 |
| Facebook (31/12/16). |
I have been pretty consistent in my message that beefing up our CPF-SA early would help us achieve retirement adequacy in our golden years.
Even if we were to stop mandatory contributions after some time, once there is a critical mass in our CPF-SA, the interest received annually would go a long way to meeting the (much feared) annual increases in the minimum sum over time.
In my case, I significantly beefed up my CPF-SA in the first 4 years of my life as a working adult.
That would be from my mid to late 20s.
I transferred all the funds in my CPF-OA to CPF-SA in those years.
From time to time, I would make voluntary contributions too.
I am 44 this year and here is what I have to show for my efforts today after 19 years in the workforce:
 |
| AK's CPF SA. |
I still do some voluntary contributions which I have marked with the letters V.C. above.
As I am still gainfully employed, I still have mandatory CPF contributions.
What I want to draw attention to is the interest paid to my CPF-SA:
$7,651.65.
As a sum of money, it might not look like much but if we were to think deeper, we would start to look at it differently.
What do I mean?
Now, I know that many people complain about how the minimum sum keeps increasing and how they find it difficult to meet the minimum sum running on their own steam.
Well, many years ago, my thought went like this:
"Why not let the government help me meet the minimum sum?"
 |
| Get a 4% to 5% coupon from a AAA rated sovereign? |
If I were to push the balance in my CPF-SA significantly higher, the government would have to pay me more in interest.
The much higher interest paid to me would then go towards meeting the minimum sum required.
Sounds good but does it work?
Well, the interest I received in my CPF-SA has been higher than my mandatory contributions to it for many years by now.
This means that the government have been working harder than me in those years to help me achieve retirement adequacy.
Don't you like it when others work harder than we do to help ourselves?
If we look at the schedule below, I think it is safe to say that the interest paid to my CPF-SA yearly is more or less able to keep pace with the yearly increases to the minimum sum.
So, the strategy works!
 |
| Source: CPF Board. |
At age 55, I could withdraw a nice sum of money in excess of the minimum sum (instead of only $5,000) with a smile on my face.
I would probably have an even bigger smile on my face when I recall that a big chunk of the money is actually from the government and I am not just taking back my own money.
What?
You want satisfaction?
Well, then, why stop at taking back our own money?
Isn't it more satisfying to take the government's money (legally)?
Related posts:
1. Don't be stupid to top up your CPF-SA.
2. Upsize $100K to $225K in 20 years.
3. Get a lifetime income of >$2K a month.
Hey when you max out your MA at $48,500, the MA contribution will flow into your SA. At the interest from MA, should be able to cover your PMIS too. Is the allocation more efficient?
ReplyDeleteHi Siew Mun,
ReplyDeleteI max out my CPF-MA too. The idea is very similar to what you have in mind. ;)
How to get free medical insurance in Singapore?
Something worth exploring. :)
hi AK!
ReplyDeleteThanks for sharing, you have inspired many of us out there. Although different people have diff plans, but yours is a feasible one and some of us would be able to benefit from such a plan.
The only issue is that CPF would set a limit/cap for transfer of OA to SA and think after age 55, some of the money would only flow to OA instead of SA. (2.5% instead of 4%)
Btw, is it possible for u demonstrate to us the possibility of hitting 1 million in combined CPF accounts through calculations and numbers?
Thanks!
Hi AK
ReplyDeleteCharlie Munger said "Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer."
CPF-SA and SRS are the equivalent of tax deferred account in Singapore.
Most people think they can beat the market, but how many actually get to do it consistently on a year-on-year basis for 20 - 30 years ? Why are people questioning this risk free, volatile free 4% (not forgetting 5% for the first $60k).
The very people who say CPF is a government ploy to lock up their money are the same people who won't think twice to buy 20 yr high-cost ILP insurances.
The very people who complained CPF is a government ploy to make their money are the same people who splurge the equivalent of a HDB studio apartment on something called the C-A-R. In return, they complained about pricey parking fee and wake up at 6.00 am daily just to beat the ERP in order to save a few bucks, when they already spent close to a quarter million SGD (compounded 3% over 30 years) on this thing called the C-A-R.
Mr S. Rajaratnam (former singapore deputy PM), once said that Singaporeans were in danger of becoming a people who knew the price of everything and the value of nothing.
I fear that this is coming true.
Just my 2 cents, above instances are purely coincidentally if it sounds similar to someone you know.
C
The possibility of hitting CPF takes conscious effort, not impossible. Most middle class people won't have a million as they spent most of it on their flats/ condominiums.
ReplyDeleteHi AK,
ReplyDeleteThanks for stepping out of your comfort zone and sharing your real life numbers. It helps to put some numerical and realistic perspectives to what you have been advocating for some time.
