Managing money for retirement


It is indeed a fair point to ask questions about the CPF. After all, CPF is “your money”. There have also been questions raised about “trust” in government. Yet, the issue is not just about government, but about trust in yourself, fellow Singaporeans and fundamental values about money.

Everyone starts from nothing and starts accumulating some sort of money. When young, that comes in the form of allowances, subsidy and perhaps, if you’re lucky, a silver spoon. This accumulation of wealth really begins to take shape once one starts entering the workforce, which is where the curve begins to pick up and wealth accumulation is fastest. However, there comes a time when one’s ability does not match that of a hungry young person in the workforce, resulting in a slower wealth accumulation.

“D” Day hits: It’s retirement. Suddenly one’s active source of income disappears as one leaves the workforce. Yet everyone must spend, which is why the curve suddenly goes down. Three cases can result: the case where one leaves a silver spoon behind (the surplus case), one where one comes with nothing and leaves with nothing (in economics: balanced and therefore maximum utility of money), and one where one spends more money than one had! (deficit)



In fact, if the graph is to be believed, it implies that one must save a significant proportion of income pre-retirement as one has to anticipate increasing spending in one’s silver years. The reason: healthcare costs escalate as one gets sicker. However, there are a few problems with the model, even if it gives us plenty of good insight on the matter of managing one’s money.


1. No one knows when you will “retire” and when you will die.

Unfortunately, predictions can only go so far. One may be struck out of the workforce prematurely due to health reasons or a freak accident. The same goes with death: knowing when one goes is a question that just cannot be answered. Trying to predict a “date of death” and maximising one’s money’s worth while still living is plainly as good as saying:


–    if you die too early, there exists a coffer of money left for descendants. Hopefully they don’t fight over it.

–    if you die too late, someone has to somehow bail one out. It could be a relative, friend, the charity or the G.


It does not help either that people live longer. This just means more silver years to cater for. Does that mean delaying retirement? Mathematically, the answer is “yes”.


2. Everyone likes to spend money they see in hand

Why do people want their CPF money returned? Simply because, if it is their money, they should have the right to spend it, or at least control how it should be allocated. Unfortunately the concept of “forced savings” does not resonate with a generation that wants total control of their lives. The tendency to spend cash one sees is quite natural, in fact. If one has lucky friends who bets on the lottery, one hopes for friends to regularly win the lottery for a free treat from a happy friend. The concept of “saving for a rainy day” is debatable, because the “rainy day” is invisible and imperceptible till it actually shows up. Therefore there is an inclination to spend, and often it turns out to be real spending. The solution? Forcibly lock the money up.


3. Some folks cannot earn enough money for their retirement.

This is where the G rightfully has to foot the bill in the form of “welfare”. This group of people can be diverse, ranging from people who could never find a job that was high-paying enough (for e.g. perpetually being an assembly-worker), or losing one’s job and not being able to adapt fast enough due to restructuring. This group also includes the disabled and the disadvantaged. The only way they could theoretically hit the minimum amount of money for their retirement is through artificial handouts. For this group of people, it is more of a question of “give the subsidy now” or “give the handout later”.

The result?

If left to individual devices, some will end up going downhill due to ill discipline, with others may struggle simply due to the fast-changing world. Others may live very long and deplete their savings, living on those of their descendants. Yet there will be those, through their individual cunning, make a windfall from a good investment, or that they were rich to start with, and hence never needed to worry about being a pauper. This is a sure-fire recipe for disaster.

This is actually not old news. Already, in February earlier, NTUC has already raised questions about new challenges Singapore would face. With an ageing population and longer-living citizens, it would indeed be prudent to increase CPF employer contribution rates1. If only it were that simple: NTUC also highlighted that this would indeed pressure businesses cost-wise. This runs into other considerations that businesses have to consider: would the cost of local labour go up further?

This might leave a question for the reader: how should one ensuring retirement adequacy for the population? Clearly there needs to be some sort of incentive for people to keep working, therefore the concept of an “employee-employer copayment” for CPF contribution exists to burden the employee less on saving if one works. Yet, some will never be able to save enough, and will fall into a “deficit trap” no matter what they do, while others ride on surpluses.


If only Singapore had some “oil reserve” that it could sell.










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