Sandwich generation [noun] : a generation of people, typically in their thirties or forties, responsible both for bringing up their own children and for the care of their ageing parents.
A lot of chatter about the sandwich generation recently due to the NTUC Income video, especially when it is something that many of us can identify with it. We are frustrated with the situation and yet, we feel that there is so little that we can do.
For me, I’m not quite the sandwich generation. I definitely relate more with peanut butter toast. For my generation, I can guarantee that there are plenty of CPF accounts belonging to our parents that look like what you see below. Plenty of money in MediSave and not much anywhere else.
At first glance, the numbers seem big. However, with very little in CPF-OA/CPF-SA/CPF-RA, that’s a pretty thick piece of toast and I’m going to make sure there’s enough peanut butter (i.e. me) to go around. Yes, my parents do require my assistance for their retirement – and it is my wish to give them a comfortable life. I suppose my parents were the best kind I could ever have, since it suited my character well. They have never asked anything of me – neither in studies when I was younger, nor in life when I was older.
Quite a few years ago, I realized that I had to Marie Kondo my financial situation to stand any chance to reaching my goals. Besides, less obligations = less stress. Definitely no golden handcuffs.
- Also, I don’t have kids. // therefore != sandwich
- Nope, no car either.
- Nah, I don’t pay any cash for my apartment too.
With a sound foundation, I can now choose to start the retirement game on Easy Mode. Not just for myself, but my parents as well.
Goal #1 : [Self] Attain CPF Full Retirement Sum (FRS)
Like what safety videos advocate, we need to take care of ourselves first, before we can help others. My journey would therefore start with reaching CPF FRS which is a grand total of S$176,000 this year for folks turning 55 years old.
People tend to use the current FRS and extrapolate based on their current age, in order to estimate what would be the FRS when they turn 55 years old. Although not wrong, this tends to end up with a huge number such as $300,000 or $400,000 – when the number gets significantly large enough that the brain can’t process, there is a tendency to pass it off as impossible.
A simpler, and hopefully gentler approach, is to try and achieve the current FRS as soon as possible. Although I am 36 years old, but I’m on track to achieve FRS of 2019 ($176,000) by the end of the year. The FRS of 2020 ($181,000), and all future years (targeted to be around 3% increase), will automatically be achieved by the interest credited on our CPF accounts.
Goal #2 : [Parents] Maintain CPF Min. Balance of $60,000 for Max. Bonus Interest
The relevant statutory board has made many infographics.
In a nutshell, it meant this :
- First $30,000 6%
- Next $30,000 5%
- CPF-RA 4.0%
- CPF-SA 4.0%
- CPF-MA 4.0%
- CPF-OA 2.5%
Although the infographic is helpful, the shortcoming is that I can’t find detailed information anywhere on how the additional interest is applied, to which accounts, in what priority. I have spoken to and chat with many people, and I have a good idea of how it is done.
Short of asking CPF board for an answer, the best answer I can find online is by Wilfred Ling. Credit goes to him and the below is lifted word for word from his blog.
The amount of money that make up that $60,000 and $30,000 is from the following accounts in order of priority:
- 1st: CPF Retirement Account balance inclusive of the premium for CPF Life
- 2nd: CPF Ordinary Account balance (but capped at $20,000)
- 3rd: CPF Special Account balance
- 4th: CPF Medisave Account balance
First things first, regardless of which account my parents’ CPF money sits in, as long as there is $60,000 then extra interest is earned. And the extra interest gets credited into CPF-RA, which is a good thing to sustain my parents’ Retirement Sum Scheme (RSS) payouts.
Therefore, the short-term plan is simple. Make use of the additional interest at a maximum of 6% by CPF board, and transfer either cash or CPF-OA (my preferred option) into mum’s account.
Goal #3 : [Parents] Sustain Mum’s RSS Annual Payouts of $297 Permanently
Yippee. Time to DIY my version of CPF Life. Perhaps I should call it RSS Life.
At the current payout of $297 per month x 12 months that’s an outflow of $3,564 annually from my mum’s CPF-RA account. At this point, to sustain it for a year is fairly easy – transfer this amount from my CPF-OA to my mum’s CPF-RA.
What if I want to make it self-sustaining? Remember that the first $60,000 in CPF accounts for members aged 55 or above earn extra interest?
- First $30,000 6% ($1,800)
- Next $30,000 5% ($1,500)
- Next $5,000 4% ($200)
The crazy interest rate is what makes it possible. It ain’t perfect calculation but let’s assume that having $65,000 in CPF-RA generates $3,500 in interest every year – just nice for my mum’s monthly payouts! The principal amount remains untouched and generates $3,500 every single year. Instead of the money sitting in my CPF-OA and earning 2.5%, it can sit in my mum’s CPF-RA and earn 5.38%. Considering that the funds actually deplete over the course of the year due to payouts, we actually need more than $65,000 (see reader comment below).
Goal #4 : [Parents] Do The Same For My Dad
Before I End ..
Currently, I’m 0/4 in terms of hitting my goals and they will no doubt take time to accomplish. No rush there, I’ll be taking things slow.
In case you’re wondering, I’m definitely not the first to think of something like this. A while ago, a reader who has already taken action left this comment on my blog which reflected my thoughts.
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