1. RETIREMENT PLANNING

2. What is Retirement Planning
It is preparing financially for when you are too old to work when you are too young to quit
Involves making decisions about how well you want to live when you still have the means to craft how well you will live
Requires you to defer some degree of current enjoyment in favor of future survival

3. Who should be concerned about your Retirement?
The Government is concerned You family is concerned You should be too!

4. Population Statistics
By 2030, almost 20% or 1-in-5 of Singaporeans will be aged 65 and above
Singapore Department of Statistics, 2005

5. Population Statistics
Source of Chart: Role of the Government in Healthcare Provision and Financing in Singapore, presented by Mr Edward Reiche

6. Population Statistics
Source of Chart: Role of the Government in Healthcare Provision and Financing in Singapore, presented by Mr Edward Reiche

7. Population Statistics
Source of Chart: Role of the Government in Healthcare Provision and Financing in Singapore, presented by Mr Edward Reiche

8. Decreasing Health and Independence
3 Phases of Retirement
Active
Passive
Support
Decreasing Health and Independence
Retiree may still be working albeit at a slower pace. Also lives an active lifestyle and have various hobbies. Extra income from work seen as a supplement
Retiree stops work entirely. Less physically demanding hobbies will be preferred. Retiree may be more careful with expenses, but is still capable for caring for themselves
Retiree is no longer able to take care of themselves, and may require special nursing care and other support services.

9. 4 Pillars of Singapore Social Security
Description
Program 1
Targets working poor who can’t or don’t save
Workfare 2
Compulsory Savings
Central Provident Fund (CPF) 3
Voluntary Savings
Supplementary Retirement Scheme 4
Informal Mechanisms, like Home Ownership and Healthcare, as a vital source of income protection
High Level of Home Ownership and Healthcare
Based on paper by M Ramesh entitled “Singapore’s Multi-Pillar System of Social Security”

10. Successful Ageing for Singapore
To ensure that all levels of society are well prepared for the challenges as well as opportunities of an ageing Singapore:
Family Level – strong, extended and caring families
Community Level – strong network of community services, as well as with opportunities for engagement and the integration of the communities
National level – high level of national preparedness with a competitive and vibrant economy, as well as social cohesion and rootedness
Family
Community
National
Source: Inter-Ministerial Committee on the Ageing Population, 1999

11. Workfare
Aims to provide support for low-wage workers so that they have the best chance to progress
Workfare Income Supplement (WIS) scheme was introduced in 2007 to encourage older low-wage workers:
to work regularly
To build up their CPF savings
Workfare Training Support Scheme (WTS)
Complements WIS by encouraging employers to send their older lower-wage workers for training, as well as encourage workers to go for and to complete their training
Workfare Special Bonus
This bonus is announced from time-to-time to ensure that low-wage workers benefit from economic growth
More details on Workfare from

12. Central Provident Fund (CPF)
CPF savings are meant to provide for housing and medical needs and for basic living needs after retirement*
Consists of 4 main funds
CPF Ordinary Account
Savings can be used to buy a home, CPF Insurance, Investment and Education
CPF Special Account
For old age and investment in retirement-related financial products
Medisave Account
Savings can be used for hospitalisation expenses and approved medical insurance
Retirement Account (created at age 55)
Administered by CPF Board
Mandatory contributions by:
Employers
Employees
Self-Employed
*Source: SRS Booklet (Ministry of Finance) 18 Feb 2011
Source:

13. Central Provident Fund (CPF)
Main milestones include
1955, the British colonial authority in Singapore established the CPF as a compulsory savings scheme to allow workers to save for their retirement
1984, Medisave was introduced as a savings for Hospitalisation expenses for contributors and their family members
1987, Singaporeans were required to set aside a minimum sum in their CPF when they reached age 55. This amount would provide them with a monthly income when they retiree.
Source:

