Now that your par­ents are fi­nally able to en­joy their golden years, here’s what they can do to get more out of their re­tire­ment fund.

Simply Her (Singapore) - - Cover Reads - BY JOANN CHIA

Help your par­ents get more out of their re­tire­ment fund.

So your par­ents are about to re­tire and they’d like to with­draw their hard-earned CPF sav­ings. But how can they do this and main­tain a sense of fi­nan­cial se­cu­rity and freedom at the same time?

Fixed monthly pay­outs

Most Sin­ga­pore­ans will be on the CPF Life scheme, a life in­sur­ance plan that uses their CPF Re­tire­ment Ac­count sav­ings to give them a life­long monthly pay­out from the time they re­tire.

There are two plans avail­able – the Life Stan­dard Plan and the Life Ba­sic Plan. The for­mer is a de­fault plan and caters to those who pre­fer a higher monthly pay­out and lower be­quests af­ter their death. It’s suit­able for peo­ple with few or no chil­dren, and who need a higher cash pay­out each month, be it for med­i­cal needs or per­sonal ex­penses.

The Life Ba­sic Plan, on the other hand, has a lower monthly pay­out and higher be­quest, mean­ing that af­ter the ac­count holder passes on, there will be a larger trust pool left for his or her ben­e­fi­cia­ries. This plan is for those who are self-suf­fi­cient and do not need to with­draw a large amount of money ev­ery month.

Which­ever plan your par­ents choose, they should be aware that CPF Life is only meant to meet the ba­sic fi­nan­cial needs of re­tirees, says An­drew Ang, dis­trict di­rec­tor at HSBC In­sur­ance. At present, CPF Life can pro­vide for a max­i­mum monthly pay­out of $1,000.

Will that be enough to cover all their needs? Gre­gory Fok, di­rec­tor of sales (fi­nan­cial ser­vices) at in­sur­ance provider Man­ulife, says it de­pends on their pre-re­tire­ment life­style. High earn­ers used to hav­ing a dis­pos­able in­come are un­likely to find the pay­outs suf­fi­cient. “Imag­ine some­one who used to earn $100,000 a year,” he says. “If you now ask him to spend only $1,000 a month, that is not go­ing to be pos­si­ble.”

Mak­ing their CPF sav­ings work harder

Should your par­ents leave their money in the bank? An­drew says that ris­ing in­fla­tion may mean that the value of their money could end up be­ing eroded in the long term. Mum and Dad could be bet­ter off with lower-risk in­stru­ments such as bonds or bond fund in­vest­ments, he sug­gests. How­ever, th­ese also have po­ten­tial pit­falls, he cau­tions, cit­ing the mini-bond and Ponzi scheme de­ba­cles, which caused many re­tirees to lose their sav­ings.

Gre­gory adds that with any in­vest­ment de­ci­sion, your par­ents need to ad­dress the fol­low­ing ques­tion be­fore hand­ing over their money: What is their pur­pose, time hori­zon and risk pro­file? They should also in­vest in a di­ver­si­fied port­fo­lio to grow their CPF sav­ings. “For peo­ple who have not man­aged such huge amounts of money be­fore, care­ful plan­ning is re­quired,” he cau­tions.

In gen­eral, high-risk in­vest­ments are not ad­vis­able for your par­ents, mainly be­cause they have less time to re­cover their in­vest­ment if things go wrong. Re­mem­ber too, that your par­ents are grow­ing older and an un­ex­pected health is­sue may wipe out all the sav­ings.

While they may be ex­cited about fi­nally see­ing their CPF money, they should not for­get what it is ul­ti­mately meant for. “Please be pru­dent with your CPF money as it is meant to fund your re­tire­ment needs,” says An­drew. “It is im­por­tant for ev­ery­one to con­sult a fi­nan­cial ad­viser to as­cer­tain their re­tire­ment needs, as well as ex­plore dif­fer­ent al­ter­na­tives to achieve a com­fort­able re­tire­ment life­style. If we can­not find a bet­ter way to in­vest the ex­cess funds, a pru­dent way is to leave this with CPF to earn a higher in­ter­est rate.”

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