Should You Withdraw Your CPF-RA Savings and Keep BRS at Age 55?

[00:00:00]I, eating.

[00:00:02]Okay, good afternoon everybody. Welcome to our first episode of the say I thought who confirm. Okay, so this is a series of our recordings I'm going to do for all of you, right in the form of either monologue, I talk to myself over the screen like what I'm doing right now, or it can come in the form of interviews with other people and so on. So the idea of this is to address some of the uh talk of the town, misconceptions relating to financial planning, wealth management, investments, and so and so forth. Okay, so I thought it's a good time for me to kick start I every time I talk about this eating.

[00:00:37]It's a good time for me to kick start this topic about CPF, retirement planning, and investment. All right, so I want to address a a topic that was published I think a couple of weeks back in a newspaper article about you know, some financial advisers asking their clients, you know, to withdraw some of the CPF savings at 55, all right, to just hold on to the basic retirement sum which is about currently 10,000 today.

[00:01:04]>> [clears throat] >> Okay, and then I use the money probably to do some investments with them, all right, into a dividend fund with a return of 6%, 7%, whatever it is.

[00:01:15]All right, and so this became a public debate debacle about you know, financial planning ethics, all right, financial advisers again, you know, are recommending clients with subpar you know, products, okay, and also a very sensitive topic about asking their clients, all right, to you know, in a way give up a very secure stream of retirement income, all right, meant for their retirement through the payout of the CPF life scheme, okay, which as you know, all right, comes from the amount of money you set aside in the retirement accounts in a CPF.

[00:01:52]Okay, so let's tackle the question, all right, up straight. Okay, so a person all right withdraw his CPF savings at 55 and just maintain the basic retirement sum in the RA all right for his CPF life payout and then use the difference that he has freed up to invest in investment fund that pays a dividend. Okay, now you are financial planner. Okay, today I'm talking primarily to financial planners. Okay, I will address the public in another session or according.

[00:02:25]Okay, now you are financial planner all right, we know our work ethics.

[00:02:30]All right, and we know for sure in financial planning there's no such thing as right or wrong. There's no such thing as best way, best product, best strategy, sure win and so on. All right, everything that we do all right is founded on a very simple principle and that is one keyword called suitability.

[00:02:48]Right? Okay, I mean my teaching mode again.

[00:02:51]Okay, now there's no best strategy. All right, but the question at hand is always is a strategy suitable for our client.

[00:02:59]Okay, so if you ask me right should a person withdraw his CPF okay and then invest while keeping just the basic retirement sum.

[00:03:07]My personal opinion all right is as a general context before going into very specific situations all right and I know that in a video like this I can't okay but I don't want to over generalize the situation okay but I would think quite confidently okay 90% of the population as a ballpark >> We all know how CPF Life works, all right? You will set aside a sum of money at 55 into your retirement account. With the closure of the special account, whatever in excess of the FRS goes into the ordinary account that you can use it as a ATM machine and so on and so forth, okay? And before I go further, all right, this money in your OA, please don't touch it because it's money there at 2.5% return compounded. Leave it and keep it as your emergency fund, emergency ATM machine, and so on, all right? If you have hit hit your FRS, I'm assuming you turn 65, depending on your CPF Life scheme, right? At 65, you can choose the standard option, which is the default, all right? You can choose the basic option, you can choose the escalating option. Okay, there will be different um treatment in the context of the money that is kept in your RA. For example, in the basic uh option, most of your money is are kept in your RA, about 10 10 10 about 10% yeah, goes into your CPF Life. So, most of the payout at the beginning starts paying from your RA. So, it's a capitalizing account, all right, with a drawdown rate, okay, that pays you a monthly income until all the money in your RA is depleted and then the CPF Life scheme kicks in.

[00:05:00]Okay. Uh of course, this gives you the least income, but the highest bequest because if a person dies today, all right, the bequest comprise of money that is uh you know, unutilized in the RA, as well as the CPF Life premium.

[00:05:12]And they'll probably paid out to you, except the interest, all right, that is accumulated. Okay. But uh that's it.

[00:05:19]Okay, my point is there are many different options, okay? But what CPF Life really does is that it gives a person a monthly income guaranteed for life, okay? So, to beat the system, very straightforward, you just have to live until forever and not die, all right?

[00:05:34]And then you'll be the most beneficial recipient of the CPF Life uh income.

[00:05:39]However, if you die one day after your first payment, then of course, you probably will be feeling uh I lose all the money and all this, but you still have your CPF Life refund, anyway. Okay?

[00:05:48]But my point is this, okay? We can't predict our future. We can't predict when we will die. Okay? So, carrying this conversation too far away may not be very, um, practical. Okay? A more practical concern would be, what is the implication if I were to withdraw my special account savings, all the money in my RA, at 55?

[00:06:09]Okay? And just maintain the BRS. Of course, when I turn 65, the amount of monthly income I'll receive from my CPF life payout will be much, uh, lesser.

[00:06:17]Okay? Yeah, and if we have a need for retirement income because we can't work, we have outlived our savings, then that could be a serious life issue. All right?

[00:06:27]But on the other hand, if we have to withdraw our money and then we invest the money into a dividend fund that pays 6% like what the article has mentioned about, all right? We got to really be careful because the first question is, is the 6% guaranteed? Okay? And, uh, first answer, obviously, is no, lah. If you can find this kind of guaranteed instrument, you tell me. I'll be the first one to buy. Just put the $1 million inside, you know, it's 60 grand a year forever, if it's guaranteed.