14. CPFOA Contribution
Contribution and allocation rates from 1 September 2012
Employee Age (Years)
Contribution Rate (for monthly wages ≥ $1,500)
Credited into
Contribution by Employer (% of wage)
Contribution by Employee (% of wage)
Total Contribution (% of wage)
Ordinary Account (% of wage)
Special Account (% of wage)
Medisave Account (% of wage)
35 & below 16 20 36 23 6 7
Above 35-45 21 8
Above 45-50 19 9
Above 50-55
14(12)
18.5(18)
32.5(30)
13.5(13)
9.5(8)
9.5(9)
Above 55-60
10.5(9)
13(12)
23.5(21.5)
12(11.5)
2(1)
Above 60-65
7(6.5)
7.5
14.5(14)
3.5
1.5(1)
9.5
Above 65
6.5 5
11.5 1
Rates bracketed and in red show Contribution and Allocation Rates for the period 1 September 2011 to 31 August 2012)
*Source: Contribution Rate based on an Ordinary Wage of $5,000

15. CPFOA Investment
The OA is invested under the CPF Investment Scheme – Ordinary Account (CPFIS-OA)
CPFIS-OA
Fixed Deposits
Singapore Government Bonds
Singapore Government Treasury Bills
Statutory Board Bonds
Bonds Guaranteed by the Singapore Government
Annuities
Endowment Insurance Policies
Investment-Linked Insurance Products
Unit Trusts
ETFs
Up to 35% of investible savings can be invested in:
Shares
Property Funds (or REITs)
Corporate Bonds
Up to 10% of investible savings can be invested in:
Gold, through the following:
Gold ETFs
Other Gold Products (offered through UOB)
“Investible Savings” is the sum of your OA balance and the amount of CPF withdrawn for investment and education
Source:

16. CPF Special Account (CPFSA)
Special Account (SA) is a saving account specifically for old age use, and can be invested in retirement-related financial products
Can be used to pay for monthly housing installments under very strict conditions, and only for properties bought before 1 October 2003
OA savings can be transferred into the SA, but not the other way around
Source:

17. CPFSA Investment
The SA is invested under the CPF Investment Scheme – Special Account (CPFIS-SA)
CPFIS-SA
Fixed Deposits
Singapore Government Bonds
Singapore Government Treasury Bills
Statutory Board Bonds (Secondary Market Only)
Bonds Guaranteed by the Singapore Government
Annuities
Endowment Insurance Policies
Selected Investment-Linked Insurance Products*
Selected Unit Trusts*
Selected ETFs*
*For more information:
ILP -
Unit Trust -
ETF -
Source:

18. CPF Medisave Account (CPFMA)
A national savings scheme to meet the healthcare expenses of members and their dependants, including grandparents who must be Singaporeans or Singapore PRs.
Source:

19. Use of CPF MA Hospitalisation Expenses
Certain costly Outpatient treatments and treatment for a number of chronic diseases
Premiums of approved medical insurance schemes and certain enhancements under the Integrated Shield Plans for members and their dependants
Medishield is run by CPF Board
Medisave approved Integrated Shield is offered by private insurers
Premiums for approved long-term care insurance
Eldershield and Eldershield supplements are offered by private insurers
Available once members and their dependents reach 40 years of age
Source:

20. Use of Medisave Funds Medishield Eldershield Hospitalisation Expenses
A catastrophic medical insurance programme to meet cost of medical treatment for serious illnesses or prolonged hospitalisations
Most programmes available today come with “as-charged” features with high yearly (up to $650,000) and lifetime limits
Has deductible and co-insurance features, which can be done away with by purchasing an enhancement
Eldershield
A national long-term care insurance programme initially launched in 2002, and enhanced in 2007
With Eldershield Supplement, monthly benefits can be as high as $3,500 for life
Available to persons above 40 years of age
Hospitalisation Expenses
Since 2010, Medisave is allowed for use for medical treatment in certain hospitals Malaysia*
*Terms and Conditions apply. See

21. Straits Times, Thursday 5 July 2012, Mind Your Body

22. Medisave Minimum Sum (MMS)
The Medisave Minimum Sum (MMS) is the amount that a member turning 55 needs to set aside for future hospitalisation expenses
Regular MMS adjustments are necessary to help Singaporeans plan for their long-term healthcare needs
From 1 July 2012, MMS will be increased from $36,000 to $38,500.

