plan for retirement

If you are looking for a useful New Year resolution, make retirement planning a priority so you can take advantage of a new and important change to CPF that kicked in on Jan 1, 2025.

Those turning 55 now have the option of doubling their retirement savings, from the mandatory full retirement sum of $213,000 to the new enhanced retirement sum (ERS) of $426,000 for CPF Life.

If you make such voluntary top-ups, you will receive higher monthly payouts of about $3,300 from age 65, almost double the $1,700 payout for those who choose not to do so.

The chance to have a higher fixed monthly income in retirement is also open to folk over 55 if they make top-ups to their CPF Retirement Accounts to hit the new ERS with either cash or funds already in their CPF account. 

People in this group can log into myCPF portal to check the estimated payout they could get with their top-ups as they will hit 65 earlier and so receive payouts sooner.

The new ERS is a major boost to our retirement planning effort because the higher payout of over $3,000 a month means many of us can now rely on our CPF alone to have a fairly comfortable retirement.

Estimates by banks such as OCBC show that people who can get more than $3,000 in retirement income a month may even be able to keep a mid-range car and enjoy short overseas holidays every year.

This aspiration is certainly achievable for couples who plan for the new ERS together because it means that they can receive two sets of payouts from the national annuity scheme, or over $6,000 a month.

Such an amount is not something to scoff at because it means that in just 10 years, or by age 75, a couple would have received over $720,000, and $1.44 million by age 85.

These sums are just payments from CPF Life alone, and do not include other income sources you may have, such as interest earned from the remaining CPF balances as well as your bank savings and other investments.

Younger Singaporeans should not baulk at the $426,000 needed for the ERS because this sum is achievable if they are diligent in contributing to their CPF accounts as they continue working over the next decade or two.

Even those hitting 55 who are short of this amount should not lose heart because retirement planning is not a competition and does not have a cut-off date.

So long as you are keen to tap the scheme to boost your retirement income, you can continue to make gradual top-ups to your Retirement Account even as you work.

If you aim to save more, you will still get higher payouts. For instance, those who can set aside $300,000 instead of $426,000 can receive about $2,400 a month, which is still a decent retirement income.

Here are three other important points that you should know about CPF Life.

Cash Protection for Future

Your savings in the CPF account are protected from even lawsuits and can act as your personal reserve that can provide stable income even if the global economy is in a tailspin.

The non-profit CPF Life scheme is backed by the Government, so its monthly payout will remain stable, unlike payouts from private schemes which can be affected by fund performance, management costs and interest rates.

So you should always aim to hit the maximum sum for CPF Life to reap its guaranteed returns first, before you invest in other private retirement products.

In the past three years alone, close to 1,000 people have sought help at the Financial Industry Disputes Resolution Centre after they bought unsuitable financial products that resulted in losses.

It is fair to say that most of them were not aware of the benefits of CPF Life and so ended up buying private investment products which failed to deliver.

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For instance, a retired senior executive told Invest recently that he bought an annuity of close to $2 million as he hoped to get monthly income of a few thousand dollars.

He had to pay $500,000 and borrowed about $1.5 million from the bank. While the scheme was viable when interest rates were low a few years ago, it fell apart when his borrowing costs shot up. So instead of receiving his retirement income, he ended up having to pay the bank tens of thousands for his loan.

Ironically, if he had used the $500,000 to top up the Retirement Accounts for himself and his wife, they could have received up to $5,000 a month for as long as they live, with no strings attached.

So do yourself a favour – before you sign up for a fresh financial product for your retirement, visit the CPF office to find out how its risk-free and cost-free scheme can benefit you more.

Your own retirement matters more

Some people refrain from saving more for CPF Life because they have the wrong idea that they will be short-changed and their savings will be “gone” if they die early.

If the national scheme does not make money from you when you are alive, it will certainly not take advantage of you when you are no longer around.

The CPF Board states on its website that if a member dies after receiving a certain amount of monthly payouts, any unpaid portion from his CPF Life scheme plus the remaining balance in other CPF accounts will be paid to his nominated beneficiaries.

