important consideration as a slight wrong focus at the start will result in a magnified deviation from intended destination of having a financially worry-free retirement.

Most Singaporeans have no choice but to contribute to CPF as part of their working income. However, the question to ask is whether CPF savings can be classified as a good cashflow asset or not?

I believe it is not simply a matter of questioning whether one can accumulate enough CPF savings at retirement or not. The real question is whether it is worthwhile to even accumulate CPF savings or not?

Money depreciates in value constantly. There is no way to make money appreciate in value by holding on to money as it is. However, good cashflow generating assets may still have a fair chance of appreciating in value in tandem with time, should the assets in question prove to be of better demand in value in future (depending on their future cashflow generating ability).

So, accumulate lots of cash in CPF savings to prepare for retirement or focus on buying and accumulating valuable cashflow generating assets that may have a probability of increasing in value in future at retirement, and also have the potential to perpertually generate continuous cashflow outlasting one's entire lifespan?

Which should be the correct angle to take off from the start so that one can really land on the moon and not deviate further out away into outer space?

[Big Toe]

well said jeremy.

savings in cpf is stale, stagnant and we have little say on how we can use it.
instead of focusing on how to grow it, might as well focus on how to make use of it now to generate real cash flow.
Either that, or forget about CPF completely as a retirement nest.

CPF is designed for the masses so that everyone will end up with something when they are old.
Something is better than nothing. Everyone except me, I have no money in my ordinary account and I don't use it to pay for my housing loan as there is nothing to begin with so there is a chance I may end up with nothing.

In any case, most people worry about retirement but is doing very little about it. Endowment, Life insurance, Fixed D is how most people prepare for it. Its in our culture, most of us are not risk takers and will hold on to money very tightly. But history has proven that taking calculated risk, acquiring cash generating assets is the way to go.

[Musicwhiz]

The full article.

Business Times - 02 Feb 2011

7 in 10 say CPF funds not enough to retire on: survey

By EMILYN YAP

WORK longer, buy insurance or invest. These are the three main ways in which Singapore residents will be financing their retirement, should they have insufficient Central Provident Fund (CPF) savings.

These are some of the findings from a survey Citi conducted in November last year. Of the respondents polled, 70 per cent did not expect to have enough CPF funds for their golden years. This 70 per cent figure is made up of 47 per cent who said CPF will provide 'only some' of the income needed, and 23 per cent who said it will provide 'very little'.

For many, the solution is to stay on a payroll. Some 52 per cent of survey participants said they would continue to work as long as possible to supplement their retirement income.

Some respondents had more than one plan to fall back on. Around 52 per cent also said they would rely on proceeds from insurance policies to cope.

Of this group, 70 per cent already own whole life insurance policies and another 16 per cent intend to purchase them. Endowment plans were also popular - 50 per cent already have them, and another 21 per cent plan to get them.

Proceeds from investment products were another oft-cited source of retirement income. Some 51 per cent of respondents said they would rely on these monies.

While the worst of the global financial crisis has passed for some time, many of the respondents still felt the damage to their nest eggs. Around 41 per cent indicated that the size of their retirement savings was still less than that before the turmoil.

'As the life expectancy of Singapore residents increases, along with growing expectations to maintain their lifestyles, the amount of savings they need for retirement increases too. There is new awareness that they may have to postpone their retirement,' said Citibank Singapore head of wealth management Shrikant Bhat.

'The global financial crisis too has left a lingering influence, with Singapore residents realising that they will have to rely on alternative ways to supplement their retirement income. We are seeing similar trends with our own clients, who are turning to investment and insurance products.'

[lonewolf]

I have never regarded my CPF savings as 'retirement' income. And I dun find the findings very surprising. Even with my modest lifestyle, I dun think depending on CPF savings for my retirement needs is enough. So instead my approach towards retirement is to generate my own income stream (when I'm no longer working/semi-retired) and used whatever coming out of CPF as a supplementary income.

I think one of the best financial decision I ever made was not overloading myself on insurance. I currently have 2 life insurance (including one with hospitalisation ridership). Even though I never understood the reasons then, I choose not to go for the sexy endownment plans or ILPs and a dozen of other variants. Same with taking the Unit Trust route. On hindsight, my instinct was correct.

There's nothing inherently bad about the CPF scheme in general. Its just that people need to realise that just becos you contributed to CPF does that mean or even guaranteed that you will have enough to have a carefree retirement. That will not be the case. The issues is probably worse for people in the lower 30% percentile. The top 30% percentile will not have any problems either way. The middle 40% probably can manage with some modifications to their lifestyle. But its the bottom 30% that will be hit with not having enough savings (possibly not enough to meet the CPF min sum) let alone depending on it alone for retirement.

[corydorus]

For me - CPF, Life, Endownment are like different spead of "Holdings" though earn lesser still earns get insured. Of my liquidity, 35% now in stock only. Because that's much i am willing to risk even though I made relatively consistent yearly from it. I am kind of "very" conservative relatively to most of you but consider risky to my friends.

One thing i like to add investment through banks such as in Unit trusts, chances are you will see smaller sum of your CPF later. Kind of Ironic.

[d.o.g.]

This is a bit of beating on a dead horse, but the US experience with 401 (k) plans - their version of CPF - is turning out to be a disaster. The key issue: most people didn't contribute enough. Apparently most people contributed 6% of their salary, with a 3% match from their employer, total 9%. This is turning out to be woefully insufficent even after taking into account Social Security entitlements. The sufficiency threshold was defined as 85% of their working income

See:

http://online.wsj.com/article/SB10001424...07356.html

In Singapore, of course, there is no Social Security of any sort so we are entirely on our own. We now get 36% of salary (20% self, 16% employer) paid into CPF for most of our working lives. But most of that goes into the house. So what is left? Essentially zero.

In theory you can sell the house and move to a smaller place. In practice very few old people are mentally prepared to leave their current homes and completely rebuild their social life around new neighbours. The government is experimenting with lease buy-backs, but the terms look pretty lousy.

Most of the readers of this forum are already members of the choir so I'll stop preaching. But if you have friends who are starting to wake up in terms of financial literacy, point them to the article and ask them to explain why they think their retirement will be different from that of the US baby boomers. And no, "the gahmen will take care of me" is not an acceptable answer. Ask them to show - with numbers - how they intend to fund their retirement.

The harsh truth today is that CPF can at best pay for your HDB flat only. Retirement has to be funded entirely from cash savings. So you had better learn how to invest, whether on your own, or via funds.