You will be able to test your plan against a longer life and decide what gives way first.
Jasmine chose 95 as her planning age in lesson 1.3, Inflation and the age you plan to. Then her aunt turned 99. At the birthday lunch, someone joked that the family was going to bankrupt the CPF Board. Jasmine laughed, then went home and opened her spreadsheet, because the joke had a real question in it: what happens to her plan if she is the one who reaches 100?
Running out of money is one risk. Running out of money at 97, with no way to earn more and no one obliged to support you, is a worse one. This lesson tests the plan against a longer life and decides in advance what gives way first.
The simplest test is to extend your drawdown map by five years past your planning age and see what happens.
Jasmine copied the last row of her map from lesson 3.4 down to 100. Under her central assumptions, her savings at 95 are about S$710,000, and they keep falling. At 96 they are about S$626,000, at 98 about S$431,000, and at 100 about S$196,000. Her plan survives to 100.
That sounds comfortable until she converts it to today's prices. S$196,000 forty-five years from now, at 2.5% inflation a year, is worth about S$64,000 at today's prices. Her spending at 100 in her map is about S$151,000 in future dollars. So at 100 she has a bit more than one year of spending left.
This is what the five-year extension measures: margin. A plan that runs out at 96 when you planned to 95 has almost none. A plan that still has years of spending in hand at 100 has a lot. Jasmine's is in between, and it only looks that way under central assumptions. Lesson 5.4, Run your plan through three scenarios, shows how quickly a bad decade eats the margin.
Look at what pays for Jasmine's spending in her nineties. Her level CPF LIFE payout of S$19,200 a year, an invented figure, still arrives every month at 100, because it pays for life. Her savings are the only other source.
By 95, that payout covers only about 15% of her spending. That's the cost of a level payout over thirty years of inflation. Yet it is the one source in her plan that can't run out. If her savings hit zero at 97, CPF LIFE still pays. Without it, she would have nothing.
This is why lesson 2.2, Choose your CPF LIFE plan and start age for the whole plan, matters most to people who expect to live long. A higher floor, from deferral or from a plan whose payouts rise, buys more protection in exactly the years where savings are thinnest. The tradeoff was laid out there: lower income earlier, or more savings spent in the waiting years.
Real spending in later life doesn't follow a straight inflation line. Two forces pull in opposite directions.
Flexible spending usually falls. Many people travel less, eat out less and buy less in their late eighties and nineties than in their sixties. Research by David Blanchett at Morningstar described a retirement spending smile: spending tends to fall through the middle years of retirement and rise again near the end. A plan that keeps flexible spending rising with inflation all the way, as Jasmine's does, is being cautious.
Care costs can rise, sharply. A person who needs help with daily activities may pay for a helper, home care services, day care or a nursing home, for years. That cost often arrives in the same decade that travel stops. Module 6 puts numbers on it, and the early result is sobering: when Jasmine added a care cost of S$2,000 a month at today's prices from 85, her money ran out at 95 even under central assumptions.
So the spending she can cut late in life may shrink at the very time a new essential cost appears.
The moment to decide what to cut is now, while you are calm and can think about the trade-offs. At 90, under pressure, the decision may not be yours to make at all.
Jasmine listed her spending in the order she would give it up:
Overseas travel goes first, and she expects it to fade by her mid-eighties anyway Eating out and gifts are cut back next Her hobbies budget shrinks to the basics Then the home: renting out her spare room, or moving somewhere smaller, which lesson 6.1, Your home as a retirement asset, explores Last of all, essentials such as food, utilities and healthcare, which she won't cut
She tested the first step. Cutting her flexible spending by 20% from 85 onward, about S$5,900 a year at that point, left her about S$368,000 at 100 instead of S$196,000. A modest, planned cut in her late eighties nearly doubled her margin at the end.
Writing the list does something else too. It tells the people who might one day manage your money, under an LPA from lesson 7.4, Who decides for you: the LPA, AMD and care wishes, what you would want cut and what you would want protected.
Before the activity, copy your drawdown map and extend it five years past your planning age. Read the balance in the final row, convert it to today's prices, and work out how many years of spending it would pay for.
Extend your plan by five years and write what you would cut to make it last.
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