Not for most under current scheme which a couple expect themselves to work until 62 year old, pay off a HDB flat with CPF, and then rely on money in the CPF Special Account plus savings in the bank to last for the rest of their life.
I estimate that up to 95% of families in Singapore can't afford retirement.
CURRENT DATA, ASSUMPTIONS & SCENARIOS
The 2006 median family's monthly income in Singapore is S$4500 (combined income of 2 or more earners).
Employed Households by Monthly Household Income from Work (source: Singapore Department of Statistics, Feb 2007):
Monthly Household Income from Work (S$): Per cent
Less than 1000: 5.7%
1000 – 1,999: 13.0%
2,000 – 2,999: 13.6%
3,000 – 3,999: 12.3%
4,000 – 4,999: 10.5%
5,000 – 5,999: 9.0%
6,000 – 6,999: 7.0%
7,000 – 7,999: 5.4%
8,000 – 8,999: 4.3%
9,000 – 9,999: 3.3%
10,000 and above: 15.8%
Let's assume that a typical Median Income couple at retirement age:
- Married at age 25 and thereafter work continuously for 37 years;
- Each received 12 months salary plus 13th month bonus every year;
- Salaries either remain or increase but never drop;
- No income disruption as a result of lost of employment due to retrenchment, illnesses or handicap;
- Final 7 years's average income is S$4500 per month (Final Monthly Income); average monthly salary in the first decade of work is half the Final Monthly Income; average monthly salary in the second decade of work is two-third of Final Monthly Income; average monthly salary in the third decade of work is three quarter of Final Monthly Income;
- Save 13th month bonus minus CPF contribution every year;
- Monthly cash balance is negligible;
- No net inflation (i.e. income always caught up over overtook inflation)
- Employer CPF contribution is on top of the Income mentioned
- Pay off the HDB apartment through CPF Ordinary Account by retirement;
- Medishield would look after all medical needs;
- Family retirement fund comprises of monies in Savings plus CPF Special Account only;
- Have S$163K by 62 year old, based on current CPF Special Account contribution structure and interest rate;
- Savings Account Rate is less than 1% per annum (based on rate in the past decade);
- Retirement Fund needs to last until at least 85 year old (or 23 years after retirement).
Base Case Retirement Scenario
Based on the above data and assumption, For a Median Income Family, the savings in the bank will amount to approximately S$108K, and balance in the CPF special account, S$163K. So, after 37 years of hand-to-mouth living, the couple will retire with less than S$275K to their names. Singaporean will agree that a couple will need at minimum, S$2K/month or S$24K/year for living. In this scenario, the retirement fund will exhaust within 11 years. This means, either the retiree couple would die with food in stomach before 73 or starve to death without food in stomach by 74.
Alternative Scenario I
An improved scenario would have the couple put every dime that they save every year in CPF Special Account (or equivalent) that fetches 4% return per annum. The compounded retirement fund would amount to approximately S$193K + S$163K (savings plus CPF contribution respectively) = S$356K. This scenario will allow the couple to live for 14.8 years after retirement – up to 76.8 year old.
Alternative Scenario II
A more aggressive improved scenario would have the couple put every dime that they save every year into investment that fetches average return of 8% per annum (twice as good as CPF Special Account). The compounded retirement fund would amount to approximately S$467K + S$163K (savings plus CPF contribution respectively) = S$630K (savings plus CPF contribution). This scenario will allow the couple to live for 26.3 years after retirement – up to 88.3 year old.
Likely Improved Scenario
The likely improved scenario would be in between Base Case, Alternative I and Alternative II scenarios.
To provide for rainy days, the couple kept the first S$10K in bank that bears next to zero interest. This S$10K would take at least the first 5 years of savings. The next S$20K of savings into fixed deposit that gives 2% interest. The next S$20K is at least savings from the next 7 years. Subsequent 20 years of savings will be invested in more aggressive fund with capital guarantee; which typically yields no more than 6% per annum. With 12 or more years of yield lower than 4%, lower total amount in investment less aggressive than 8% per annum return, such median income couple would likely have about S$10.5K + S$35K + S$81K + S$163K = S$289.5K (Savings Account plus Fixed Deposit Account plus Investment plus CPF Special Account respectively) for retirement. The amount could only last between12 years after retirement. That means even with investment, the median couple is unlikely to survive beyond 74 year old. Those below median income will definitely be worse.
CONCLUSION
To survive until 85 year old on annual allowance of S$24K, a couple will need S$552K as the minimum fund for a humble retirement -- it was shown on Straits Times that to retire a Singapore family needs more than S$2M.
Based on the Likely Improved Scenario investment pattern, even family with S$10K per month (top 15th percentile families) cannot retire because such family will only have S$10.5K + S$35K + S$180K + S$163K = S$388.5K (Savings Account plus Fixed Deposit Account plus Investment plus CPF Special Account respectively) for retirement.
Only family with monthly income of S$20K per month and above could afford to retire. The average annual household income of 91st to 100th (highest 10 deciles) is S$174.3K, so may be only the top 5 deciles family could afford retirement.
DISCLAIMER
This modeling of course could not take into account life style, spending pattern, the ability of family members being employed for 32 years without income drop, inflation, and better investment return. Although, only the top 10 deciles families may have spare cash for more aggressive and hence better return investment.
This model also could not determine what amount is enough for families who could afford more than minimum requirement.
