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This guy has 800K in his CPF. (AK responds to HWZ Forum.)

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IPS forum on CPF: The CPF-IS and its alternatives.

Friday, July 25, 2014

The afternoon's third speaker was Mr. Alfred Chia whose job was to talk about the CPF-IS. 

He had to walk carefully through his presentation because people could feel that he had vested interests to protect if he was not objective enough. 

To his credit, I think he did quite well in toeing the line.

Mr. Chia said that whenever the CPF Board liberalised rules to allow members to use their CPF funds for investments, it would be the insurance companies and banks who got very excited. Their motivation is to make money from fees, after all. 

Plenty of products would be pushed out then to entice CPF members. Unfortunately, these have happened more often than not during market peaks.

Click to enlarge.

Anyway, very unfortunately, 85% of CPF members have lost money under the CPF-IS. 

This is due to a cocktail of factors but such a high percentage could be reduced if CPF members are better educated on things investment.

Mr. Chia also talked about Dollar Cost Averaging and how, for the average guy, this could be the best way to go. Of course, this should not be a new concept for regular readers.

I believe that sales people will always be sales people. They have to sell things to make money for themselves. 

We have to take on the responsibility of deciding for ourselves if a financial product makes sense at all. So, increasing our financial literacy, like it or not, is important in our society.

Personally, I have always said that the CPF pays risk free rates of 2.5% to 5% per annum. Unless a certain investment product is able to do better, it is better to leave our CPF money where it is. 

Indeed, I find the risk free rates in the CPF-SA so attractive that I would encourage anyone to do Minimum Sum Top Ups if they are allowed to. Of course, they would enjoy income tax relief at the same time.

"We can never be too sure about our investments and how they will do. However, the CPF gives us a measure of certainty which we need in our golden years. So, it is a good tool in retirement planning and we should make good use of it." AK, 24 March 2014 in Securing risk free returns early for retirement.

See slides: here.

Related posts:
1. AK attended forum on CPF.
2. Dollar Cost Averaging and expected returns.
3. Nobody cares more about our money than we do.
4. Double your income, not your income tax.


Anonymous said...

"We can never be too sure about our investments and how they will do. However, the CPF gives us a measure of certainty which we need in our golden years. So, it is a good tool in retirement planning and we should make good use of it."
Whether you like CPF or not, I think the above is quite accurate. A little bit of asset allocation will help you to sleep better at night.

AK71 said...

Hi temperament,

Thank you for the affirmation. :)

People feel invincible at times especially when the bull market shows no sign of ending. -.-"

Anonymous said...

i am just speaking from my "heart".
But i think OA 2.5 % is too low for keeping it there for 25 to 30 years though. But it is a very good place to park your money there looking for an opportunity to invest for better return. Especially now bank FD is 1-1.25 p/a. That's provided you are quite savvy in investment.

AK71 said...

Hi temperament,

Yes, I agree. The money in my CPF-OA is making a risk free 2.5% while waiting for opportunities. It is one of my 4 war chests. ;)

Anonymous said...

WOW! 4 war chests! Holy smoke!
Care to reveal how you have 4? 2 or 3 is very difficult already.

AK71 said...

Hi temperament,

Not difficult to imagine lah:

1. Cash in the bank.
2. CPF-OA money.
3. CPF-SA money.
4. SRS account money.

4 war chests lor. ;p

Betta man said...

Hi ak, since we are on the topic of retirement planning, i' ve been mulling over the idea of buying an annuity plan when i hit 40. The payout will start at 55 and will fund basic neccessities. Dividend stocks will fund luxuries like travelling. Hope to hear ur opinion on this.

AK71 said...

Hi betta man,

Without details of the annuity plan, I can only make a general comment.

Like what DPM said, the CPF Life is an annuity that earns 4% yearly, compounded and guaranteed. It is probably impossible to find another annuity like this.

An example of a product that is a no go for me: Retirement Income Plan.

Apart from the CPF Life which is really a minimum safety net, whatever else I do in preparation to fund my retirement should at the minimum give me 5% per annum in returns. In today's environment, maybe 4% is also acceptable.

Otherwise, I am better off making voluntary contributions to my CPF-SA (which I cannot do anymore).

For leveraged investments like REITs, I would ask for an even higher return than 5% per annum. At least 8% would be nice.

Resources are limited and money should go to where it is treated best. Would investing in a basket of proven dividend payers like SPH and ST Engineering in place of buying an annuity be more rewarding?

After all, with an annuity, there is no option of cashing out. So, why not simply buy and hold stocks like SPH and ST Engineering, in the process, saving a bundle on fees? ;p

Betta man said...

Thanks AK. I will email you a copy of the plan when it comes in.

The returns on CPF Life may be good but I am not comfortable with the increasing draw-down age.

AK71 said...

Hi betta man,

Yikes! I am not an IFA. I am not the best person to provide advice. Actually, I am not allowed to. -.-"

As for CPF Life's drawdown age, the impression I got during the forum was that if there should be any increase in the drawdown age in future, it should be cohort based. I won't be too worried about it.

So, if it should happen, it will affect younger people who are just joining the workforce in future, not us. Crossing fingers. ;)

AK71 said...

Spur said...
Frankly, if the govt is serious about retirement adequacy it should start reducing the amount of CPF that can be used for property. If they are too scared that it will implode banks, property developers & the economy (which was the main reason they liberalized CPF in the 1st place) then implement it over 20 years. But at least get it going.

AK said...
Yes, I agree. Allowing more and more ways which the CPF money can be used has not been helpful to its mission as a cornerstone of retirement adequacy. Sometimes, it can also be harmful.

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