Never Run Out of Money
Yes, isn’t it what most, if not all, of us want? May this be the goal of all us here as we start year 2023 on a right note. All of us know the importance of acting early to grow our savings for our future retirement, but somehow, procrastination seems to take over. One of the reasons could be that it can be very tiresome to search for suitable financial options to make our money work harder and most people usually give up after a while. Since this is the start of the year, for today’s 129th week of our #SundayTimesRecap series, let us learn from this article published on New Year’s Day - Sunday Times Invest section, “Plan for a good retirement this new year”, on a few practical money resolutions for us to consider. They may not be tips to make us rich, but they can help to ensure we will always have enough money. After all, financial planning is about reaping what we sow.
1. For those in their 20s and 30s: Contribute more to your CPF account first before you contribute to SRS account. The SRS is meant to serve those who have maxed out their CPF contributions so they can have another avenue to save and get tax relief. It was never meant to replace CPF, a far superior retirement planning scheme. As a case study, you can get the maximum $8,000 tax relief by contributing to your CPF-SA every year, and another $8,000 tax relief if you contribute to a loved one’s SA. This SA account can earn 4% annually on a compound basis, while the money in SRS only earns 0.05%, and even if you invest in 30-year bonds using SRS funds, you can only earn just 1% to 3% a year. The only catch is that you can’t contribute to SA account forever – only the amount reaches the full retirement sum, which is $198,800 in year 2023, you can’t do any more top-ups. Therefore, it pays for all young workers to aim to hit the maximum ceiling as soon as possible. If you do so by age 35, you will have at least $435,000 in your SA at age 55, while those who hit this by 40 will have at least $358,000. This is not a pipe dream to accumulate cash with little to zero risk as the CPF is backed by the Government, unlike the SRS, which is operated by the private sector.
2. For those in their 40s and 50s: Reduce your mortgage with spare cash or excess CPF funds, as interest rates are shooting up. The sooner you clear your mortgage, the faster your retirement savings can grow. Some people think that a housing loan is a “good debt” as you can invest spare cash to earn more. However, do consider that higher interest rates are eating into your monthly expenses and the market outlook is uncertain. Therefore, reducing your exposure is a safer bet, and you can make adjustments based on your affordability. If you can clear your mortgage in your 50s, you can then focus on raising another $300,000 for your CPF Life. The full retirement sum of $198,800 in 2023 will be deducted from your CPF at age 55 so that you can join this national annuity. This sum will allow you to get about $1,600 a month from age 65, or you can choose to join the higher tier of receiving $2,400 monthly if you top up to the enhanced retirement sum, which is $298,200 for 2023.
3. For seniors: Once you have retired, aim to preserve wealth and avoid risky investments at all costs. A 70-year old man in United States lost over $1 million when the US stock market plummeted in 2022 and out of desperation to recover, he lost another $500,000 of his remaining life savings and a $200,000 loan which he unwittingly invested in a foreign exchange trading scam. Look into banks offering fixed deposits of up to 4%, review all your insurance policies to see which ones you can cash out, and those that you can keep to leave behind for your beneficiaries. Do not delay in appointing trusted people to act for you before losing your mental capacity due to old age or illness. This can be done through the Office of the Public Guardian online system to create a lasting power of attorney. Lastly, see a lawyer if you do not have a will yet.
In summary, while we do spring cleaning for our homes in preparation for the new year, you can do the same for your personal finance matters. The next step is to download your CPF Yearly Statement of Account for year 2022, which is available through your www.cpf.gov.sg login via Singpass. Then let’s meet to review whether your current cash holdings with acccumulated interest payout can allow you to have a lifelong income that meets your ideal retirement income.
At the same time, you can look forward to Tuesday 10th Jan 2023 at 8pm – that is when I will be conducting a webinar with my teammates on the topic of Lifetime Income Streams. I hope you gain new insights to boost your retirement income using certain strategies that we will be sharing that evening. Do register for a seat - select "Invited by Victor" here: https://www.thelifetimeincomestreams.com/tlisvip
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