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It is noble for parents to worry about their children but they should put equal emphasis on their own retirement needs too.

Recently an elderly divorced couple had to go to court to fight over $600 of monthly maintenance because both sides ended up cash-strapped in old age, after splurging over $600,000 on their kids’ education.

They would likely not end up this way if both of them had planned for decent monthly payouts from CPF Life.

You should view CPF Life as your own retirement scheme, and not a legacy scheme for your beneficiaries.

If you are keen to give more to your children, you will do them a bigger favour if you make regular top-ups to their Special Accounts even when they are kids. This will give them a chance of having a lot more money when it is their turn to reap the benefits of CPF Life.

Cash is king in retirement

There is a reason why financial advisers always tell their clients to diversify their investments because this could save you from being insolvent in a downturn.

By all means, if you have plenty of spare cash, you can focus on higher-risk investments, such as investing in some US stocks that have delivered impressive capital gains for their investors.

But it still pays to have a solid fixed income back-up, such as CPF Life, so that you will always have enough money in your old age, regardless of how your other investments fare.

Some people think it is better to use up all their CPF and cash savings to buy a second property so that they can rely on rental income in retirement. But this will not come cheap as there are mortgage payments, income and property taxes as well as maintenance costs to consider.

More importantly, could you bear these extra costs if you can’t find tenants?

Finally, we invest to live, and not live to invest. And if we have done adequate planning, our retirement should be fun, without having to worry about money because a decent deposit will just appear in our bank account every month.

Tan Ooi Boon is the Invest Editor of The Straits Times

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plan holiday in advance but stay within budget

SINGAPORE – The new year has barely begun, but people have already been asking me what my travel plans are for 2025.

For those freshly returned from 2024’s year-end holidays, a way to counter the back-to-work drudgery is to begin planning all over again.

I admit that I have already planned for holidays until August, and it seems that I am not the only one.

Booking early is a travel hack everyone talks about when the topic of holiday planning comes up – how to stretch the budget most effectively while covering more ground.

It’s always a delicate balance between several factors, including the number of leave days to take, the travel period, the money spent and the enjoyment derived.

Ms Jacquelyn Tan, head of group personal financial services at UOB, has booked her flights for the year. “Book flights and travel packages as early as possible, preferably during periodic sales events organised by airlines and travel agencies, to maximise savings,” she said.

She also monitors the currencies of countries she intends to visit as early as possible, and buy them when the rates are favourable.

OCBC’s managing director of investment strategy Vasu Menon said he booked a trip to Phuket for June 2025 during the SQ sale from Oct 25, 2024, and saved almost 40 per cent on the cost of flights – the promotion offered flights for four people at only $678, including taxes.

“My family’s travel arrangements are usually made six months to a year in advance,” he added.

But even before making any bookings, setting a budget for the year is essential, experts said.

It is easy to get swept up in a wave of spontaneous trip planning, but that doesn’t bode well for the wallet.

Indeed, Instagram keeps feeding me content about visiting London as therapy when I am feeling depressed. While it makes for a good laugh to see such content, impulsively dropping money on air tickets without any proper budget planning will probably lead to financial issues later.

DBS head of financial planning literacy Lorna Tan said budgeting means being able to save at least 10 per cent a month, and having cash savings or liquid assets for at least three to six months of monthly expenditure.

And if you’re working in the gig economy, your emergency fund should cover at least 12 months of monthly expenses, she noted.

“It is prudent to have adequate protection and insurance too, including a suitable hospitalisation cover such as an Integrated Shield Plan, and critical illnesses insurance.”

She also advocated early planning, saying: “This can make the difference between booking a glass igloo in Finland with toilets and without. Imagine waking up and having to plod through the snow in minus 40 deg C to visit the toilet 15m away! All because you didn’t book the glass igloo with full facilities early.”

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Mr Menon noted that while there is no hard and fast rule on how much to spend on travel a year, 5 per cent to 10 per cent of one’s annual salary seems like a reasonable figure.

