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Voluntary contributions to CPF.

Thursday, January 2, 2014

I am starting the year with moves to improve financial security for me and my dad.

I am making a voluntary contribution to my CPF account again this year. The idea is to max out the annual limit of $30,600 and let the magic of compound interest contribute to my retirement funds. Yes, the government will be helping me in my efforts. Although this will not be tax deductible, it will help to provide me with a peace of mind.

I have also decided to do quarterly voluntary contributions to my dad's Medisave Account from now on. As he has pre-existing medical conditions, he was unable to upgrade his Medishield plan. Thus, his share of medical bills are heftier.

My dad's Medisave Account is also depleted due to the many times my paternal grandmother was hospitalised in recent years. So, helping him to build up his Medisave Account seems like a good idea.

My dad is still working and paying income tax. So, with regular voluntary contributions to his Medisave Account from me, he will pay less income tax too. Yes, it is tax-deductible for the recipient only.

Voluntary contribution form.
Click to enlarge.

His Medisave Account will also be beefed up with some help from a 4% annual interest income. Yes, getting some help from the government again.

My dad's example really shows how important it is to have a good H&S plan in place. So, if you and your parents are relatively healthy and do not have a good H&S plan in place, you really should do something about it.

On that note, HAPPY NEW YEAR!

Related posts:
1. How to get free medical insurance?
2. CPF or SGS?
3. Pay less income tax.
4. Enhanced Incomeshield for my mom.
5. Millionaire or not, plan for retirement.

Visit CPF's website: here.


INVS 2.0 said...

The oldies will reply: "Buy insurance, are you disrespecting me by predicting my death?"

Hard to knock some sense, usually for people born in the era without the concept of insurance.

AK71 said...

Hi INVS 2.0,

Took me a lot of effort to convince my mom to upgrade her H&S plan. She just complained to me again how expensive it is. ;p

Unknown said...

hi ak, may i know how much the limit to put in medisave per year? and how old is your dad? does the 4% yield on medisave applies to all ages?

reason me asking is my mum has no medishield, not much medisave, not working and cant buy any medical insurance anymore.



AK71 said...

Hi Darryl,

Nice play on your name. Mirror image. :D

From 1 July 2013,

a. The Medisave Minimum Sum (MMS) will be raised to $40,500 from $38,500. Members will be able to withdraw their Medisave savings in excess of the MMS at or after age 55.

b. The maximum balance a member may have in his Medisave Account, known as the Medisave Contribution Ceiling (MCC), is set at $5,000 above MMS and this would be increased correspondingly to $45,500, from $43,500.

My dad is 67. Yes, there is 4% interest payment for money in the MA. Doesn't matter how old the CPF member is.

I believe that Medishield Life will cover people who opted out of Medishield before. Our PM said so.

So, you might want to start contributing to your mom's MA so that she has the money to pay for it when it happens. :)

ron said...

I think it would be pertinent to mention that this voluntary contribution is a one way street with no return ticket.

Once the deed is done, it cannot be reversed. This is perhaps for people who have excess cash and do not know how else to park it... under the existing interest rates offered by banks.

Do this only if one is very clear about one's financial journey for the year.

AK71 said...

Hi Veronika,

This is a good reminder. Thanks. :)

You are right in that this is suitable for people with excess money which they are prepared to set aside for a long time, specifically, till retirement age.

As for contributions towards our parents' MAs, it has to be done with funds which are earmarked for future healthcare expenses of our parents'.

If we have some money but it is money we might need in the near future, we shouldn't be doing voluntary contributions to the CPF.

Solace said...

Hi Ak,

There is a side bar content at your blog which shows "Recent Comments".

It doesn't seems to be working at the moment.

Are you able to fix it?

AK71 said...

Hi Solace,

Unfortunately, I cannot fix it. It is a widget from Blogger. I will try to find alternatives to this. If I cannot find alternatives, I will just have to wait for Blogger to fix it. :(

Betta man said...

Hi AK,

I think for each visit to the hospital, there is a limit to the amt we can claim from Medisave.

Although a risk-free 4% yield is attractive, do you think it is more important to have control over how we want to use our money?

In addition, as an experienced investor, I believe you can easily obtain above 4% yield.

AK71 said...

Hi betta man,

I was not aware of any limit on how much money in my Medisave Account can be used per hospital stay. I don't think there is one.

I only know of a limit for outpatient treatment which is $400. For outpatient CT scans, MRI and diagnostics, the limit is $600.

I think it is good to have a healthy balance in my Medisave Account. I look at it as another type of emergency fund, one for the purpose of hospitalisation expenses. The good thing is, of course, I could use the money not just for myself but for my parents too.

It might sound ironical to you but I feel that I have better control of my finances with funds in my Medisave Account currently at the maximum allowed. If I could help to ensure that my parents have the same, it would really give me a peace of mind knowing that one important aspect of financial security has been looked after.

Financial planning using the CPF provides some certainty to counter the uncertainties in our lives. I am definitely not certain that my investment efforts will continue to be amply rewarded. :)

Jessica said...

Hi AK,

My name is Jessica. This is the first time that I am writing to you. I have been a follower of your blog and would like to thank you for sharing your knowledge. I have a quick question on the voluntary contribution. I have checked with CPF board they said that it will be better to come back towards the year end when I know how much was my contribution before I make the contribution because there is cap. I wonder how do you do it now.Many thanks.

AK71 said...

Hi Jessica,

The recommendation made by the people at CPF Board makes sense.

What I did, however, was to look at my CPF contributions last year to see how much more I could contribute voluntarily before hitting the cap. So, it is an estimate but it works. :)

FeelGreat said...

Greeting. My first post here. If we can withdraw the balance of CPF above the prevailing minimum sum at age 55, then this voluntary contribution will allow us to enjoy average of 3%+/p.a (OA2.5%/SA-MA4%), esp. for a person at his early 50+; good short term FD to me, right? Please correct me if I understand it wrongly. Thanks. Dav.

AK71 said...

Hi Dav,

That is a logical train of thought. :)

Actually, a similar train of thought was used when I convinced my parents to start SRS accounts years ago. They could enjoy tax savings and with minimal lockdown periods too. When they stop working, they will be able to start withdrawing from their SRS accounts immediately. :)

AhJohn said...

Hi AK, to verify, withdrawn SRS amount will count into taxable income, so if withdraw one day when we aren't working, suppose no more tax. Right?

AK71 said...

Hi Ah John,

You are mostly right but if we withdraw from our SRS account in a lump sum upon retirement, we might still be taxable.

The trick is to withdraw yearly in amounts that are not taxable or that will attract minimal tax.

So, let's say we have $200,000 in our SRS account at retirement. If we were to withdraw $20,000 per year over a 10 year period, then, it won't be taxable. :)

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