A Real Life Example of a Simple Retirement Strategy

I happened to read an article online which demonstrates a suggestion in my prior post here.

In case you're lazy to re-read, it refers to this:

• Not buying a house via CPF (Ok this is a touchy topic but let me explain.)
• Ok, you know that CPF is actually a form of forced savings right?
• If you aren't too interested in investing, or your returns are whacky and maybe negative, this might be an option to help you with your retirement. 
• Downpayment you can use the CPF (5% + 5%).
• After which, say you have been using $400 in CPF and $100 in cash for the installment for your flat, then maybe you set aside $400 for retirement savings/speculation (which may give you either sad yields or worse, speculating, negative returns and loss of sleep).
• So instead of paying using the CPF and maybe topping up cash for the house. Use PURELY Cash.
• The amount of money is the same more or less (you shouldn't be spending your retirement savings anyway. No, no mental accounting) and you get a risk free return! Awesome?

The article, written by Ruth (at least that's what the site says), I'll quote it here for ease:

Dear InTouch,

I live within my means and save up all my salary increments over the years instead of upgrading my lifestyle. I started saving for my children’s education expenses since they were one month old, buying endowment insurance to cover their tertiary education.

Living in an HDB resale flat, I bought my home based on my affordability. I was able to pay my down payment and monthly mortgage repayment using only cash. This way, I don’t need to use my CPF, allowing it to accumulate over the years, fully benefiting from compounding of interest. Healthcare is another priority. I purchased critical illness and hospitalisation insurance policies, including riders to cover the excess and co-payment.

After all these expenses are taken care of, whatever is leftover is treated as my income and I make it a point to save at least 20% of this amount monthly. Instead of indulging in material goods, I choose to appreciate the free things in life like a jog in the park. Simple everyday choices have helped me save too. For example, I bring along a bottle of water when I go out so I won’t have to buy drinks outside.

Now I feel confident about having enough savings to fund my retirement with my flat fully paid, my children’s education covered and healthcare needs taken care of.

 

Ruth Lim, 53
Human Resources Manager 

I feel that this is a very excellent example of my suggestion above (though I rather she put money elsewhere instead of an endowment plan like BigFatPurse), being financially prudent and having a piece of mind for yourself and your family. 

Do remember to transfer the unused funds from OA to SA if you are not going to use the OA money to get a better yield (4%) =)

Simple strategy yet effective for many who do not wish to manage your investment/retirement portfolio because it is too troublesome. =)