I've read some articles on CNBC and the word diversity popped up. If you may share, what's your take on diversity of your retirement funds?
In my plans for financial freedom and in line with retirement, my personal take is that CPF should only be but a portion of one's retirement funds.
Relying 100% on CPF life (If it still exists when I retire 3 decades later) does not seem like a air tight plan as 3 decades later, it's really anyone's guess what would be the MS, payouts, etc. Would CPF still exist? Who knows too.
However, what is certain now is that CPF does exist today and it does have its pros and cons. Since it exists, why not make the best use of it within one's personal ability? The 4% interest on SA does hit the sweet spot on many levels but of course, some might argue that 4% could be 5%, 6% but better 4% than lesser.
I think it would bring some comfort to some readers to think about diversity of their own retirement funds too if they strongly believe that CPF does not meet their needs.
For me, CPF will form one of my pillars of retirement. As with all pillars, it better be solid and support the strain that's on it. I'll do what I can to make sure this pillar is strong, as with all the other pillars which I have in mind.
Hi donquixote514,
ReplyDeleteI am glad you have found the blog inspiring and I do hope that it brings benefits to readers. :)
As for your idea of having $1 million in the CPF, I believe EY had a comment on this before: Just for the fun of a desktop exercise - how might one be able to accumulate $1mil in CPF SA + RA? ;)
Hi C,
ReplyDeleteI like that quotation by Charlie Munger too and use it a fair bit. Words of wisdom. :)
The lack of financial security in many people's lives often has to do with them getting their priorities all wrong. I have seen it happening often enough. :(
So, I strongly believe in helping everyone understand the importance of planning for retirement and how the CPF can be a cornerstone in their efforts to achieve retirement adequacy. :)
Hi Solidcore,
ReplyDeleteGlad you like what I have done in this blog post. Yes, I had to take a step out of my comfort zone to do this. ;p
Anyway, I feel that you are right to think that the money in our CPF alone is insufficient to retire on. This is why I say it is only a cornerstone. It cannot be the entire foundation.
Having said this, some people might actually find the CPF sufficient to retire on. It really depends on how much they have in their CPF at the point of retirement and the kind of lifestyle they lead in retirement.
Well, for the most of us, I believe that we should invest in equities that pay dividends. I also believe that property investments for rental income could be considered. Investment grade bonds, when their yields are much higher, could be considered too.
Putting it simply, it is about getting in with a margin of safety in instruments which we can invest for income. :)
I think ppl who are against having their money placed in cpf. Can see the numbers but cannot touch. They should be ppl w/o sense of security.
ReplyDeleteUUltimately, we can be calculating glorious figures in our cpf but if we can't meet our perceived immediate needs, then there is no way to be comfortable with cpf.
Great Article!!
ReplyDeleteIf one is not using the OA (example for housing), one can always transfer it to max up the SA and to let the money work at it's 'hardest' year after year. No need monitoring. Just relax and enjoy the interests.
In the mean time, one can use their own cash to do other investments. Let your money work hard in various ways.
no harm to leave some money in a stress free situation.
Hi AK,
ReplyDeleteThanks for sharing and seeding this idea. I never thought the CPF-SA could be utilized in this way to save up for our retirement. Have always had negative perception as CPF locks up our capital for investments.
Do you think it is better to use excess funds in CPF-OA for additional HDB loan repayment or shifting it to SA to earn 5% interest?
One thing to add is that if you are yet 55 and you plan to get resale with HDB loan, there is limit which is you must retain half minimum sum in CPF. So having 4% works for you will likely helps. Not sure about Bank loan will have similar restriction though.
ReplyDeleteHi AK,
ReplyDeleteI thought max amount allowed in SA is S$161K. How come yours is S$186K?
Isnt anything more than S$161K in SA will be transferred to OA?
Thanks
KS
Hi Anion,
ReplyDeleteYou are the third person to ask me this but the first in my blog's comments section. ;)
I would say that the roof over our heads must have priority. So, having enough funds in the CPF-OA to pay the mortgage is important.
What is considered enough? If we are very conservative, having enough funds in the CPF-OA for 24 months of payment sounds about right to me. In case of a very bad recession, some could stay jobless for a long time but the home loan would still need to be serviced.
If we do not need to utilise money in the OA for other purposes, we can consider moving the excess funds in the OA to the SA to help with meeting retirement adequacy. :)
Hi KS,
ReplyDeleteMoney in the CPF-SA stays in the CPF-SA even if you have exceeded the minimum sum (MS) required which is good because it will earn 4% per annum in the SA.
$161,000 is the MS required for people who are turning 55 on or after 1 July 2015. It is not a ceiling for the CPF-SA.
For the purpose of MS Top Ups to the CPF-SA (up to $7,000 a year and tax-deductible), however, if we have hit the MS, we are not allowed to do MS Top Ups anymore.