23. Medisave Contribution Ceiling (MCC)
The MCC is the maximum a member may have in his Medisave Account
The MSS value is set at $5,000 above the MMS value
From 1 July 2012, MCC is increased from $41,000 to $43,500
Excess of the prevailing MCC will be transferred to
Special Account if the member is below 55 years old
Retirement Account if the member is above 55 years old and has a Minimum Sum shortfall

24. Medisave Required Amount (MRA)
The Medisave Required Amount is the amount that you are required to have in your Medisave Account before you can withdraw the savings in your Ordinary or Special Accounts.
If you do not have at least the prevailing Medisave Required Amount, you are required to make a top-up to your Medisave Account with part of the balances from your Ordinary or Special Accounts
Since 1 Jan the MRA has been set at $32,000. This value will be adjusted for inflation every January until it reaches $25,000 (in 2003 dollars) on 1 Jan 2013

25. Medisave Summary
MCC
$43,500
MMS
$38,500
MRA
$32,000

26. CPF Interest Rates
Savings in the Ordinary Account earn an interest rate of 2.5%
The interest is computed every quarter, and is based on the weightage of
80% of the average 12-month fixed deposit rate, and
20% of the average savings rate published by major local banks
Savings in the Special and Medisave Accounts earn an interest of the higher of:
4%, or
12-month average yield of the Singapore Government Securities (10YSGS) plus 1%
Interested is adjusted quarterly
An additional 1% is paid on the first $60,000 of a member’s combined balances:
Limited to $20,000 from the OA
Additional 1% interest received on the OA will be deposited into the member’s SA or RA to enhance the retirement savings
*Source:

27. CPF Interest Rates RA savings earn an interest of of either:
4% (the floor rate), or
12-month average yield of the Singapore Government Securities (10YSGS) plus 1%
Interested is adjusted annually
Announced 30 September 2011, the minimum of 4% pa will be earned for all Special, Medisave and Retirement Account monies until 31 December After that, interest rates on ALL CPF Account monies will be subject to a minimum rate of 2.5% pa
*Source:

28. CPF Minimum Sum (MS) Scheme
Intended to finance the increase life expectancy of retirees.
Provides members with a monthly income to support a modest standard of living during retirement
Q: Will CPF Savings
be enough
for Retirement?

29. CPF Minimum Sum (MS) Scheme
First began in 1 July 1995 with the initial amount of $40,000
to reach an amount of $80,000 by 2003
$40,000 annual increments
Since 2004, MS has been increased from $80,000 to $120,000, in incremental steps of $4,000 (all values in 2003 dollars)
The 2003 MS value (with increment) is then adjusted for inflation each year.
The $4,000 increment in 2012 (adjusted for inflation) would have amounted to a $12,000 increase of the MS.
To mitigate the large increase in MS due to inflation, CPF Board has decided to spread out increase in MS to reach $120,000 (in 2003 value) by 2015 instead of 2013
From 1 July 2012 to 30 June 2013, CPF members will need to set aside $139,000 (up from $131,000)
*Source:

30. CPF Minimum Sum (MS) Scheme
Year
2003 value
Actual
1 July 2003
$80,000
1 July 2004
$84,000
$84,500
1 July 2005
$88,000
$90,000
1 July 2006
$92,000
$94,600
1 July 2007
$96,000
$99,600
1 July 2008
$100,000
$106,000
1 July 2009
$104,000
$117,000
1 July 2010
$108,000
$123,000
1 July 2011
$112,000
$131,000
1 July 2012
$113,000
$139,000
1 July 2013
To be
Announced
1 July 2014
1 July 2015
$120,000
The initial MSS 2003 value for 2012 was $116,000. Adjusted for 2011 inflation, this would have resulted in a MS of $143,000 This is a large jump of $12,000 or 9% from the previous MS of $131,000
Instead of the target of reaching $120,000 MS in 2003 value by 2013, CPF Board has decided to reach the target $120,000 over 4 years.
The 2012 MS stands at $139,000.
*Source:

31. CPF Minimum Sum (MS) Scheme
To help increase CPF LIFE payouts, members who turn 55 from 2013 onwards and who have not met their MS will have their post-55 contributions to the OA and SA automatically transferred to their RA when they reach the draw-down age (DDA) or 65 years old*
This will translate into higher monthly payouts for members
Amount a member can withdraw in cash under the existing withdrawal conditions remains the same.
*Source: CPF Board – New CPF Changes in More details on the new LIFE plans will be made available in 3Q 2012

