You will write a first rough plan for a home and for retirement, with the gap for each.
Big goals stay vague for years because nobody puts a monthly figure on them. "We'll buy a flat at some point" and "I should save more for retirement" are both true and both useless, because neither tells you what to do on your next payday.
This exercise puts a figure on each. You will write a rough plan for a home and for retirement, find the gap in each, and turn each gap into an amount to save every month. It takes about twenty-five minutes. You need your notes from lessons 7.1 and 7.2, your CPF LIFE estimate from lesson 5.3, and a calculator.
Write three things at the top of a page: a price range, a target date and the number of months until then.
Then work out what you will need by that date, split the way lesson 7.1 split it. The down payment is the price at the top of your range minus the loan you expect. Add the costs of buying and a renovation budget. Decide how much of the total will come from your CPF Ordinary Account and how much must be cash. Where you are unsure whether CPF can pay a cost, count it as cash for now, because finding out later that CPF could have paid is a much nicer surprise than the reverse.
Next to each figure, write what you have today. The difference is the gap. For the CPF part, compare the gap with what your Ordinary Account will receive by the target date, which you can estimate from the contributions on your payslip. For the cash part, divide the gap by the number of months. That is your monthly saving for the home.
Take the monthly spending you want in retirement, from lesson 7.2, and your CPF LIFE estimate. Make sure both are in the same terms. Your spending figure is at today's prices. If the planner's estimate is in future dollars, adjust it or note the difference, because comparing one with the other unadjusted makes the gap look smaller than it is.
The monthly gap is your target spending minus your CPF LIFE estimate. To turn that into something you can save towards, multiply it by 12 for a yearly gap, then by the number of years you want it to cover. Divide the result by the number of months until you retire. This rough method assumes your savings grow just enough to keep pace with prices, which keeps everything at today's prices and the arithmetic simple.
Write "first draft" and today's date at the top of the page. This plan leaves out a lot on purpose: how investment returns might beat inflation, how your income will grow, how long you will actually live, and the rules that will change before you get there. Property & Mortgages and Retirement & Estate refine each half. A draft with real numbers is still far more use than a perfect plan you have not started.
Wei Ling and Jun, from lesson 7.1, work through it with figures made up for the example.
Their housing plan is an HDB flat between S$450,000 and S$480,000, bought in 36 months, and they plan for the top of the range. With the S$360,000 loan they expect, the down payment comes to S$120,000. On top of that they allow S$12,000 for buying costs and S$30,000 for renovation.
They decide CPF will cover S$100,000 of the down payment and cash will cover the other S$20,000, plus all the buying costs and the renovation. The cash they need is S$20,000 plus S$12,000 plus S$30,000, which is S$62,000. The CPF they need is S$100,000.
Today they have S$60,000 in their Ordinary Accounts and S$14,000 in cash put aside. The CPF gap is S$40,000. Their payslips show about S$1,500 a month going into their two Ordinary Accounts combined, and 36 months of that is S$54,000, so contributions alone should close the CPF gap, before any interest. The cash gap is S$62,000 minus S$14,000, which is S$48,000. Divided by 36, that is S$1,333.33 a month, which they round up to S$1,340, or S$670 each.
Wei Ling's retirement plan: she wants S$3,000 a month at today's prices, from lesson 7.2. For the example, say her CPF LIFE estimate converts to S$1,600 a month at today's prices. Her gap is S$3,000 minus S$1,600, which is S$1,400 a month.
She plans for 25 years of retirement from 65 to 90. S$1,400 x 12 is S$16,800 a year, and S$16,800 x 25 is S$420,000. She is 29, so she has 36 years, or 432 months, until 65. S$420,000 divided by 432 is about S$972, which she rounds up to S$975 a month.
So her draft asks for S$670 for the home and S$975 for retirement, a total of S$1,645 a month. That is more than her spending plan saves today, and the wedding comes first.
Wei Ling now has a choice with numbers on it. She could look at a cheaper flat or a later date, or save a smaller retirement amount now and raise it once the flat is bought. Without the page she would have found the shortfall at the bank, or at 60.
Yours is finished when it fits on one page in two blocks. Housing: a price range and a date, the cash and CPF you need, what you have, and a monthly figure. Retirement: your target, your CPF LIFE estimate, the gap, and a monthly figure too. At the top, "first draft" and the date. Start with the housing block, using your notes from lesson 7.1.
Complete the one-page housing and retirement draft with the gap for each and the monthly amount that would close it.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).