However, any mandatory contributions from employment or voluntary contributions (non tax deductible) will still see a portion going to the CPF-SA. From 2015, the CPF Annual Limit will be increased to $31,450.
See:
CPF Contribution and Allocation Rates 2015.
Hope this helps. :)
hi AK, happy new year to you! Keep up the blogging =)
ReplyDeleteFully subscribe to your idea of maxing out one's SA as far as possible. I havent maxed mine out yet as I do keep enough headroom to topup $7k cash into my SA and get the tax savings... I hope the govt actually removes this cap of only allowing top-up as long as the sum in SA is below the min sum. They can keep the max top-up to $7k so that the scheme is not abused.
I'm waiting to see what the govt will do now that the min sum of $161k has met the $120k target (in 2003$ terms). I would like to see it increased, so that I can continue to top-up my SA, but I can understand how lower-income individuals close to retirement may not like it. Hence, I do hope they scrap the SA limit!
Thanks AK,
ReplyDeleteWell, I made a "mistake" transferring money from from OA to SA thinking that anything more than MS in A will be transfer back to AO.
Hmmn, you may say its a good mistake though.
Lucky,I have no home loan and still have a job.
Rgds
KS.
Ps: cpf board should conduct more roadshows and advertisements to explain cpf rules to public..(cant imagine if i have to service home lan now)
Hi Serendib,
ReplyDeleteI would like to be able to contribute more to my CPF-SA too. Unfortunately, I don't think the rules are going to change.
DPM Tharman said during the "IPS Forum on CPF" that the CPF is not meant to help people who have above average means. I think he is referring to us. ;p
This really blows a big hole in the argument that the CPF is a big PONZI scheme. I have not come across a PONZI scheme that restricts contributions by its members. ;)
Hi KS,
ReplyDeleteI do agree that the government should do more to reach out and to educate the public regarding the CPF. I have provided feedback to both the CPF Board and MOM on this matter.
To be fair, I do see them stepping up their efforts but I am sure there is always room for improvement. :)
Donquixote514,
ReplyDeleteI got interested and went to tabulate the balances in OA, SA and MA to see if $1m can be achieved.
Start year/age: 2015/36
End year/age: 2039/60
Minimum Sum: Achieved (mandatory contributions continue)
Medisave Contribution Ceiling: Achieved (mandatory contributions flow to OA as MS achieved)
Ordinary Account: No property purchase as I will take over parents' flat and care for them.
I account for the extra 1% interest given to $20K in OA and $40K in SA. Interest is computed monthly, compounded and credited annually. It is assumed that I have a bonus of 1.5 months every year as the baseline.
At age 60:
(1) With no property purchase, the closing Dec balance on OA and SA is definitely more than $1m.
(2) With a fictitious HDB property purchase in Jan 15 which empties the OA account and clearing the loan using cash, the OA will accumulate to $662,000. Combined with $597K in SA, it will still be more than $1m.
One can use the CPF for children's education but as it can only be used for MOE subsidised institutions, I think it may be better to budget for the cost of an overseas education using cash.
As AK once said, is it not better to take the government's money by leaving money in CPF for the compounding magic effect?
Hi AK,
ReplyDeleteThanks for sharing your SA balance.
It allow me to compare my own approach towards yours in meeting the MS amount and even surpass it.
To be frank, my balance/age isn't far behind yours as we've taken the same path to transfer funds from OA to SA and keeps contributing to it but your way is obviously more powerful in terms of compounding effect as you do it during your early years of working life while I only made 2 lump sum transfer around 10 yrs later after I fully paid up my home loan. It seems quite difficult to catch up with your balance but there are important lessons learn here that I will pass on to my child.
I have this believe that for a working class, the first step towards achieving financial freedom is to try to meet the CPF MS and even surpass it. Can you agree?
Hi caelitus,
ReplyDeleteThanks for doing the tough number crunching here. Appreciate it. ;)
Let's take as much money from the government as possible while the going is still good. ;p
Hi iwimsasl,
ReplyDeleteI am glad that you appreciate my effort and my intention with this blog post. :)
Yes, one of the things I am trying to demonstrate here is that if we beef up our CPF-SA earlier in life, because we give a more significant sum of money more time to compound at 4% per annum, money in the SA will grow to be rather significant without us having to do much else as time passes.
And, yes, I agree that for people of more modest means, the CPF is probably one of the best ways to help ensure retirement adequacy.
It is obvious from the way the government puts caps on voluntary contributions and MS Top Ups that the CPF is not meant to enrich those who are very much richer.
Unfortunately, I have come to realise that many of the people the CPF is supposed to help the most are also the most suspicious of the system. :(
Hi Ak,
ReplyDeleteLet's say the govt allow unlimited top up to your CPF SA with the condition of no withdrawal ever till draw down age(65-67yrs) whereby it will be return on monthly basis, will you keep contributing by VC or even transfer from OA?
