Why CPF Should Not Be Returned At Age 55

As a non-politically apathetic young adult in Singapore, I have been tuning in to some election rallies during the campaigning in the past week.

To be honest, I have been surprised at the amount of gibberish uttered by all the political parties (like the one below on how the inability of every Singaporean to obtain the 5Cs is a government failure).

But what didn’t surprise me was the populist clamour for a minimum wage, reduce the number of foreigners in Singapore and of course, allow Singaporeans to withdraw all their CPF at 55. In the past few years, the government has actually introduced measures to address the first two issues. But to many, it’s debatable if enough is being done.

However, what is obvious is that the government is right to prevent people from withdrawing all their CPF money when they turn 55.
Even though I do not have statistics showing the number of retirees squandering their CPF money in Batam (erhem) or Genting in the past, I have no doubt that moral hazard will prevail. These numbers will increase if people know that in the worst case scenario, the government will step in and provide financial aid.

Let’s illustrate with an example: 

The below are two possible options if $100,000 is all I have at age 55 and I am given a choice to withdraw all of it:

In this illustration, let’s assume that I stop working after 65.

For Option 1, I will leave my money in the CPF to accrue interest and continue to work for the next 10 years. And at age 65, I will receive $1,000 a month from CPF LIFE for my basic needs.

As for Option 2, I could withdraw the $100,000 and place a Big/Small bet at RWS. If I win, I could double my money to $200,000. I could then stop working in 2-3 years. $100,000 could last me for 7 years and I can then put back the remaining $100,000 back into my CPF Balances. And at age 65, I will still receive $1,000 a month from CPF LIFE.

But if I lose, I will then continue working for the next 10 years and at age 65, due to poor health, I might become destitute and rely on the government to provide for bare subsistence that could add up to $300 a month.

I am pretty sure that there will be some risk-taking individuals that will take up Option 2 if given a choice. Since half of them will win and half will lose, the rest of the society (responsible people who takes up Option A) will have to fork out an extra $300 to help the losers of the bets.

Allowing people to take out their full CPF sums at one go at age 55 encourages irresponsible and risky behaviour. And such behaviour constitutes an additional burden to society. 

And for those who feel that the drawdown age at age 65 is too “late”, let’s take a look at what other “developed” countries are doing. Even in the United States, access to social security only begins at age 65 and for Australia, it is going to be pushed as far back as 70.

Lifespan is increasing and for those countries with retirement ages below 60, it’s a matter of time before they have to raise it. Low retirement ages are unsustainable and it’s definitely a short-sighted policy to allow people to have full access to all their retirement savings at the relatively young age of 55 (I am sure Lim Swee Say will not do that as Manpower Minister.).

Anyway, the government is not withholding everything back. If you have been consistently working (like both my parents-in-law) throughout your lives, there is a strong likelihood that you will exceed the Basic (after a property pledge) or Full Retirement Sum. The excess can then be withdrawn at age 55.

It’s also interesting to note that for many who can withdraw, they don’t.