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A conversation on the CPF and investing in stocks.

Monday, May 18, 2015

A conversation which I think might motivate a few others here:

Hi AK,

I have been going through your blog on max up minimum sum. I really like the idea to have govt help to build our retirement fund.

Can i seek your opinion that if my SA has not hit the minimum sum of 161k, is it better to do cash top-up (even more than 7k, no tax rebate beyond that though) to SA? Is when we hit the minimum sum, then we do VC to further build up our CPF account. Whats your view?

Thanks and regards,
G


Hi G,

If you want to give your SA a boost, I think doing the MS top-up is a good idea. You will hit the minimum sum faster and get income tax relief (up to the first $7K yearly) to boot. Of course, it really has to be money that you won't be needing for anything else. Remember that the process is irreversible.

However, if we do this yearly, we would be saving a lot in taxes and we are also very likely to receive a very meaningful lump sum payment at age 55 (with most of the money being from the government). :)

Best wishes,
AK

--

Hi AK,

So am i right to say we should only do VC after we have max up SA to MS and not before?

Thanks and regards,
G

--

Hi G,

If you want to benefit from the income tax relief, yes, that line of thought is logical. :)

However, remember that we can only do VC if our mandatory contributions do not hit the contribution cap set by the CPF Board. This cap is revised yearly. I believe it is $31,450 for 2015, for example.

Best wishes,
AK



Thanks AK for the confirmation. Your blog really change my view on CPF and how we can build our retirement fund.

In your view, do you think govt will keep increasing the minimum sum? I dont think there is issue with PMET but for those low or low-middle income earner might be tough as they might not meet the MS by the time they retire.

---

Hi G,

The minimum sum will increase yearly by about 3% to keep pace with inflation. This is a given.

The CPF is really to help the common people. You can tell this by how there is extra interest income for the first $60K in our account and how there is a limit to how much we can top up our CPF accounts. It is not meant to benefit the rich.

We need to educate those who need the CPF most for a financially more secure retirement. If lower income workers diligently top up their CPF-SA while staying financially prudent, the magic of compounding will help them have a meaningful retirement income for life. They need to start doing this as early as possible. :)

Best wishes,
AK




Hi AK,

Yes, i can appreciate after going through your blog. Thank you for the enlightenment.

I attended few of your sessions and like the way you analyse stocks. Can you share how you filter stocks, any key criteria before you put in your shortlist and start going through in details?

Thanks and regards,
G

--

Hi G,

Oh, you did? I am glad you enjoyed the sessions. :)

Well, I cannot give you a set of criteria. Like Charlie Munger would say:

"I can never make it easy by saying. ‘Here are three things’. You have to derive it yourself to ingrain it in your head for the rest of your life."

However, I would tell you my starting point. I invest mostly for income. So, whether a stock pays a dividend is an important consideration. Then, pick it up from there. If you were to invest for growth, you would have a different starting point. It is important to match our motivation and our methods. :)

I have a section in my blog's right sidebar titled "Food for Thought". You might want to read the books listed there. Good primers. :)

Best wishes,
AK

Related posts:
1. Achieving level one financial security.
2. Suddenly, financial freedom is less remote.
3. A simple way to a double digit yield.

2 comments:

Rokawa said...

How would a lower income top up their cpf for the futurewhen they are living hand to mouth. Paycheck by paycheck.
Lower income also do not gain any tax breaks coz no income tax.
And higher income have a special acct to pay forincome tax 5k. Which can only be used for income tax payment.
The low income will nvr have this benefit.

A middle income earn 3k and pay few hundred tax. Now he has a 5k acct which means he hardly need pay income tax.
A low income earn 1k n no pay income tax and receive no benefit

And i dun like when ppl generally say low income no need pay income tax good wat. Would that income tax payer wan to earn low income to avoid pay a low income tax meaning no need pay income tax gd ma.

AK71 said...

Relevant to this blog post:


Blogger Kiki said...
Hi
Would like to know whether my understanding is correct. I am aged 36 and have tsf all my oa to sa. If I contribute monthly 500 to oa then do a tsf to sa to enjoy higher interest, does this considered cash top up and go straight into ra? My intention is to get a higher payout at 55. Thanks


Blogger AK71 said...
Hi Kiki,
Voluntary contributions (i.e. that goes to OA, SA and MA) will not get income tax relief like MS Top Up. OA to SA transfer will also not get income tax relief like MS Top Up.
Your method will not get income tax relief but your funds will not be automatically earmarked for your CPF-RA at age 55 either.


Blogger Kiki said...
Thanks a lot for your explanation. I miss out on that of tax relief. Thanks for alerting me. So is either tax relief or higher payout. Cannot both at the same time.

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