If yes, what's your ideal target?
Hi iwimsasl,
ReplyDeleteOK, I will say that I would only think about it if this change should happen one day. ;p
I am very sure that it is not going to happen. DPM Tharman was very clear on the objectives of the CPF at the "IPS Forum on CPF" last year. :)
Timely article, i am seeking some advice from you guys here. i am toying with the idea of moving 100k of OA to SA.
ReplyDeleteHowever i have housing loan of 100k up and coming next yr.
I could use that 100k to clear the loan, or obtain a loan for that amount. Assuming an 1+% interest up till max 2.5% with POSB hdb loan, but SA interest is 4%, isnt this a form of arbitrage?
Thoughts?
Hi Ak,
ReplyDeleteI read from the paper that they are studying the flexibility of allowing lump sum withdrawal up to a certain percentage for some at age 65 while allowing others to top up more to SA/RA. I see it coming tho but not unlimited.
Hi BP,
I'm a conservative person thus, will choose to pay up the home loan first. dun forget that interest rate will rise any time.
Hi iwimsalsl, thinking of POSB loan which is capped at 2.5% for 8 years iirc. I dont intend to loan for longer period than that anyway.
DeleteHi BP,
ReplyDeleteWell, we have to understand that once money is transferred into the SA, it is irreversible. So, we have to be very sure we want to do this.
Having said this, although I feel that the roof over our heads must have priority, I also feel that retirement planning is important.
I have a friend who, years ago, was in a similar situation as you are in now. I suggested that he transfer $40K into his SA and leave the rest for his HDB flat.
Recently, he told me the people same age as him are amazed by how much he has in his SA. It is the power of compounding 4% per annum.
What about his flat? He is still servicing his mortgage but the cost is 2.6% per annum. Getting 4% on the money he transferred into his SA, he thinks he got a good deal. I think so too.
So, think about this carefully. You could consider a partial transfer from OA to SA too. ;)
Like your friend, if i do the transfer, i hit MS immediately. And I have separately 50k of OA in some equities and bonds that yields higher than 2.5% which could be liquidated if needed to service the loan if i go out of work. That should last at least a year for me. So I'm seriously considering this option. Cost to service loan is definitely lower than 2.6% since the POSB loan is capped at 2.5%. Just wondering if there is anything else that i couldn't think of(or dont know of)
DeleteHi iwimsasl,
ReplyDeleteI will be very happy to be wrong in this instance. LOL. ;p
Yes, I agree that it is unlikely that they would remove the contribution cap. They could raise it, I guess. Will wait for more news on this.
Thanks for the reminder. :)
Inspiring! Good job AK. I really appreciate your sincere and kind intention. You have take it to another level by making your SA balance public. It leave no doubt that we should plan early and properly for our retirement. My child is 12 years old. I will check how soon I can open a CPF account for my child and I will deposit money in the OA, SA and MA the moment my child can open the account.
ReplyDeleteHi Thomas,
ReplyDeleteFrom the feedback I have received both here and elsewhere, I am glad I did this despite feeling uncomfortable at first.
Honestly, the blog post almost didn't see the light of day as I sat on it for an hour or so after finishing it. ;p
Thank you for the positive reinforcement. :)
Hi AK, thank you for sharing your CPF SA account balance, I must say looking at the interest earned is quite inspiring.
ReplyDeleteHowever, do you not worried about the draw down age (DDA)? It has been pushed to the right a year for every two years. By the time you reach 55, the DDA will be 70. You are ok with this?
Hi Chin,
ReplyDeleteThe DDA from 2018 is set at 65 and there it would most likely stay.
The reason why we see the DDA changing from 63 to 64 this year and to 65 in 2018 is to ease CPF members into this change.
65 is the ultimate target so that funds in the CPF-RA will have a 10 years accumulation period from age 55.
Hi BP, I suspect we are around the same age, as it would take a 100k transfer from my OA to SA to hit minimum sum too :) however what is holding me back is that I have not purchased a property yet, and looking to do so in the next few years. My partner has no savings and hardly any cpf, so most likely I will be paying for the whole property myself. Without knowing what property we would be buying, it's very hard to commit to the irreversible OA->SA transfer at this time. Have to give up the power of compounding for now. Oh well
ReplyDeleteHi.
ReplyDeleteThanks for sharing this information with us. I understand for insurance, there are a group that advocate BTIR.
I'm wondering, since CPF interest rate is guaranteed, maybe I should get a term plan and then invest in CPF account? What do you think of it?
Hmm. . . Mr AK, i expected you to have more in your SA in my mind.
ReplyDeleteAnyway, i have to work hard to grow my cpf money and non-cpf money! =b
Hi WeiJie,
ReplyDeleteI would say to buy term, always.
