Those who know me know that I’m a regular at my neighbourhood Toast Box. Over the years, I’ve sat through countless conversations among mostly retirees – uncles and aunties at the next table – kopi in hand, debating everything from their children’s marriage prospects to, more often than you’d think, their CPF.
It wasn’t long before the conversation came to my own table. One afternoon over kopi, my mother-in-law slid her phone across to me.
MIL: “I saw this reel recently. This financial adviser said that at 55, I only need to set aside the Basic Retirement Sum. The rest I can withdraw and invest myself. Why leave it in CPF for only 4%?”
I put down my usual cup of Teh O Siew Dai.
“Technically, he’s not wrong. You can set aside just the BRS at 55 and even top up to the Full Retirement Sum later at 65, so it doesn’t necessarily affect your CPF LIFE payouts. But I’d still be careful.”
MIL: “Aiyah, you’re always so cautious.”
“Hear me out first, first question – are you sure your investment will beat 4% a year?”
MIL: “Should be can what, investment always goes up in the long term right?”
“It depends on what you invest in and it’s not guaranteed. But you’re already 55, this isn’t money you’re investing for the next 30 years. In another ten years or so, this money is meant to start funding your retirement income. If the market crashes just before then, you may not have enough time to recover.”
MIL: “Then put safer lah, Bonds also can what.”
“Alright, so let’s say you go for a more balanced portfolio: 60% equities, 40% bonds. After fees, that might get you about 5% a year over the long run. Only 1% more than CPF’s 4%.”
MIL: “One percent also money what.”
“It is,” I smiled. “But think about what you have to take on to earn that extra 1%.”
“CPF gives you 4% guaranteed. You don’t have to worry about markets going up or down. A 60/40 portfolio can swing by about 10% in a bad year. So, for 1% more in expected return, you’re taking on ten times the volatility and uncertainty. To me, that’s not really worth it.”
She took another sip of her kopi and thought for a moment.
MIL: “Then how? Everyone says invest.”
“Investing isn’t the problem. It depends on which money you’re investing. If you’ve got spare cash sitting in the bank earning almost nothing, I’d rather you invest that first. That money is already earning less than CPF, so the opportunity cost is much lower.”
MIL: “But what if don’t have extra cash?”
“If you don’t have spare cash, and the only way to invest is by taking money out of your Retirement Account, you should be asking yourself whether you can really afford to take that risk.”
“At your stage, what you need most is certainty of income. You’re taking money that’s already earning a guaranteed 4% and moving it into investments just to try and earn a little more. When you don’t even have a buffer, that leaves you with very little room for error.”
MIL: “Wah, so actually the less money you have set aside for retirement, the riskier it is!”
“Exactly. From an investment angle, the extra return doesn’t really justify the extra risk. And from a financial planning angle, if your retirement savings are already limited, there’s even less room for things to go wrong.”
MIL: “Wait, but I have my flat what. I can just take BRS and pledge my property.”
“You can. But remember, the property pledge comes with strings attached. If you decide to sell or right-size your flat later, part of the sale proceeds will need to go back into your CPF. That means you’ll have less cash from the sale than you might have expected. It’s not necessarily a bad thing, it’s just something people often overlook.”
She sat quietly for a moment before looking up.
MIL: “So, you’re saying I should just leave everything inside CPF and don’t touch?”
I smiled. “Let me ask you something instead. What would you actually do with the money if you took it out?”
MIL: “Just have more lah, in case I need.”
“That’s what most people say. But when I ask, ‘Need for what?’ most people don’t know! And I think that’s the real issue. This isn’t really about returns. It’s about what this money is meant to do for you. Your CPF-RA has one job: to give you a stream of income for your basic living expenses for as long as you live.”
“It’s not trying to beat the stock market. It’s trying to make sure you never run out of income. So when people compare CPF’s 4% with what an investment portfolio might earn, it’s like comparing apples to oranges, they’re meant to do completely different jobs.”
“You’re asking the wrong question if you’re only comparing returns. The better question is: ‘Will this give me the income I can count on when I retire?’”
MIL: “You all always got theory one.”
I laughed. “Okay, one more practical thing. You’ll still have the time, energy, mental capacity and discipline to actively manage your investments well into your 70s and 80s. You’ll need to stay invested through market ups and downs without panicking or selling at the wrong time. That’s a lot to bet an entire retirement plan on!”
MIL: “Wah, you make it sound so serious.”
“It is! Having more money sitting around that you could use may not always be better than knowing your income is taken care of every month. That money still has to be invested, managed and, most importantly, not mismanaged. If things don’t go according to plan, it can end up giving you more headaches than peace of mind. That’s the last thing anyone wants in retirement!”
She stirred her kopi quietly for a moment.
MIL: “So, you’d rather I just set aside the Full Retirement Sum?”
“That’s what I’d do if I were in your shoes. Let CPF LIFE take care of your essentials, that’s your foundation. CPF LIFE is excellent, but I always ask myself: is it enough on its own? If you ever want even more certainty, some people also complement it with a retirement annuity, so you’re not relying on just one income promise, but two independent ones. If you have spare cash after that, then you can invest that instead! But the money that’s meant to give you a steady income every month, I’d leave that right where it is, or make it even stronger.”
MIL: “Wah, two income also can ah?”
“Yes, that way if anything ever changes, you’re not depending on just one source. Two independent promises are stronger than one.”
MIL: “Okay lah, you always have your reasons. But I trust you. Thanks for taking the time to explain it to me – you always explain until I understand, not until I give up asking.”
These days, whenever the topic comes up again at Toast Box, I just sit back and sip my usual Teh O Siew Dai. By the time I think about joining the conversation, she’s already reminding everyone that retirement isn’t just about getting the highest return, it’s about knowing what your money is there to do.
The conversation over kopi with my mother-in-law wasn’t really about BRS or FRS. It was about having the confidence that your retirement income will still be there.
If you’re wondering whether CPF LIFE will be enough on its own, or whether you need a little more certainty, that’s exactly what RetireSURE is designed for. We start by looking at your Cashflow, Coverage and Certainty of Income, the 3Cs, before any product conversation, so your retirement income can be locked in without having to rely on investments. If you’d like an honest look at your own numbers, we’d love to have that conversation.
This is an original article written by Joanne Seow, Solutions Specialist at Havend, a specialised insurance advisory where you don’t have to fear being mis-sold, over-sold, or pressure-sold.
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