IRR at retirement is 53%, not “over 70%” as claimed by Ministry of Manpower

An estimated calculation has been done up for a 25 year old Singaporean and it turns out if he doesn’t consistently earn $3390 monthly for the next 30 years, he will not be able to meet his Minimum Sum after buying a BTO HDB flat.

With $250,000 at the end of his working years, his CPF Life monthly payout will be $1820, or a Present Value of $1085, the IRR(Income Replacement Rate) of approximately 53% of the last drawn salary.

This calculation contrasts greatly with the 70% IRR claimed by the Ministry of Manpower [Source].

While the Ministry of Manpower dare not make public its calculations, Wiki Temasek’s calculations is ready for download here [wpdm_file id=1].

As for low income workers with IRR of over 93% as claimed by MOM, this is possible so long the PAP Government continues to depress low income workers’ salaries with cheap foreign labor in 30 years’ times like today.

To make a baseless claim saying “Young Singaporeans will have enough CPF savings by retirement”, is just an outright propaganda message to mask the failure of CPF to providing a decent retirement for Singaporeans especially when today, we are seeing more elderly Singaporeans taking to the streets collecting tin cans and cardboards or working as cleaners drawing a median salary of $815(2012 figure).

Assumptions made for IRR Calculation:
– 25 year old just started working for the next 30 years. and stop working at 55
– fixed Present Value monthly salary of $3390 a month with 13th month bonus throughout the next 30 years
– 1% real wage increase after factoring estimated yearly inflation of 1.7%
– bought a house with a partner at age 26 and borne half of the $280,000 4-room BTO HDB loan at 2.6% HDB loan interest [Source]
–  CPF Ordinary Account and Special Account combined at 29% of yearly salary
– Minimum Sum for year 2042 is $250,000 with the estimated average rate of $4000/year increase as happened during 2003 to 2012 period
-CPF Life Payout Calculator [Source], Present Value Calculator [Source]

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