32. Cash balances CPF Accounts* Amount which you can withdraw
CPF MS Withdrawal
Cash balances CPF Accounts*
Amount which you can withdraw
$5,000 or less
All your cash balances
More than $5,000 but less than or equal to $50,000
$5,000. The remainder will be set aside in your Retirement Account (RA).
More than $50,000 but less than or equal to $154,445
10% of the cash balances. The remainder will be set aside in your RA.
More than $154,445
10% of $154,445 and any further cash balances after setting aside the CPF Minimum Sum** and the prevailing Medisave Required Amount ($32,000 for 2012)
From 1 January 2013, members who reach 55 can withdraw their cash balances only after setting aside the CPF Minimum Sum and Medisave Minimum Sum. However, members can still withdraw the first $5,000 from the CPF account at 55.
*Refers to cash balances in OA and SA, and any balance above MMS (currently $38,500) in Medisave Account (MA) at age 55
**The CPF Minimum Sum applicable for members turning 55 between 1 July 2012 and 30 June 2013 is $139,000.

33. The DDA may eventually be increased to age 67
Draw Down Age (DDA)
Age as at
31 Dec 2011
Applicable DDA
62 and above 62
60-61 63
58-59 64
57 and below 65
The DDA may eventually be increased to age 67
*Source:

34. CPF Minimum Sum Plus Scheme
If you are aged 55 and above from 1 January 2001:
Can buy life annuities (currently only from NTUC) beyond your Minimum Sum with your withdrawal CPF Savings
Monthly income from these annuities is tax exempt
Monthly income from life annuities purchased with cash is not tax exempt
*Source:

35. Retirement Account
The account is created at age 55. The Minimum Sum is then transferred into this account for disbursement of monthly income under CPF LIFE once the contributor reaches 65 years of age
In the 10 years when the funds remain in the RA until the DDA, it earns interest* which
Cannot be withdrawn
Forms part of the RA savings for monthly payments when you reach DDA
From 1 January 2013, CPF members aged 55 with at least $40,000 in their RA or with at least $60,000 at 65 will be placed on CPF LIFE. Members who are not placed on CPF LIFE can choose to join CPF LIFE before reaching 80, or remain on the MS Scheme.
*Currently 4% pa until 31 December 2012
Source:

36. CPF “Income” for Life?
CPF will not be able to adequately finance your retirement:
monthly payouts are not indexed against inflation, therefore subsequent payouts will depreciate in value and hence, purchasing power
CPF MS is able to provide monthly income to the member for years. This may not be a long enough period of time for retirement income
Singaporeans are expected to live much longer
Better lifestyle
Better medical support and advancement
*Source:

37. CPF LIFE
Singapore has one of the highest life expectancies in the world
For Singaporeans aged 65 today
50% expected to live beyond 85
33% expected to live beyond 90
Singaporeans are expected to live longer, and a growing number expected to outlive their CPF savings if they were on the MSS
CPF Life introduced to provide members with income for life
*Source:

38. CPF LIFE - Eligibility
An Individual may apply to join LIFE between the age of 55 and 80, but must satisfy two conditions:
Must be a Singapore Citizen or a Singapore Permanent Resident
Must have Retirement Account Savings
From 1 January 2013, CPF members aged 55 with at least $40,000 in their RA or with at least $60,000 at 65 will be placed on CPF LIFE. Members who are not placed on CPF LIFE can choose to join CPF LIFE before reaching 80, or remain on the MS Scheme.
*Source:

39. CPF LIFE Today 4 plans are available: LIFE Plan Payout Bequest Level
Bequest (Refundable Plans)
LIFE Plus Plan
High
Low
LIFE Balanced Plan
Medium
LIFE Basic Plan
Non-Bequest (Non-Refundable Plans)
LIFE Income Plan
Highest
None
*Source:

