Parents are 62 yo and have not achieved retirement adequacy. I am 32 yo and earning a healthy income. Thinking of doing RSTU to Mom's RA which is currently <$60k and earns 5-6% interest. Should I? - Seedly
Seedly logo
Seedly logo
 

CPF

Retirement

Anonymous

Asked 3d ago

Parents are 62 yo and have not achieved retirement adequacy. I am 32 yo and earning a healthy income. Thinking of doing RSTU to Mom's RA which is currently <$60k and earns 5-6% interest. Should I?

Two issues are holding me back: i) RSTU is irreversible; ii) RA can only be drawn out either through CPF LIFE annuities or the old Retirement Sum Scheme (RSS).

My projections show that the IRR for topping up and enrolling in CPF LIFE's Standard Plan only becomes more than 4-5% (my hurdle rate) if my Mum lives beyond 85 yo. Any life span before that gives <4-5% - i.e I'd be better off investing on my own.

Have not done projections under the RSS as I am not sure how it works.

Any advice?Thanks

0 comments

1 answer

Answer Now

Answers (1)

Sort By

M
Mal
Level 3. Wonderkid
Answered 2d ago

Based on your question, you seem knowledgeable in terms of the payouts and calculations, so let's take it that you've gotten those aspects covered. These are other considerations that you may consider:

  • Am I able to provide my mum the CPF LIFE monthly payout amount without using CPF LIFE currently?

  • What happens if I lose the ability to provide her this monthly amount?

  • If I choose to invest instead, is my investment portfolio able to provide this monthly amount consistently? What happens during a major drawdown in my portfolio?

  • Does my mum have other form of savings/investments that will tide her through retirement?

While you can approach this issue from an IRR perspective based on your mum's lifespan, another possible way to think of CPF LIFE would be an insurance to ensure your mum gets a stable retirement with consistent monthly income upon turning 65. Is it worth buying an insurance with a premium of $X per month for Y years to ensure that mum gets consistent $Z amount till 90y.o.?

1 comment

ūüĎć
2
Question Poster

2d ago

Dear Mal, Thank you for the incisive advice. Indeed, I did not consider the merits of CPF monthly payout as a form of insurance. That's a useful way to think about it as we cannot be certain about income continuity. In fact, even from the investment standpoint, I just calculated that, to give my Mum the same annual payout as the CPF Life Basic Plan, I will need to make close to 9% annual returns - which is possible, but will entail some risks. Here are my assumptions - for other readers who may be on the same boat. My Mum's age: 62 yo Current CPF Balance: $15,000 RSTU Plan: Deposit $7000 in 4 tranches over the next 3 years (each tranche entitles me to annual tax relief) CPF Life Plan chosen: Basic (lower payouts, higher bequests) Monthly payouts entitled to at age 65: $273 (which will decline to $231 at age 92) - on average, that's $253 pm Now assume that that my Mum lives to 92 yo, drawing $253 pm and leaving no bequests (Basic plan's bequest declines to 0 at 92 yo), an investment of the specifications below will need to earn 8.9% pa to give my Mum the same payouts until she is 62 yo. Investment in Year 1: $14000 Investment in Year 2: $7000 Investment in Year 3: $7000 Payout of $253pm beginning in year 4 (or withdrawal of $3048 per annum) So on the whole, CPF LIFE is not a bad plan.
Thank You!
Can you clarify
I wonder if
This is so helpful ūüĎć
What about
Post