[00:06:53]Okay? I don't mind the kind of money because if you look at my payback period, it's just going to be a short duration of time before I get my capital recovery, right? Yeah. So, the fact of life is in life there's no such thing as a guaranteed, uh, instrument. Okay? So, there's always trade-off we got to be aware. All right? So, and you're a financial advisor, okay? If your client don't have a need for this kind of, uh, extreme strategies, I think there's no point doing it because if you think about it, what is the maximum you can generate out of it? Okay? Some advisors are thinking, I know your I know your mind, all right?

[00:07:26]Yeah, you're thinking, "Ah, I need to free up budget so that my client can invest with me." All right? So they can get some commission, okay? Yeah, I I got no comments on all these practices, but, you know, as a financial planner, we know our ethics, okay? And I I that this kind of thinking don't apply to all financial planners. It probably applies to the 10 20% of the population of advisors who may not be so well, you know, um, I would say not so well trained, all right, because maybe they are new, they don't know what they are doing, okay? Yeah, but if you are a seasoned financial advisor, you are financial planner, you have some certification, that shouldn't be the first thing you'll be thinking ask your client to, you know, withdraw your CPF money is and then just put them into a you know, investment like that. Okay?

[00:08:09]So, I would say, you know, most of the population generally don't have to do that, okay? But if you if they have to do that, I mean, at the end of the I don't know what what is the what is the maximum profit or what is the maximum potential can get? Okay, it's only about the 300,000, right? Because today ERS is 440. If you can ask the client who have met the ERS to withdraw the money into BRS, you are only freeing up the most 300,000. Come on, my point is for the 300,000, move on. Okay? If the client don't have that kind of money, please don't touch the money. Let them accumulate the funds in their CPF life for secure retirement properly.

[00:08:45]Okay? Yeah, so that is something that I want to, uh, first say, all right?

[00:08:49]Unless your client really have, uh, consideration, really have a concern, really have a need that they have to withdraw the money, all right, in the RA up to the BRS, okay, then so be it, okay? Yeah, because the special need, special circumstances warrants it.

[00:09:05]Otherwise, please don't do that because you are asking the client to take a risk on his, uh, longevity or his expected lifespan, okay? And then, uh, do some investment with you which may end up losing money and because he's older now, the runway may not be sufficient. Okay, so for financial advisors, all right, I want to encourage you, all right, please do not do that unless there's a necessity.

[00:09:28]Okay? Now, the next thing I want to inform you is this.

[00:09:33]Okay, even if you don't Okay, or even if you do, what is the consequence or benefit minimum, right? Like I mentioned just now, it's only about that 300,000.

[00:09:44]Okay? So, there's really no need for us to do such drastic measures for our clients. Okay, so let them be. But anyway, if you think about it, you know, even if you reach the ERS in terms of monthly payout, how much are they getting only?

[00:09:58]Okay, it's only that about 3,000 odd a month. Okay, is that sufficient for a secure retirement? Okay, now, all of us here in the marketplace, we know, right?

[00:10:07]When you see your clients, okay, they will tell you their monthly expected retirement income will be 5, 6, 7,000 dollars a month. Okay, and in Singapore, right, I think it's going to be very pathetic if you only have 3,000 dollars a month in retirement, okay, in the next 20, 30 years' time. Okay, even today, just ask yourself, look around you, you know, if a retiree have 3,000 dollars a month, what can he do? All right, the Shield Plan renewal will kill him already, the annual premium. Okay, yeah, and then the medical care, all this, all right, will be gone. So, if you're doing retirement planning for your clients today, and your client is maybe 40 years old, he's still got a good 25-year runway, right, before he actually turns 65 and supposedly retires.

[00:10:50]Okay? So, think about it. Today, if the monthly income he generates is 10,000 dollars a month, or 8,000 dollars a month, and he tells you that his minimum monthly requirement for income is about 6,000, then we know that CPF Life payout itself is inadequate for the person. So, as a financial planner, all right, I just want to encourage you to, you know, look beyond the whatever monthly income CPF Life can pay, and plan for the shortfall that CPF Life cannot pay, that the client requires. So, if your client has a requirement of a retirement income of 5,000 dollars every month, and assuming the client has got ERS, and ERS is paying 3,500 dollars, then for goodness sake plan the $1,500 shortfall and leave the CPF Life payout or the retirement account savings as it is.

[00:11:43]Okay, as simple as that.

[00:11:44]All right, you just look on the shortfall that CPF Life cannot pay and I think you still have opportunities.

[00:11:50]There's no need to stage There's no need to come to that stage where, you know, you got to ask your client, all right, to compromise on his retirement security, withdraw his retirement account savings down to the BRS and then do investments with you at a fund that is not guaranteed. Okay, I think that is a very irresponsible way of planning for the client, all right, without consideration of his trade-off. Okay, so as a financial planner, we always want to present the positive side as well as the negative side, the trade-off. Okay, and then let the client be aware and finally make his final decision. Okay, so I just want to end off this particular episode with this. Okay, I'm still scratching my head like, "Why why are we still going through all these things?" I thought I thought it's a very simple issue that we have to address.

[00:12:41]Okay, but anyway, I think it opens up a good national conversation for us to revisit retirement planning again. So, uh this is my rant for this uh first video. Okay, I'll see you again. Thank you.

[00:12:55]Cheers. Goodbye.