1M65 / 4M65, legit or not?
TL;DR :
Recently I have come across many people sharing a certain CPF investment strategy dubbed 1M65 / 4M65, targeting to have $1m SGD (individually) and 4M65 (as a couple) respectively*, as seen in
*Yes I know the numbers don't scale sensibly but this is just what they are coming up with.
The idea is simple, start accumulating contributions to your CPF starting 30 years old and it'll be worth about $1mil at 65. I am not going to re-calculate their numbers since there are too many variables to take into account such as:
Using CPF to pay for housing
Different levels of incomes and thus CPF contribution
Usage of CPF for other issues (Children studies, CPFIS, medisave, etc.)
Varying levels of contribution to CPF due to age brackets
You have to put everything into SA/RA, which is not practical for some people as well
So I am just going to roll with examples of $1m and $2m individually in a span of 35 years.
First off, some assumptions:
Inflation rate is a constant 2%
Yeah that's it.
For 35 years of inflation, the future purchasing power will fall by approx.
(1+2%)^35 = 2.00
What a nice number. This would simply means that whatever is worth 35 years in the future, is only worth HALF it's value now. Using S$1mil as a gauge, it will represent $500,000 in present terms purchasing power. At 4-5%p.a., it will represent an annual return of $20,000 - $25,000. Which is at most $2k a month of present-times purchasing power. Doesn't sounds that fanciful now isn't it? Most people are already spending in excess of $2000/month now, not to mention during retirement.
The S$2m sounds better with an approx. $4000 a month, but to be honest I don't think it is feasible for most simply because you need to accumulate a ridiculous amount of money in your CPF. For reference I have done up a half-assed, rudimentary excel table and you can see the formula I am using:
As you can see, these figures are not easily achievable due to the points mentioned above, so unless you are earning big bucks for the rest of your working life till retirement, don't even dream about having these kind of contributions.
Conclusion
Yes, CPF prevents you from dying from starvation post-retirement, but it is not sufficient to solely depend on it as your nest egg. Good luck!