Imagine if you were to buy an ILP that has an insurance coverage of $500,000 and if it costs you $4,000 a year, that is a lot of money. You could get the same coverage if you were to buy term for a small fraction of $4,000. Of course, it all depends on how old you are but term will always be much cheaper, all things being equal.
Now, what can you do with the savings from not buying ILPs? You must know that the CPF is not an investment tool. It is a savings tool. The CPF-SA is a very specific savings tool and savings in the SA is for our retirement.
There are many options available out there but if you want an option that is risk free, volatility free and gives you tax savings at the same time (up to $7,000 top up allowed in a year), then, the CPF-SA is the choice for you. Some of the savings from not buying an ILP can be used to do MS Top Up to your CPF-SA. :)
Hi Rebel,
ReplyDeleteI assure you that many things that are being said about me out there are akin to urban legends. ;)
I am just a regular guy with a regular income. :)
So, I have discovered another advantage of this blog post. I have dispelled some myths about me. ;p
Hi AK,
ReplyDeleteI have checked with CPF Board. They say if I top up my special account for the MS, and since my medisave is max., any voluntary contributions will only go into my ordinary account. The statement you had shown, your special account balances is above $155k. May I know, what form you used for your voluntary contributions of $777.60 that can still add on to your special account? Or is there something i miss out. Kindly enlighten.
Thank you.
JB
Hi JB,
ReplyDeleteI used the form shown here:
Voluntary Contributions to CPF.
Because I have already hit the MS, I am not allowed to do MS Top Ups.
So, I can only do VCs (which I can do since my annual mandatory contribution is lower than the CPF contribution cap). However, do note that the VCs have no tax relief.
As my MA has hit ceiling, my VCs are split between my CPF-OA and CPF-SA.
Hope this helps.
This is good news for people who like the idea of using the CPF as a cornerstone to help us meet retirement adequacy:
ReplyDeleteThose who want to put more into their Retirement Account for higher annuity payouts should be allowed to do so, felt the panel, which is proposing that they be allowed to have up to three times the Basic Retirement Sum to pay for CPF LIFE premiums (or S$241,500 in 2016).
Source:
http://www.todayonline.com/singapore/panel-proposes-greater-flexibility-cpf-system
Hi AK
ReplyDeleteI find the newly announced payout options strange.
A Basic Retirement Sum (BRS) of $80,500 will yield $650-$700 per month. Why is an Enhanced Retirement Sum (ERS) of $241,500 (3 times of BRS) be yielding only $1,750-$1,900 per month? Shouldn't the ERS payout be $1,950-$2,100 per month... dollar for dollar comparison?
Hi MaoMao,
ReplyDeleteI don't know how they went about making the calculations. I am very intrigued by the proposals but I will wait for everything to be finalised before commenting on the details regarding basic, full and enhanced options. :)
Hi AK
ReplyDeleteDo you mean beside the monthly CPF contribution by yourself as an employee and your employer, you voluntarily contribute some money to your CPF?
Is this allowed?
Would this be taxable?
Thank you.
Hi Starlight,
ReplyDeleteWe could opt to do a Minimum Sum Top Up yearly to our Special Account (SA) and up to $7K a year is actually eligible for income tax relief. Yes, it is allowed and even encouraged (as long as your CPF-SA has yet to hit the current minimum sum. ;)
Hi AK
ReplyDeleteMy CPF-SA has reached the max and I can't transfer any OA to SA anymore.
Perhaps I should go to CPF Board one day to learn more about the Voluntary Contribution for employees.
Thank you.
Hi starlight,
ReplyDeleteOA to SA transfer is not eligible for income tax relief. Only MS Top-Up to the SA using cash gets income tax relief (for up to $7K a year in top up). Just to be sure you are aware of this but it is only of academic interest since your SA has hit the ceiling. ;)
As for Voluntary Contributions (VC), they are not eligible for income tax relief. You can do a VC if your mandatory contribution has not hit the total contribution limit for the year. The contribution limit for 2015 is $31,450, if I remember correctly. So, if your mandatory contribution is $25,000, for example, you can do a VC of $6,450 this year.
You might be interested in this blog post with a link to the form for VC:
AK is buying a 12 year tenor AAA bond.
Hi AK
ReplyDeleteI cannot do any MS top-up to SA as I have hit the contribution limit. Hence, for tax savings purposes, only SRS investment at max of $12,750 is available to me?
I have not hit MS yet in my SA, but one should not transfer OA balance to SA if one can invest OA funds to earn in excess of 4%, am I right?
Hi Caleb,
ReplyDeleteHit the CPF-SA ceiling already? That is a good problem to have. ;)
Yes, you could contribute to your SRS account for tax savings. I believe they are considering to increase the limit next year. You could also consider contributing to your CPF-MA for tax savings. I believe the CPF-MA ceiling is $43.5K now.