40. Improved and Simpler CPF LIFE
From 1 Jan 2013, members can choose between 2 CPF LIFE plans*
Standard Plan (default plan)
Is a combination of the Balanced and Plus Plans
Higher payouts while preserving flexibility in the use of Retirement Account savings prior to age 65
Members can also leave a bequest for their beneficiaries
Basic Plan
For members who prefer to leave a higher bequest and lower monthly payouts
Allows members to use their RA savings for housing after 65 years old
Members who are currently on the 4 current LIFE plans can remain in those plans, or switch to the new Standard Plan before 31 Dec 2013
*Source: CPF Board – New CPF Changes in More details on the new plans will be made available in 3Q 2012

41. MA goes towards funding
CPF in Summary
CPF OA SA MA
MA goes towards funding
medical expenses
MSS
(age 55)
Amounts in excess of MS can be withdrawn in cash as long as MRA is met RA
(created at age 55)
LIFE
(age 65)
Finances lifelong disbursement for retirement

42. Supplementary Retirement Scheme
Was introduced in 2001
Complements the CPF savings as part of the government’s multi-pronged strategy to address the financial needs of its aging population. This is due to the recommendations of the Inter-Ministerial Committee’s Report on the Aging Population
Contribution is voluntary, and can be in any amounts (subject to an annual cap)
Contributions can be used to purchase various investment instruments
Contributions to SRS are eligible for tax relief, and investment returns accumulated tax-free
When withdrawn at retirement1, only 50% withdrawal from SRS is taxable
1Retirement refers to the Statutory Retirement Age, which is the retirement age at the point in time the contributor makes his first SRS contribution
*Source: Ministry of Finance

43. Supplementary Retirement Scheme
All Singaporeans, Singapore PRs (SPR) and foreigners can open an SRS account
Must be at least 18 years old
Not undischarged bankrupts, and
Not mentally disordered and capable of managing themselves and their affairs
To participate in SRS, you must first open an account (only one) with any of the 3 SRS operators:
DBS Ltd
OCBC Ltd
UOB Ltd
You may, however, transfer your account from one operator to another
*Source: Ministry of Finance

44. SRS Contribution
If you earn any form of income, including directors’ fees in the current year, you are allowed to contribute to SRS
Employers are also allowed to contribute to your SRS account on your behalf. Their contribution is treated as part of your remuneration, and thereby taxable in your hands.
*Source: Ministry of Finance

45. Absolute Income Base = $85,000
Contribution Cap
You can contribute in a year any amount up to your contribution cap The Contribution Cap is determined by the product of the Absolute Income Base and the SRS contribution rate
Absolute Income Base = $85,000
Contribution Rate
Singaporean & SPR
15%
Foreigner
35%
Contribution Cap
(Absolute Income Base) x (Contribution Rate)
= 85,000 x 15%
= 12,750
= 85,000 x 35%
= 29,750
*Source: Ministry of Finance

46. SRS Contribution and Taxation
The contribution cap is calculated based on income earned the year previous to the year of contribution
A contributor is entitled to tax relief on his contributions in the year following the year of contribution provided he is assessed as a tax resident  in that year where the contribution is to be allowed.
EXEMPT

47. Supplementary Retirement Scheme
Contributions grow tax-free, and only 50% of the withdrawals is taxed at the then-prevailing income tax rate
Assumptions: Starting Income $2,000pm, ROI 6%, General Inflation 3%, Income growth 5%

48. SRS withdrawals
Under certain circumstances, SRS savings can be withdrawn with penalty. However, 50% of savings withdrawn will be subject to income tax if you
withdraw your savings after achieving the statutory retirement age prevailing at the time you made your first SRS contribution
withdraw your savings upon death
withdraw your savings on medical grounds – physical or mental incapacitation
full lump-sum withdrawals by Singapore Permanent Residents (PRs) who have cancelled their PR status and
have been a non-Singaporean or a continuous period of 10 years preceding the date of withdrawal
have maintained their SRS account for a period not less than 10 years from the date of first contribution to the SRS account.
full lump-sum withdrawal by foreigner who has maintained his SRS account for a period not less than 10 years from the date of first contribution to his SRS account.
Under all other withdrawal scenarios, you will be taxed 100% of the withdrawn amount. This applies also for withdrawal upon bankruptcy and withdrawal before the statutory retirement age prevailing at the time of the first contribution.

