How do I prepare my parents for retirement? - Seedly
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Anonymous

Asked on 20 Feb 2020

How do I prepare my parents for retirement?

Both my parents are turning 60 within the next 3 years. They have close to no CPF (< $5000 excluding MA) and no savings. I intend to deposit $600 to their CPF per parent per year from 2021- 2025. Let's say I have an additional $50 budget per month for them. How should I help them be self-sufficient in their retirement days?

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Oh wow. I missed this thread.

For CPF (if RA is very little), when they apply for withdrawal from RA at 65, the minimum amount (currently in May 2020) is $250 per person. You have an option for them to remain in RSS scheme, or CPF LIFE Scheme. (if cashflow is an issue, you can just top up $3,000 every year into their RA account).

In order to go onto CPF LIFE Scheme, you will require to look at this https://www.cpf.gov.sg/members/FAQ/schemes/retirement/cpf-life/FAQDetails?category=retirement&group=CPF+LIFE&ajfaqid=2303737&folderid=11656 and also

https://www.cpf.gov.sg/members/FAQ/schemes/Retirement/CPF-LIFE/FAQDetails?category=Retirement&group=CPF%20LIFE&folderid=11646&ajfaqid=2186329

For further details and analysis, it will be difficult because there is a breakeven point where each 30k will give additional monthly payouts etc. So best to check with CPF in this case.

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Heng Kai Le
Heng Kai Le, Mondomover at School Of Life
Level 6. Master
Answered 3w ago

Last year, upon reading that ICBC gives 1.1% per annum for fixed deposits as Low as $500, I immediately did so and opened up a 3-month fixed deposit account for $500.

then when the fixed deposit matured this year, I topped up more money and extended it for the next 3 months.

i suggest you do this with your parents. $500 for 3 months isn’t a lot of commitment, provides an easy win and make even them feel shiok enough into saving more. start small, lock in the habit of savings, move on to more ambitious saving goals

btw if your parents feel comfortable with venturing out of the conventional banks, they can open up a Singlife account (2.5% per annum for the first $10k). Check out the Singlife reviews at Seedly

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Have you checked their other resources? Existing cash value policies, any investments, property, etc.

If they have less than 60k in their Retirement Account before the age of 65, they will not be put on CPF Life, so payouts won't be for life.

Do consider downgrading their home, or rent it out and rent another place for arbitrage and extra cashflow.

If they're dependent on you, please make sure you're insured as well.

I suggest sitting with a financial advisor to help plan how best to utilise all their available resources.

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Question Poster

20 Feb 2020

Thank you for your advice. Currently their HDB still has outstanding payment of $40,000. Any thoughts about lease buyback scheme? I was thinking to suggest that they opt in for CPF LIFE manually. Currently my younger brother is still studying in polytechnic, it would not be feasible to rent out within the next 5 years? I did purchase some policies for myself.
Hariz Arthur Maloy
Hariz Arthur Maloy

20 Feb 2020

Yes lease buy back is a good option since they're coming close to their 60s if they aren't considering downgrading after your brother finishes NS and Uni. Regarding CPF Life, you can only opt in with above 60k by the Payout Eligibility Age. They should be placed in the older RSS scheme with payouts lasting to age 90. If your parents each have 8900 in RA by age 65, their payouts would only be $52/mth. It's quite difficult to give much advice now. But based on the limited information here, I'd suggest seeking financial assistance if your parents qualify. Little to no CPF and savings and assets would put them in a tough pickle.

Firstly, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/

Next, create a budget that is capable of helping you to plan for the future. The best way to do this is via automation and this is how I do mine: https://www.blog.pzl.sg/how-to-create-a-monthly-budget/

Through the process of understanding our cashflow and to create a budget, we are able to save more money for yourself and your parents. Thereafter, you may decide the best way to allocate this budget to them.

Before that, have a discussion with them and understand their needs. For instance, it could be to have sufficient money for day-to-day expenses and month-to-month bill. Accordingly, do a calculation and understand the shortfall to the goal.

Thereafter, work backwards to find out how much we need to start saving today to reach the goal. Then check it against your budget to make adjustments to it accordingly.

Finally, do not overlook the importance of proper insurance planning. To do this, one of the most important things to do is to have a complete understanding of your existing insurance portfolio. Through this process, it allows us to understand the coverage that we have, any financial gap, as well as to find out whether we are overpaying for our insurance policies. I have highlighted the rest of the reasons here: https://www.blog.pzl.sg/why-every-client-needs-an-insurance-policy-summary/

For the most part, one key insurance policy will be the healthcare insurance policy. Here is why: https://www.blog.pzl.sg/is-integrated-shield-plan-necessary-in-singapore/

Hence, do not overlook their health while planning their wealth.

Here is everything about me and what I do best.

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Question Poster

20 Feb 2020

Thank you for your advice. I am looking into how to better "store" the allocated budget given whichever amount for their retirement instead of looking back into my own financials.
Pang Zhe Liang
Pang Zhe Liang

21 Feb 2020

We need to establish the amount required and the tenure. For instance, it is unlikely that your parents need the lump sum in exactly three years’ time. This is especially true if the goal is to supplement their living expenses. As a result, we have a little more time to work with than it seemed to be. And the best way to structure this is through comprehensive financial planning. Some possible tools for the short run include high yield bank accounts, fixed deposit, bonds, short term endowments. If we have a little time to stretch (which likely is the case after we completed a detailed planning), you could create a portfolio with a little risk-return parity. This is because we have a bit of time for market movement and for your portfolio to grow. Having mentioned that, this requires careful planning to avoid mishap.