“Much also depends on how much you enjoy travelling and see it as a need to destress and how it competes with the other wants and needs you may have,” he said.

Besides booking cheaper flights early, another way to cut travel costs is to choose the right accommodation for your needs and preferences. Mr Menon tries to stay at serviced apartments with a kitchen as cooking also saves money, instead of dining out at restaurants all the time.

In a recent podcast with The Straits Times, millennial traveller Prisca Ang told me that choosing business hotels helped cut the cost of her trip to Japan. These hotels also have the benefit of being clean and located near transportation nodes like train stations.

Multi-currency e-wallet YouTrip’s chief operating officer Kelvin Lam said he chooses hotels near student hostels because these places offer cheaper amenities like coin-operated washing machines and beer.

Personally, I also pick Airbnb flats where possible, instead of hotels, primarily so that I can cook instant noodles for meals to save money. Revealing this fun fact made my podcast guests recoil in horror.

Mr Lam suggested a slight tweak to this common budget travel hack – cook food that is part of the country’s cuisine, instead of simply eating instant noodles. Doing this is good for the pocket and also gives you a taste of different flavours.

Another way to save money is to use multi-currency cards and accounts, instead of using credit cards that can have high conversion rates for each transaction in a foreign currency.

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Post-Covid-19, cashless payments have caught on; in fact, some places totally reject cash. As a result, cashless payment providers have pressed on with new innovations and initiatives to capture consumer demand.

For instance, Nets has established cross-border QR across Indonesia, Malaysia, Singapore, Thailand and China, so those who travel within this region can just scan the codes to pay via various apps.

This complements the use of cards – which is handy as not all street vendors have card acceptance points.

In December, digital banking platform Revolut announced that it will offer e-SIM and global data plans to customers. Those who use the Revolut app can install the e-SIM digitally and top up in the app as well.

Some banks also offer multi-currency options. DBS customers with a DBS My Account or Multiplier account can access and exchange 11 foreign currencies, which will be held in the account, akin to a travel wallet.

UOB has the multi-currency card UOB FX+, which is a debit card that also allows consumers to convert 11 popular currencies. It has grown in popularity along with the pent-up travel demand post-Covid-19: Newly approved applications for the card grew more than 40 per cent in October and November 2024, against the previous year.

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Having said all this, I sometimes need a reminder that travel is a luxury, not a necessity. In July 2024, a study showed that more than half of those polled said a yearly trip to a South-east Asian destination was essential.

It sparked a discussion in my social circles over whether travel is truly essential, like air-conditioning and a smartphone with a data plan, which the survey showed were also counted among essentials.

Travel is talked about so often that there seems to be this prevalent fear of missing out, or the idea that you will be left behind if you do not have an answer to the question, “Where are you going next?”

But travel can also be exhausting. My podcast guest, Ms Ang, said she needed “a holiday from my holiday”, hence defeating the purpose of having some rest away from work.

At the end of a holiday – after all the travel laundry is done and luggage is stored away – travel is, ultimately, a personal journey.

It has to be for myself, not the Instagram feed, or to answer the questions of others. And sometimes, merely taking the time to soak in Singapore or lie in bed might be just the ticket I need, instead of an expensive trip elsewhere.

Sue-Ann Tan is a business correspondent at The Straits Times, covering capital markets and sustainable finance. 

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invest the hard earned ang bao

SINGAPORE - “Hard-earned” is how I would describe the hongbao.

Collecting these little red packets of joy – or sometimes disappointment – takes a certain level of skill and finesse.

You have to possess a thick skin to offer Chinese New Year greetings to people whose names you can barely recall, or to charm them with wildly exaggerated promises of financial windfalls. 

Only when your sincere wishes win them over will they hand over the ultimate prize: the hongbao.

This is why it’s important to know where to park your hard-earned hongbao money, or any kind of spare cash. 

I’m planning to be risk-averse and save up my hongbao money or convert it into precious metals like gold, which is valued for its stability. At the age of 27, with big-ticket purchases like my first apartment on the horizon, every dollar will count. 

