At an annual inflation rate of, say, 3 per cent, our S$50,000 target would be equivalent to S$100,000 in around 24 years’ time. And in 48 years’ time, it would need to be as much as $200,000.
That, by the way, is not how much money we would need to have in our retirement pot. That is the income we would need to generate from our savings. Because we don’t know how long we will live, we do not want to draw down the pot and run the risk of exhausting it.
Taking into account the 4 per cent floor interest rate of the CPF Special Account, the nest egg required to generate an annual income of S$100,000 a year in 24 years’ time is S$2.5 million. We should ask ourselves if our accumulated CPF contributions earning 2.5 per cent interest a year will be able to grow sufficiently to reach that target.
If it is unlikely, we should invest some of our money into assets that can outpace the rate of rising prices. That generally means investing in shares.
There is a limit as to how much our CPF money can be invested in the stock market. So, we may need to look beyond compulsory contributions and build another pot of money outside of CPF. The best time to do that is while we are young.
INDIRECT TAXES PREVAIL OVER DIRECT TAXES
Budget 2023 also highlighted the Government’s commitment to low personal income tax with indirect taxes taking the brunt. Stamp duties on high-end properties will rise. So too will taxes on luxury cars.