A percentage of our funds in the CPF-OA can be used to invest in the stock market. However, we must be very clear about the difference between being a lender and an investor. When we push money into the CPF-SA, we are lenders. We are bond holders. When we buy stocks, we are investors. So, they are not apple with apple comparison. It is not just about yields. It is about asset allocation. ;)
Hi AK
ReplyDeleteSorry for the confusion, I have hit MS ceiling of $48500 but have not hit minimum sum (for SA balance), but I have hit annual CPF contribution limit of $31,450.
Can I still do top up of $7k to SA and also enjoy tax savings?
Hi Caleb,
ReplyDeleteIf you have not hit the CPF-SA MS of $161,000, you are allowed to do OA to SA transfer or a MS-Top Up to your CPF-SA using cash. This is independent of the annual contribution cap of $31,450 (from mandatory + voluntary contributions) for the year. :)
Yes, a MS-Top Up of up to $7K a year to your CPF-SA is eligible for income tax relief. ;)
Hi AK,
ReplyDeleteIs the CPF SA MS of $161,000 inclusive of sums invested in UT?
Thanks,
DT
Hi DT,
ReplyDeleteYes, I believe so. Money in the CPF-SA which is used under the CPF-IS should be considered part of the MS. However, you might want to verify with the CPF Board. :)
Hi,
ReplyDeleteI would like to ask why would you do a voluntary contribution that will yield only 4% PA. I say only because I believe you can have gotten a higher return elsewhere.
Not to add that we can't get the monies in our CPF as we please. The only upside of this is, it is relatively safe?
Hi Hui Xiong,
ReplyDeleteI firmly believe that there is a place for risk free and volatility free instruments in our investment portfolios. This is why many investors have a investment grade bond component in their portfolios.
For me, the CPF-SA (with coupons of 4% to 5% which are reinvested) is that investment grade bond in my portfolio. It will also morph into an annuity at age 65 which will pay us an income for life. I believe that we should have an annuity or two in our retirement funding strategy and the CPF-SA does this job better than most.
Singaporeans and Singapore PRs are lucky people. ;)
Hi,
ReplyDeleteCurious as to why the interest did not overflow into OA even when SA limit reached? This is different from MA where any interest will be trf to SA when hit the max of $48500
Hi Pauline,
ReplyDeleteThere is actually no maximum or ceiling for the SA. There is a minimum sum we must maintain in the SA at age 55 (which will be transferred to the RA) and this minimum sum requirement also limits our ability to do OA to SA transfers or Minimum Sum Top Ups. So, once we have hit the minimum sum requirement at any one time, no transfer or Top Up is allowed.
However, if we continue to be gainfully employed, there will still be mandatory contributions to the SA and interest earned in the SA will stay in the SA even if the minimum sum has been reached or exceeded.
Huang XinLong: "I feel the trust between the government and people is lost. When such a thing happen most people will not be objective. So facts don't matter anymore."
ReplyDeleteWe must all learn the importance of communication and communicate effectively. The government can and must do better.
"I do know friends and also family members who are deeply suspicious of the system."
The CPF is really a self-help institution. We should help the CPF to help ourselves. It is an idea that I like and readers know that it is a pet topic of mine. However, there will always be people that I desperately want to reach but their minds remain closed.
It might surprise you but I only managed to convince my parents a few years ago of the merits of the system and largely by showing them my CPF account and how I did it. I guess this was also why I decided to step out of my comfort zone to publish my CPF statements in my blog. If it works on my parents, it should work on others.
Of course, there will be people who remain suspicious. No amount of talk is going to work on them. They need to discover for themselves and I can only hope that it won't be too late by then.
Hi,
ReplyDeleteI am 45. I dont trust the government bevause they keep changing cpf rules such as increase minimum sum and delay withdrawal age. But the cpf compounding interest work. So leave money and let it work for you.
Rgds
Ks
Hi KS,
ReplyDeleteThe minimum sum has to increase because of inflation. And we should realistically expect the minimum sum to increase at least 3% per year. However, if we have been proactively growing our CPF savings, I have shown how it is possible to let the government help us meet this 3% increase and more each year.
Delaying the DDA to 65 years old by the year 2018 is important as it allows a 10 year accumulation period so that we will have more on a monthly basis from CPF Life which is basically an annuity.
Bringing forward the DDA to 60 years old sounds attractive and this is being suggested by the WP but Singaporeans must realise that this comes at a cost as it would mean having less on a monthly basis from CPF Life forever.
As we live longer, it makes sense to raise our retirement age and to push our DDA to age 65.
I hope you can see that I am just being pragmatic here.
