Recently, there’s been a lot of hoo-ha over CPF* raising the minimum sum (again) from S$148,000 to $155,000 and many citizens are unhappy as they see this as a sign that they will never be able to withdraw their monies when they retire.

It’s not that I don’t understand what the unhappiness is about. After all, if a certain sum of money is supposed to be yours but held in escrow by someone else and now they are telling you that you cannot access this amount of money unless certain strict conditions are met, of course I would be angry. But, to say that without this sum, one would not be able to retire is complete hogwash to me.

After all, if I use a conservative drawdown of 4% (some say that’s the magic number in order to ensure that one’s principal stays intact), S$155,000 only generates S$6,200 per year (or S$516.67 per month). If that’s a deal breaker then I’m sorry, you’d better rethink retirement. If you have to run down your principal, then I’m sorry, S$155,000 won’t last you very long either.

And that brings me to my bigger point. Where did I see the above comments on retirement and the minimum sum? From a financial planner’s facebook status update. If you trust someone who tells you that S$155,000 is a deal breaker and that the solution to that is some insurance-linked product or endowment plan, I have a bridge I would like to sell you.

So why isn’t that S$155,000 such a big deal? Well, for those with simpler needs such that S$155,000 in principal, generating S$6,200 a year in income is enough, another S$155,000 is more than achievable with an average person’s working lifetime. For those with greater wants and needs, that same S$155,000 is isn’t going to help you much because you’d probably need a million dollars or so retire. And if you can save/invest enough to reach a million dollars, then honestly, you would have no problem making up the difference of S$155,000 tied up with CPF.**

In short, please use some common sense when planning your finances- bump up your earnings potential, save more, invest early and right, don’t be greedy and you’ll be just fine. That S$155,000 will just be a drop in the bucket compared to what you can achieve.

If you’ve read this and are alarmed but don’t know where to start, then please head over to Investment Moats. He has a lot of resources there.

*The CPF (which is Singapore’s national pension/forced savings fund) requires holders to have a minimum sum in their accounts when they reach the retirement age. These monies cannot be withdrawn and instead will be kept to fulfil retirement needs such as a monthly income or healthcare costs. Only monies above the minimum sum will be eligible for withdrawal upon a holder reaching the official retirement age.

**Also, it isn’t as if the S$155,00 is completely tied up and not available for you to use. Since the use of those monies are restricted to certain items, it also means that your savings/investments shouldn’t need to account for those items. See the Christopher Tan video linked in Investment Moats post here on why you need the minimum sum.

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