You will be able to size the money needed between stopping work and the start of CPF LIFE payouts.
The day after your last pay cheque, nothing else arrives. Your salary has stopped, CPF LIFE hasn't started, and the grocery bill comes in as usual. For Jasmine that stretch lasts five years, from 60 to 65 in this example. For someone who stops at 50 it could last fifteen.
Financial independence: planning the number and the path, lesson 3.3, The bridge years before CPF pays, explains why a large CPF balance can't carry these years and gives a quick way to size them. This lesson goes further: it works out the bridge year by year, decides where the money should sit, and shows how much a little paid work changes the total.
Count the years between the day you stop full-time work and the first CPF LIFE payout. Check your payout eligibility age on cpf.gov.sg, and remember that if you plan to defer, the bridge runs to your chosen start age instead.
The quick estimate multiplies the number of years by your yearly spending at today's prices. For Jasmine that is five years at S$40,000, or S$200,000.
The better estimate uses the spending sheet from lesson 1.4, Build your retirement spending estimate, which is in future dollars. Her spending in the five bridge years, from 60 to 64, runs from about S$46,000 to about S$51,500, a total of about S$243,000. The figure is higher than the quick estimate because prices keep rising between now and then, and her healthcare line rises faster.
Then take off any income you expect in those years. That leads to the most useful lever of all.
Part-time work in the bridge years reduces the money you need almost dollar for dollar. Every S$1,000 you earn is S$1,000 you don't take from savings, and it comes at the point where sequence risk is highest, which lesson 5.1, Why a crash early in retirement does more damage, explains.
Jasmine plans to consult three days a week for her old employer and a couple of smaller firms from 60 to 62, earning about S$1,500 a month, or S$18,000 a year, in this example. Over three years that is S$54,000. From 63 she can also start drawing her SRS account with favourable tax treatment in this example, which adds about S$43,000 over the last two bridge years. Lesson 3.3, Time SRS withdrawals around your other income, covers the timing.
So what her own cash and investments must cover falls from about S$243,000 to about S$146,000. Without the part-time work it would be about S$200,000.
Part-time income is less certain than a salary. Jasmine treats it as likely but not guaranteed, and lesson 5.4, Run your plan through three scenarios, tests what happens if it stops early.
Money you will spend in the next few years shouldn't sit in assets that can fall by a third just before you need it. Shares are a good home for money you won't touch for ten or twenty years. For money you will spend at 62, they are a gamble on the next two years of markets.
So bridge money belongs in assets whose value doesn't swing much and that you can reach when you need them: savings accounts, fixed deposits, Treasury bills, Singapore Savings Bonds and short-dated Singapore Government Securities. Each has its own access rules. A fixed deposit may lose interest if you break it early. A Singapore Savings Bond can be redeemed in any month, with the money arriving the following month. A T-bill pays out on its maturity date. Bonds, T-bills, SSBs and fixed deposits covers how each works and where to check current rates.
The price of safety is a lower expected return than shares over long periods. On money you will spend within five years, that is usually a price worth paying.
A ladder is a set of safe holdings arranged so that one matures in each year you need money. Instead of one large pot you dip into, each year's spending has its own rung, and you know it will be there.
Jasmine's ladder works like this. She keeps her first two years of withdrawals, about S$57,000, in cash and short deposits, because she will spend them almost immediately. For each later bridge year she sets aside a rung that matures just before she needs it: about S$31,000 for the year she turns 62, about S$29,000 for 63 and about S$30,000 for 64. Those figures are what each year needs after part-time pay and SRS. She will build the later rungs from T-bills, fixed deposits and SSBs in the year or two before she stops work, so that a market fall in her late fifties doesn't leave the bridge short.
Two habits keep the ladder honest. Build it before you stop work, so the bridge doesn't depend on the market on your last day. And when a rung matures in a good year, you can spend it and leave the next one alone. In a bad year it also buys you time, because your shares don't have to be sold to pay for that year.
From 55, some CPF savings may become withdrawable under the rules for your cohort, such as amounts above the retirement sum you set aside. CPF Mastery, lesson 6.3, What you can withdraw at 55 and after, covers them. Treat them as a possible addition to the bridge that you confirm on cpf.gov.sg, not as part of your first plan.
Now work out your own bridge. You need the number of years, your spending in each from your sheet, and any work or SRS income you expect in those years.
Write how many bridge years you expect, the spending for each and the total you would set aside for them.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).