The Central Provident Fund (CPF) is Singapore’s national saving system and contributions to CPF accounts are as high as 36% of a person’s wage. Previous studies on adequacy of CPF for retirement spending focused on the Income Replacement Rate (IRR) as the metric for measuring adequacy, but among them there is little agreement on the final IRR achievable by CPF. Furthermore, the inception of the new CPF Life scheme has rendered previous studies outdated. In this report, we propose a different quantitative approach to the question of adequacy, which is to model an individual’s savings and retirement expenditure using publicly available data, and determine if the accumulated wealth is sufficient to cover retirement spending. We find out that the CPF Life income can adequately cover retirement expenses for the 30th percentile of income earners. Therefore, CPF Life serves its purpose as a source of post-retirement funds for the lower-income group. However, adverse changes in wage growth rate or inflation rate can lead to the 30th percentile not being able to cover their retirement expenses even with personal savings. Meanwhile, the statutory Minimum Sum level may need to be reviewed as it is more than enough to sustain basic expenses after retirement.BUSINES