Hi AK,
ReplyDeleteYour blog really inspired me to take charge of my finances and be more serious in retirement planning. I have since Transfered excess funds from my OA account to SA and also plan to top up the SA yearly so I can hit the minimum sum ASAP. I used a spreadsheet to calculate and true enough because of the compounding effect I should be able to hit the minimum sum (assuming the MS only increases by 3% per annum) by the time I reach 40! I never thought this would be possible!! But of course the size of my investible assets is nowhere near what you have.. :)
It was really a big leap of faith for me as I still have an outstanding home loan which I intend to use only part of my cpf to pay and the rest will come from cash. Hopefully I won't regret this later on.. ;) fingers crossed.
Hi Pauline,
ReplyDeleteWhen you say "excess" funds in your OA being transferred to the SA, I am assuming that you have left a float in your OA that is big enough to service your home loan for a period of time (in case you should run out of cash for whatever reason). For those of us who have an outstanding home loan, it is the prudent thing to do.
What is enough? I would say to keep enough in the OA to service 12 to 24 months of mortgage payments or what we think is a reasonable amount of time to regain a healthy cashflow.
I am glad I did what I did with my CPF. I hope you would one day feel the same about what you have done too. :)
Hi Ak,
ReplyDeleteYes I have kept a small buffer in the OA before doing the bulk transfer. Not as much as 12 months mortgage payments though. As I only use a small amount from cpf to pay for my mortgage, my OA balance will build up pretty quickly so i'm not too concerned.
My intention is to build up to 20K float in OA and transfer the rest to SA. I will only be doing this (beef up SA aggressively) for the next 2-3 years anyway (until limit hit) and my job should still be secure for the next 2-3 years. Can't say the same for longer time period though, given the gloomy job market right now. Lots of retrenchment in my industry.
Hi Pauline,
ReplyDeleteI like the sound of things. Good plan. :)
The economy does look weak and to the government's credit, they are not glossing things over. Things could get a lot worse in the next year or two. We should heed the warning signs.
Those who have been financially prudent, everything else being equal, will weather the downturn better than the rest.
I know that if we are consistently very good investors, we could get much better returns than 4% per annum but I believe that there is always a place for investment grade bonds in our portfolio. The CPF is, to me, that risk free and volatility free investment grade bond in my portfolio. Simple.
ReplyDeleteYou might have your own beliefs and you might even think that I am stupid for thinking the way I do. That's OK. What you think of me does not hurt me. However, don't say that I am leading others astray. I am only sharing what has worked for me. I never push for anyone to follow in my footsteps.
Hi AK. I hope you will be kind to do a January 2016 edition to this post. Merry Christmas!
ReplyDeleteHi Mao Mao,
ReplyDeleteOK, I will consider doing an update although I am not sure if it would be more useful a blog post than this. MERRY CHRISTMAS! :)
Hi there
ReplyDeletelate into this post but i find it very valuable, however, so doubt about it as well.
As per CPF, reaching age 55, you will not be able to withdraw any of the self top-up made in SA.
++quote from cpf web++
After setting aside your Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge, you can choose to withdraw the remaining CPF balances (excluding top-up monies, government grants, and interest earned in your Retirement Account), or continue to keep your savings in CPF to earn attractive interest
++unquote++
Therefore, unless contributor is fulling comfortable with the higher monthly payoff amount. Do not see a good incentive in doing this contribution. There wont be a lump sum pay out at 55 =(
rgds
V mei
Hi V mei,
ReplyDeleteThis has been discussed before and the conclusion was that unless one's CPF-SA is made up exclusively of money from MS Top Ups, there will still be a lump sum payment at age 55.
For most of us who are gainfully employed and choose to do MS Top Ups and if we exceed the MS or the FRS, most likely, the money from MS Top Ups will be retained and transferred into the newly created CPF-RA. Whatever in excess of the FRS (made up of money from mandatory contributions from employment) will be available for a lump sum payout.
In fact, for some, without doing MS Top Ups to the CPF-SA, the chances are higher that there might not be a meaningful lump sum payout at age 55 (unless one thinks $5,000 is meaningful).
Reader:
ReplyDelete"Hi, I read from your blog that you have an amount greater than the 2016 FRS of $161K in your SA. How is that possible? Isn't amount in excess of the FRS in the SA transferred over to the OA?"
AK:
"Even if our CPF-SA has hit the prevailing FRS, interest earned in the SA stays in the SA and if we are gainfully employed, the SA will still receive monthly mandatory contributions. Savings in our CPF-SA can grow to be much more than the FRS."
Reader #1 said...
ReplyDeleteI read about your posts on CPF top ups but my concern is that it is always a shifting goalpost. The retirement sum increases by 5k a year and this year its already 171k. On top of that, the retirement age can get pushed beyond 65 in years to come.
Reader #2 said...