49. SRS Withdrawal
A withdrawal from the SRS can be made at any time subject to the penalty imposed (where applicable) on the amount withdrawn
Withdrawal Event
Penalty
Portion Taxed
Death
Nil
50%
Medical Grounds
Bankruptcy
100%
Foreigner (10 year rule)
Before retirement 5%
Upon first and subsequent withdrawal when retirement age is reached
Where no withdrawal is made even when you reach the then current retirement age.
*Source: Ministry of Finance

50. SRS withdrawals
At Statutory Retirement Age, SRS balances can be withdrawn in 10 yearly installments.
50% of each annual withdrawal will be taxed at the prevailing income tax rate

51. Supplementary Retirement Scheme
Based on the hypothetical closing values presented earlier:
An equal annual withdrawal of $124,511 can be made for 10 years
Of the $124,511 drawn down, only 50% (or $62,250) will be subject to income tax
This being $124,511 less 10% (20% tax on 50% of the withdrawal), then discounted for inflation
Based on tax rates today, that would mean that about 90% of his annual withdrawal will remain intact
This equates to about $34,400 per annum in today’s value
Assumptions: Starting Income $2,000pm, ROI 6%, General Inflation 3%, Income growth 5%

53. Planning for Your Retirement
Goal Setting
Gathering Facts
Analysing Facts
Developing Solutions
Implementing Solutions
Periodical Reviews

54. Planning for Your Retirement
Goal Setting
What, when and why you intend to achieve in your retirement
Gathering Facts
Cash Flow Statement and Net Worth, as well as other additional sources of income or expenses when you retire
Analysing Facts
Determine how much you need and whether you have a shortfall
Develop strategies that will help you reach your goals. This includes researching, comparing and shortlisting the various instruments available for this purpose. You will also have to put in place an implementation schedule
Developing Solutions
Implementing Solutions
Putting your plan into action
Periodical Reviews
Review your plan regularly, as well as track your progress.

55. Setting your Retirement Goals
What do you envisage your retirement to be like?
What would you like to do?
How would you like to live?
With whom would you be living with?

56. Common Misconceptions in Retirement
There’s always time to prepare for retirement, I can do it when I’m in my 40s or 50s
I will earn more, so be able to save more, when I am older
I voted for the government, so they must take care of me
CPF Life or the Minimum Sum will be sufficient for my retirement
I do not need as much in retirement as I do now when I am actively working. I will live simply
My children will take care of me

57. How Much is Enough
The more relevant question is “how much do you need?”
Your need is determined by:
The type of lifestyle you would like to have – everyone has a different expectation and it determines the periodic amount you want
Dependent or Independent
Financial Freedom or Financial Austerity
Should it include a regular holiday or only focus on survival?
The period you want to provide for
How long do you want to provide for. Better safe (longer period) than sorry (shorter period)?
All else being equal, does your family have a history of long life?

58. How Much is Enough Consider your potential expense pattern:
Which expenses will increase/decrease? Ongoing Mortgage repayments? Debt repayments?
Which current expenses will disappear?
What possible new expenses will be needed? (Grand)Children Education?
What other sources of funds will you have during retirement?
CPF/SRS?
Support from family (not usually considered due to its uncertainty)
Sale of home (future values are uncertain, and costs involved in selling/buying of homes may be significant)
Do you want to leave anything behind for your loved ones?
Legacy and Inheritance
Wills and Trust
How far along are you towards building your retirement fund?
How much resources have you already set aside for this?
How much more do you need to commit?

59. Key to Successful Retirement
Increase Funding
If possible, increase your sources of income, especially passive income
Reducing impact of expenses
Expenses can only be estimated within certain margins
Use of risk management instruments to mitigate impact of unexpected expenses – Medishield, Eldershield, Critical Illness and Personal Accident

60. Funding your Retirement Expenses
How much should you provide for expenses when you retire?
Rule-of-Thumb: 60% of your last drawn income just before retirement, or
Expenses that you incur today, adjusted for expected increase in medical expenses and possible reduction in lifestyle expenses (the net amount adjusted for inflation)
Consider also new expenses arising during old age as well as existing expenses which will no longer be necessary
Bear in mind that your lifestyle during retirement may not change very much from that which you currently enjoy