But to each his own, and with unique and ever-changing financial priorities, young investors should identify what works best for them. 

Ms Lorna Tan, head of financial planning at DBS Bank, notes that whether young adults choose to save or invest their hongbao money depends largely on their short-term financial needs.

She says that for young people who are still studying or serving national service, hongbao money, which is seasonal in nature as it is given out only during Chinese New Year or birthdays, can come in handy as an extra tool to help bolster savings. 

It can also be used for short-term targets like saving for a holiday. 

“For those who have started working, the amount received from hongbao is usually a small supplement to their annual salary, rather than a significant portion of their income. This means you have flexibility in how you choose to use it,” Ms Tan says.

Mr Timothy Ho, co-founder and managing editor of personal finance website Dollars and Sense, points out that hongbao are essentially “gifts”. 

“Since hongbao money is money you didn’t actively work to earn, apart from visiting your relatives to collect it, it’s an excellent opportunity to think about investing and growing your savings... It’s a bit like your parents giving you tokens to play at the arcade, an invitation to explore and try new things,” he says. 

“Even if you’re not naturally inclined to invest, using your hongbao money as a starting point for your investment journey is a great idea, and you will gain some basic experience in investing.” 

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Mr Ho also notes that while it is important for young people to cultivate a habit of saving, they can also benefit from investing in riskier assets, as any investment losses encountered could serve as valuable learning experiences.

“Losing a small amount at a young age can be a valuable experience: It teaches you how to manage your emotions and stay grounded when facing losses... This perspective helps counter the misconception that investing is always a straightforward journey of making constant gains,” he says. 

“That said, I would caution against making ‘investments’ in a speculative manner. Even if you make a profit from such speculative ventures, you might take away the wrong lesson – believing that generating returns is easy if you’re willing to take risks.” 

Investing in 2025 will likely create challenges even for the most seasoned investors, let alone young ones, due to the geopolitical and macroeconomic climate. 

Expected interest rate cuts could make higher-yielding, riskier assets like equities and cryptocurrencies more appealing, but a cloud of uncertainty still looms over the markets, given that US President-elect Donald Trump’s upcoming second term is expected to have an impact on trade flows and inflation. 

So how should young investors navigate the markets with their hongbao money? 

Timing the market is an extremely difficult feat that even institutional or highly skilled professionals often fail to achieve.

Young investors should consider taking a slow and steady approach to portfolio growth, as “time is on the side of those who can wait”, says DBS’ Ms Tan. 

“The global economy historically sees longer periods of growth than recession, and stock markets see longer bull phases, or uptrends, than bear phases, or downtrends,” she adds. 

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Mr Aaron Chwee, head of wealth advisory at OCBC Bank, says that while short-term market volatility and headwinds are expected, a pullback in asset prices could offer young people a promising opportunity to invest, particularly with a long-term perspective.

“Dollar-cost averaging is the ideal strategy to manage market fluctuations,” he says.

But Mr Chwee also noted that young people need to establish solid financial foundations before investing, such as building an emergency fund or clearing high-interest debts. 

For those with life-changing purchases on the horizon, hongbao money can also be parked alongside monthly income in more stable assets such as unit trusts or a balanced portfolio of equities and bonds.

“Say you intend to get married soon, or buy a house, and will need a pool of funds to pay for expenses... You can start to build up these funds by setting aside your hongbao money as well as an amount from your monthly income as a form of regular savings and put it to work,” Mr Chwee says. 

“If you are looking to buy a home or marry in three years, your investment time horizon is not very long. You may not want to take too much risk if you are investing to accumulate funds for a large purchase.” 

Hongbao money may feel like a small financial windfall, but I see it as a hard-earned reward – won through relentless flattery and greetings. 

So, when you’re handed a hongbao this Chinese New Year, consider using it to kick-start a savings habit, dip a toe in the markets, or inch closer to a life-changing purchase.

Timothy Goh is a business journalist at The Straits Times. He covers private equity, with a focus on start-ups and venture capital.

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