In response to the concern of shifting of goalposts, I think this is much less of a worry once you have a substantial amount in your CPF. Think of it as your goalkeeper also grow fatter from the interest contributions earned year on year hahaha =)
AK said...
This is also something I have blogged about from time to time.
http://singaporeanstocksinvestor.blogspot.sg/2015/01/a-lot-of-money-in-my-cpf-sa-is-from.html
I have also said that the goalposts have to shift because of inflation and longevity risks. As long as the changes are reasonable, I have no problem accepting them. :)
Simeon Kong says...
ReplyDeleteThat’s the idea! It’s trying best to keep up with inflation and avoid “reality bite“ when having not enough after retirement. The chicken rice is not going to be 3 dollars in 30 years time..... know the mechanism why it’s planned that way and get ready for retirement planning.
Kenji Tay says...
Actually, once yr sa hit frs.. You dun even need to worry about the goal post shifting, as the interest will cover the increment plus extras...
Do it one time, and you dun have to worry about it for the remaining of your working years. :)
Jane Feulvarch says...
Yes, have been VC to SA for 2 years now. The other end of the tunnel is still far away, but thanks AK for showing me the right track :)
Ah Hock says...
Everyone circumstances are different. Some will love the goal post to be shifted so they can voluntarily contribute more to SA.
Reader says...
ReplyDelete1. What happens to the amount on top of the FRS or ERS minimum amount after we have pledged to set aside?
2. If we are still employed after 55 till 65 and still contribute to CPF, where does to the subsequent CPF contribution monies in the OA, SA and MA accounts by employer and employee go to?
3. Depending to the answer for Q2, if all the subsequent contributions after 55 goes to the RA account, the amount in RA will exceed the BRS, FRS or ERS amount pledged at 55?
4. If Im still using OA to pay the property mortgage after 55, from where the money going to be deducted?
5. How about the amount in MA if it has reached the max amount, will the same amount continue to earn 4% interest and reside in MA CPF until we passed on in life? This is considering in our lifetime, we did not use any MA monies.
AK says...
OK. This is where I think you should pay CPF a visit or give them a call. ;)
I understand the CPF enough to help me make full use of it to help fund my retirement but for lots of nitty gritty, you better call CPF directly. :)
I know some people think I work for the CPFB but, really, I don't. :p
ReplyDeleteWong Yao Keng says...
ReplyDeleteYou don't work for CPF, CPF works for you 😄
Jack James says...
ReplyDelete1. What happens to the amount on top of the FRS or ERS minimum amount after we have pledged to set aside?
Answer: After you put aside FRS , you can either keep the rest for fat interests or withdraw it anytime you like.
2. If we are still employed after 55 till 65 and still contribute to CPF, where does to the subsequent CPF contribution monies in the OA, SA and MA accounts by employer and employee go to?
Answer: Everything stays the same except the ratio of contribution (%) is different to OA/SA/MA .
3. Depending to the answer for Q2, if all the subsequent contributions after 55 goes to the RA account, the amount in RA will exceed the BRS, FRS or ERS amount pledged at 55?
Answer: RA only sucks up your money (up to FRS figures only ) from OA/SA when you are at age 55 . Thereafter , the RA is locked .
4. If Im still using OA to pay the property mortgage after 55, from where the money going to be deducted?
Answer: You still have OA money to service the mortgage after age 55 .
5. How about the amount in MA if it has reached the max amount, will the same amount continue to earn 4% interest and reside in MA CPF until we passed on in life? This is considering in our lifetime, we did not use any MA monies.
Answer : When BHS is reached , MA contribution will flow to SA , when SA hits FRS figures , then MA contribution flows to OA . It makes perfect sense , isn’t it ?
Reader says...
ReplyDeleteThe only con is that we can only withdraw the monies at the age of 55 and after setting aside the prevailing minimum sum. The minimum sum keeps rising over the years. The goalposts keep shifting as well.
AK says...
I have shown in my blog how we can let the government help us meet the yearly increase in minimum sum.
People talk about shifting goal posts but it really is not a big deal and, frankly, it is a very sensible thing to increase the minimum sum every year as cost of living inflates over time.
Adeline Low says...
ReplyDeleteAgreed. The amount of interest received in my SA account is more than my yearly employment contribution. Wow! Faster TOP up SA is the key indeed.
Kok Koon says...
Thanks AK! 5 years since I first eavesdrop you on SA+MA. Cross $10k interest first time this year. With wife! 😊
Lyn Lee says...
I can share how I reach $22K in interest: (1) sold a property and plough back cash into CPF OA; (2) use cash to pay for current property so CPF OA continues to compound; (3) maxed out CPF SA since 5 years ago
CH CH Ng says...
Hope more people see this as a corner stone for retirement... my CPF interest 21.5k total for year 2018...