61. Quantitative Techniques
When solving for problems involving retirement funding, the Present Value of Annuity Due is frequently used.
𝑃𝑉=𝑃𝑀𝑇 1− (1+𝑖) −(𝑛−1) 𝑖 +1
Annuity Due is used because each “income” drawn from your retirement fund is required at the beginning of each year (assuming that you use an annual budget)

62. Quantitative Techniques
𝑃𝑉=𝑃𝑀𝑇 1− 1+𝑖 − 𝑛−1 𝑖 +1
Explanation of
PV is the Present Value of Annuity Due for the cash flow
PMT (or payment) is the annual amount required at the start of your retirement
n is the number of years you are providing for
i is the net return on investment after adjusting for inflation, or the Real Rate of Return* given by (1+𝑅𝑂𝐼) (1+𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛) −1 ×100%
*Please refer to Text, p463

63. Case Study 1
Gilbert, a manager aged 30, reckons that he will need $2,000 every month (in today's value) when he retires at age 65. Given his family history, he believes he will live to 90 years old. How much retirement funding would he have to accumulate when he reaches 65 years of age?
(assume ROI and Long-Term General Inflation Rates to be 5% and 3.5% respectively)

64. 𝑖= (1+𝑅𝑂𝐼) (1+𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛) −1 ×100%
Case Study 1 (con’t)
Step 1 – Determine the Future Value at age 65 of Gilbert’s current estimated annual retirement amount
𝐹𝑉65=𝑃𝑉 1+𝑖 𝑛
=24,
=80,006.17
Step 2 – Determine the real rate of return (of inflation adjust return) for Gilbert’s retirement fund (between his age 65 to 90)
𝑖= (1+𝑅𝑂𝐼) (1+𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛) −1 ×100%
= (1+0.05) ( ) −1 ×100% =1.45%

65. Case Study 1 (con’t)
Step 3 – Calculate Gilberts Retirement Funding using the future value of his estimated annual retirement requirement as his annual income
𝑃𝑉65=𝑃𝑀𝑇65 1− (1+𝑖) −(𝑛−1) 𝑖 +1
=80, − ( ) −(25−1)
=80, − (1.0145) −(24) =1,691,907
Note that the FV of Gilbert’s requirement at age 65 (FV65) has become the annual income requirement for his retirement, PMT65,and the interest used is the real rate of return, i=1.45%

66. Case Study 2
Gilbert already has $150,000 invested in various instruments, and he estimates that his overall yield to be about 5%. Advise Gilbert if he will be able to reach his retirement target (previously determined), and if not how much more he must save annually to be able to do so.
(assume ROI and Long-Term General Inflation Rates to be 5% and 3.5% respectively)

67. Case Study 2(con’t)
Step 1 – Determine the Future Value at age 65 of Gilbert’s current investment portfolio
𝐹𝑉65=𝑃𝑉 1+𝑖 𝑛
=150,
=827,402.30
Given that Gilbert needs $1,691,907 to retire, and that his current portfolio will grow to only $827,402, Gilbert still has a shortfall of $864,502

68. 𝐹𝑉=𝑃𝑀𝑇 (1+𝑖) 𝑛 −1 𝑖 𝑃𝑀𝑇= 𝐹𝑉 𝑖 (1+𝑖) 𝑛 −1
Case Study 2(con’t)
Step 2 – Determine how to make up the shortfall of $827,402
One way to do this is by additional annual contributions to his savings which will be invested at his current (comfortable) yield to make up the difference.
To find the annual savings, we manipulate the Future Value of Ordinary Due* formula
𝐹𝑉=𝑃𝑀𝑇 (1+𝑖) 𝑛 −1 𝑖 𝑃𝑀𝑇= 𝐹𝑉 𝑖 (1+𝑖) 𝑛 −1
=827, (1+0.05) 35 − =9,161
This means that in order for Gilbert to make up his shortfall, he will need to save an additional $9,161 every year, and invest it instruments which will yield a minimum of 5%pa
*Please refer to Text, p59

69. Additional Reading
CPF Member Main
CPF Board Website Report by the National Longevity Insurance Committee (NLIC) Ministry of Finance SRS Booklet
NLIC
SRS Main

70. Conclusion
How well you plan today, and carry out what you plan, determines how well you live when you can no longer plan

71. Hey… you! You’ll never get there unless you stop looking at this poster and get back to work!