I recently attended a focus group discussion on various aspects of CPF, including the minimum sum scheme, how much one needs for retirement, how much of a part should CPF play in retirement, the possibility of a partial lump sum withdrawal, and different considerations on the life annuity payouts. My discussion group was very diverse – there were people in their mid-20s, who have just started their careers, and retirees who were in their early-70s. These are my insights and take-away points from the discussion:
- There are basically 2 types of people – the proactive (those who take the initiative and put aside additional savings and investments starting from an early age) and the reactive (those who live paycheck to paycheck, not preparing for what will happen in 5 years let alone next week). The proactive individuals all felt that the partial lump sum withdrawal should have a limit (most agreed on about 10-20%), and the majority believed that this withdrawal should come with conditions (i.e., there must be a justifiable reason as to why a person needs to take the withdrawal now). The reactive individuals felt that because “it was their own hard-earned money”, they should be able to take it whenever they please. Likewise, they felt that there was no need to justify why they needed it; they felt the money was safer and more secure in their own hands and under their own control.
- Everyone in my group agreed that the CPF scheme needed more options. The rigidity of the CPF itself makes people feel in a sense cheated. They do not like the idea that someone else controls a portion of their retirement finances, and that the rules and laws can change seemingly instantaneously. People like to have options, even if most of them will not exercise any of the options. They simply want to feel like they are in control and that they have a choice in the matter.
- Financial literacy is very poor, even among the younger more educated population. There is a lack of comprehension regarding the CPF scheme. The government provides all sorts of resources, programmes, and educational materials regarding the topic, but most people will unfortunately get their information from the marketplace. I believe this is because there is a lack of trust toward the government, and because people feel squeezed and have very little time, they find it easier to hear anecdotes and opinions from other people rather than straight from the source. Many felt the CPF web site was too confusing.
- The government needs to start educating people about CPF at an early age, so people will start planning early in their careers. In my group there were 2 individuals who were in their 70s, but each took different paths. One lived frugally and started saving and investing in her 20s, the other started decades later. The lady who started young is now living financially free, even though she put all her kids through university and paid off her home. She does not need to work, but chooses to engage in part time work for social connectivity. Her monthly living expenses are only $800 and she still manages to save and invest the difference collected from her monthly CPF payment. As she put it, “she is now enjoying the fruits of her labor”. The other gentlemen was not so prepared. He lost his job and is desperately looking for another job. His health is not so good. And because of this, and his age, he is not so easily employable. From his comments, he seemed quite frustrated and desperate. And not surprisingly, he was one of the few who wanted the ability to draw 100% of his CPF with no conditions or restrictions.
- Most people, especially the younger generation, have a hard time visualising the future. When people “plan for retirement”, they perhaps envision themselves with more grey hair and no longer working. Maybe they picture grandchildren and trips overseas. The reality is that life only has one final destination, and often the journey to that destination is a slow journey filled with many losses – losses of abilities, of senses, of awareness, and of other loved ones. The media likes to depict retirees as carefree, gracefully aged, happy grandparents dancing on a cruise ship overlooking a gorgeous sunset; never have I seen the media depictthem as bedridden, hospitalised, or indigent but this is indeed the eventual reality for many seniors. It seems that very few people plan for the possibility of getting sick or even debilitated. In general, people seem to have difficulty connecting the actions and choices they make today with it’s impact on their future.
One important thing that was missing from the conversation:
The structure of every complaint, desire, aspiration or promise that I hear from people nearly always comes in this form: Starting with word “I” followed by “want/wish/need/promise/will” and ending with an action. For example, a friend recently told me “I want to learn how to play the guitar”. Some people in the focus group said, “I wish to withdraw all my money from CPF at age 65”. A client of mine always reminds me that he “wants his business to grow and to make more money.” These hopes and wishes all sound very good and noble, but what’s missing is the complete picture. Everything (and I mean EVERYTHING) comes with a price. And if that price is not stated, then the statement is a bit distorted and biased. If my friend were to say, “I want to learn how to play the guitar and I will lose an hour of sleep every night so I can learn”, then he would get a better understanding of the impact of his decision and be able to weigh whether the tradeoff is worth it to him. Or, in the case of the focus group, the participant ought to say “I wish to withdraw all my money from CPF at age 65 and I will relinquish and forfeit any interest, safeguards, and security that the account bears, and I believe that there will be no other future crisis/need that is greater than my current crisis/need.” When you state the complete picture, you then realise the tradeoffs that you have to make, and maybe what seemed to once be a good or noble idea or aspiration is actually not worth the price. It’s one thing to say “I want this” or “I need that” and it’s another to actually consider and state what you’re willing to trade for it.