They chose financial independence over home ownership.

This is somewhat extreme but watch how this Canadian couple chose financial independence over home ownership.  They are in their 30s and,...

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Why increase the CPF MS and not pay 5% interest for SA?

Saturday, September 12, 2015

A recent Q&A:

One thing I have failed to understand about the cpf ms and rs.... It doesn't make sense that the government used inflation as a reason to increase the ms/rs because Sa interest rates, at 4%, is at least equal or usually beat inflation. Based on this school of thought, there is absolutely no grounds for the retirement sum can be adjusted upwards further right?

For all CPF members, they should want to make sure that their CPF-SA money continues to beat inflation. So, a 3% increase yearly in Minimum Sum (MS) requirement to take into consideration inflation makes sense for everyone.

The MS requirement must be at a level that will give CPF Life the ammunition to pay out more meaningful monthly income. So, unless the MS increases 3% per annum given current day assumption on inflationary pressures, inflation will make the CPF Life less relevant as time goes by.

The government is paying 4% interest on the money in our CPF-SA which is a good thing but without a 3% yearly increase in the MS requirement, would CPF members voluntarily set aside more money to be put into their CPF-RA at age 55? Would they consider the impact of their decision on their annuity that is CPF Life (which kicks in at age 65)? I wonder.

As an aside, I would like to share an exchange that took place on my FB wall on whether the government could pay a higher interest rate on our CPF-SA savings:

I believe CPF members already got a pretty good deal with an extra 1% interest for the first $60K in our CPF-OA and SA. 

Of course, for those age 55 and above, they will get another 1% on the first $30K now in their CPF-RA (without having to take on any risk).

Related posts:
1. Proposed changes to the CPF system.
2. Funding XX% of our retirement with CPF.


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