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Securing risk free returns early for our retirement.

Monday, March 24, 2014

At the beginning of the new year, I said I would be making voluntary contributions (VC) to my CPF account in an effort to max out the annual limit of $30,600. The risk free returns of 2.5% to 4% per annum for the OA, SA and MA help to give me a peace of mind.

I used some of the dividends I received from my investments this quarter to make a contribution last week:

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.

This is a topic that I blog about regularly and it has attracted many high quality comments from readers. I am glad that some readers were inspired enough by the discussions to take action.

Here is a recent example: Solidcore's comment.

Some people tell me that they do not trust the system.

Well, if the CPF should go kaput, we are pretty much sunk in all things Singapore anyway. So, we might want to have a bit of faith where it matters and the CPF, I believe, matters.

Latest update (26 March 2015):
Should I top up my CPF-SA, CPF-MA or SRS Account?

Related posts:
1. Voluntary contributions to CPF. (VC form.)
2. How to get free medical insurance?


Anonymous said...

Hi AK,

When people say they don't trust the system, I don't think they mean CPF going Kaput, in theory, it is not impossible though, you just need outflow bigger than inflow over a sustained period of time. Aging population and SIngapore lost its competitive such that no one want to become PR. When that day come, the stock market will properly be worthless.

However, there are 2 risks to the system.
1) Age of withdrawal. Right now it is 55 in excess of minimum sum, however, as seem in many countries during crisis, the age can be deferred, or the payout or drawn down age can be deferred.
2) calculation of inflation. It will affect the minimum sum, although the rationale is justified, the fact that if inflation stay high, e.g. 5% or above in sustain number of years, you will say your minimum sum going up and up.

Are there less risky investment? Hmm...

AK71 said...

Hi Mike,

I think the risks you have listed are policy risks. Of course, the government can move the goal posts. However, I think they will have to think very carefully if the move will be unpopular since they would want to be re-elected in the next general election. :)

I feel that the risk free returns from the CPF is about as low risk as we can go for returns of 2.5% to 5% per annum.

CharlieK said...
This comment has been removed by the author.
CharlieK said...

Hi AK,

Judging by your contribution breakdown, it looks like you've maxed out your MA and SA. CPF board usually increases the minimum sum and medisave limits in July so if you top up at that time you can enjoy some tax reliefs by topping up into those respective accounts before they get maxed out again.

Sillyinvestor, actually the two points you brought up about increasing the minimum sum and initial withdrawal age past age 55 are both good things for the average Singaporean since it forces them to keep more of their cpf funds invested until retirement. The minimum sum at its current level barely covers basic living costs and should be raised to a level that provides a better standard of living. Moreover, CPF Life is highly cost efficient because you don't have to pay distribution and administrative costs which you would have to pay if you bought a normal annuity with an insurer instead. Furthermore, CPF interest rates are higher than market rates so if you treat your CPF as your "safety net" bond allocation that replaces a modest standard of living via CPF Life, then your cash savings can be invested and used for "topping up" this modest standard of living either by retiring earlier or enjoying an even better standard of living during retirement. Finally, if you really insist on withdrawing your funds, you can always give up your citizenship and withdraw CPF funds based on Section 15 of the CPF Act.

AK71 said...

Hi Charlie,

Thanks for the suggestion. :)

Although I still won't be able to top up my SA, I should be able to top up my MA when the caps are once again raised.

Thanks also for the comment on CPF Life and how it is better than buying an annuity from a private insurer. I think this is something most might not appreciate. :)

AK71 said...

Plucked from my FB wall:

Raymond Ng: "Assuming that the min sum is 200K in 15 year from now, if you have "top up" your SA to $90K by age 37, you could just do nothing and let it compounds to $200K by age 55."

AK71 said...

Another one:

Kenji FX: "just stating some facts, cpf is not everything but another investment vehicle which u should have if u already paid all ur loans and u are very well covered in hospitalization and medication insurance b4 u got elderly.

"my mother in law will get $400 per month when she reach 65 yrs old.

"if she have max amount in her retirement account (consider tt a good sum of money), she can't really touch more then $400 if she is in need of more money (for another loan payment or anything).

"$400/30days= $13.33

"$13.33/3meals= $4.44

"is enough to settle 3 meals but one must not fall sick and/or take public transport to anywhere.

"is not a bad thing to have money in cpf, but we must look further then that."


Hi AK,

Seeking tax rebate and building my retirement funds, I've recently completed my first ever VC into my SA. A smooth, pretty simple process using the CPF online submission and internet banking. I would sincerely encourage all readers of ASSI to consider this VC.

Just like what Raymond mentioned, I intend to have enough in my SA to let the kind government do the hard work annually and hit whatever minimum sum it could be in 3 decades to come.

AK71 said...

Hi Solidcore,

Thanks for sharing your experience with us. I am sure you have taken another big step in the right direction. :)

AK71 said...

Central Provident Fund (CPF) members will be able to grow their retirement savings further next year as the Government will raise interest rates on account balances, the salary ceiling for contributions and contribution rates for older workers.

An additional 1 per cent interest will be applied to the first $30,000 of CPF savings for those aged 55 and above next year, on top of the existing 1 per cent extra interest on the first $60,000 of savings.

This means that the first $30,000 in Special, Retirement or Medisave accounts can earn up to 6 per cent interest.

(Source: The Straits Times, 23 Feb 15.)

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