SA Shielding Hack Closed

Since the Budget 2024 announcement that CPF SA would be closed for members aged 55 and above, the 1M65 community and many other financial bloggers have been lamenting the move. Seedly has an article on the breakdown of the impact on different individuals because of this change, and so I won’t dwell too much on it.

Instead, I’ll reflect on how may thinking may (or may not) have shifted now that this loophole of a potential 4% risk-free rate at retirement is no longer available. But before I go there, I think it’s useful to iterate my starting point before this change had happened, which I realised I may not have done before.

My concept towards retirement was initially quite simple. But first, to define retirement – having sufficient passive income of around $5,000 a month in today’s dollars. With 1M65 in my CPF (and the SA in particular) as well other dividend-paying investments, I was quite confident that we would be able to retire by age 65, with longevity risk taken care of by CPF Life, even by seriously considering topping up to the ERS. And since 2022 as well as of my own latest calculations, we would be able to hit this eventuality very comfortably sometime this or next year.

So then the question lies in how I am able to bring forward that retirement plan. Drawing down from my SRS with an expected ~$800K in there between the two of us should definitely allow us to bring that forward by another 10 years as we drawdown ~$80K/year from there. Of course we are still some distance away from that target.

Then anything else that can act as alternative sources of income, such as from property rental or business investments will allow us to bring that forward even earlier.

The main issue now with this change is that when we say “4% risk-free rate” from SA, everybody has been ignoring policy risk. We cannot assume that in the span of 30-40 years (most people’s working life), there will be no change to the manner in which the government of the day will handle the financial instruments. In fact, we should always assume that change will indeed happen, and to be conservative, we should even assume that it will happen against our favour.

So back to how my stance will change: I will certainly reconsider whether to top up all the way to ERS, because while longevity risk is taken care of, only the premium paid and not the interest will be bequeathed, and this will particular affect those with a shorter lifespan. A full treatment of this concept is already done up nicely by Dr Wealth who has also arrived at the same conclusion as myself. But of course, all this may change as the rules change over the years.

How about you? Have you thought through how your retirement planning may change with this CPF SA closure?