Saturday, January 3, 2015

My parents say don't be stupid to top up my CPF-SA.

Update (31 Dec 16):
A reader told me:

"If I had done this, I would have hit the minimum sum too."

Actions today, results at 55:

A lot of money in my CPF-SA.

I do not know how best to help the reader here. 

Reader says...

Read one of your post and it says that u often tell youngsters to voluntary contribute to their CPF-SA so that it will reach the minimum sum.

I mention this to my parents, and they said that I am stupid, as withdrawal of CPF $$ is controlled by the government and we will not know when will the government raise the age to withdraw or the minimum amount. 

They still sarcastically said that putting in the bank to earn the meagre interest rate is even better as we can withdraw as and when we like.

seek your advise

pardon my bad english :)

AK says...

It could be difficult to convince anyone who is suspicious of the system. :)

I will say that the CPF-SA is meant to help us with retirement adequacy. 

So, it is not money that is meant to be close at hand, available for withdrawal whenever we might need it. 

The money is locked up till we are 55. 

What is required for the MS will be put into the RA and the excess is available for withdrawal. 

Of course, there must be excess for this option to be available.

If we beef up our CPF-SA in our younger years, we are giving the funds a lot more time to compound and grow more quickly. 

I think the magic of compound interest is easy enough to understand. 

The magic needs time and if the base is bigger, the growth in absolute dollar terms will be more substantial.

Like I said, the problem your parents have is a lack of trust in the system. 

I don't know how to make your parents trust the system. 

Unfortunately, as with certain things in life, only time will tell.

I do know friends and also family members who are deeply suspicious of the system. 

Some are actually extremely negative about the CPF, to put it mildly.

This is a problem that has to be addressed but I suspect it will not be easily solved.

Similar post:
Investing in the stock market makes you a gambler.

Related posts:
1. "Return our CPF" protest in Hong Lim Park.
2. Balancing risks, returns, facts and fallacies.
3. An(other) open letter to the Prime Minister.


  1. AK,

    If they do not trust the system, just start work early, move money from OA to SA.

    Is money in the system, no loss. Just make sure keep enough for property.

    Or if already getting married, start transferring after first property bought.

  2. Hi Mike,

    I can imagine what the parents' rebuttal to this might be. Haha... However, it is still worth a try. :)

    I think the reader is convinced of the merits of topping up his CPF-SA. However, getting around parental objection is a tough nut to crack. -.-"

  3. Its extremely difficult to answer in such situations but I like the reply. For me, it is the same as how can I be sure to give it to insurance company for life coverage or even banks. I love the magic of compounding (just two days ago received close to 6000)and regret that I didn't top up when I was in 20's. I guess we all go through the same journey of learning through our own experiences..

  4. Hi Komatineni,

    Very difficult, I agree. -.-"

    For what they are worth, I can only share my own experience and thoughts on the matter.

    I now wonder if I should actually show how beefing up my CPF-SA in the first 4 years of my working life alone had an enormous positive impact on my CPF-SA's balance.

    Would this help to make the case to beef up our CPF-SA in our younger years more persuasive?

  5. When he is older, he need no approval, now, just be a fillial son. The 5 years head start might not be worth the argument with parents. The parents will properly feel indignant that the son listen to u than to them.

    Not that it's wrong to listen to u, but he has to decide if he is able to do it amicably or forfeit 5 years head start.

    World will not crash without the earlier 5 years

  6. Hi Mike,

    Being me, I would just go ahead and do what I feel is right for me, parental objections notwithstanding. I am quite terrible this way. -.-"

    After thinking a bit more, I think I will go ahead and share my numbers in my CPF-SA. I don't know if this is going to be helpful but I think it is worth a try.

    I am taking a step out of my comfort zone to do this and I hope it is worth it.

    1. It would be helpful to see that! Thanks for doing it!

  7. LOL why u want to convince them? So that they can take part in the ponzi scheme n indirectly support you? ;)

    People r suspicious not without reasons, simply becos the system under the current leegime has done nothing to give them confidence. Hard truth yo!

    as for those who have faith in the system, i say good for you. Just dont whine and complain if u one day you find your faith misplaced. hehe...

  8. "They still sarcastically said that putting in the bank to earn the meagre interest rate is even better as we can withdraw as and when we like."

    The parents' advice is a sound one. Even a 20 yr fixed deposit at 1 plus % interest is also better. Why? Simply bcos u can withdraw any time you want... u just forgo the interest only. Whereas CPF with all its shifting goal posts is no different from one of those ILP or structured products that basically penalise u for early withdrawal, or in CPF's case locked in for long period & cannot take out.

    second thing which ak71 & all investors shld know very well is this: dont be fooled by yield. So what if CPF on the whole (sa+oa) give a yield of 3 plus %? (some may think this is very good yield but to me it is pathetic LOL, but i digress). Evaluating CPF on its own merit as a capital protection or savings product without bias will see it fail.. bcos 'forced saving' in this case is not saving. A 'saving' u cannot tap on in times of sudden needs or opportunities is meaningless.

  9. hi AK,

    Yup, do what you do is necessary to convince pple of the power of compounding interest and SA. If pple can do the transferring, top ups early enough, it is impossible to let CPF (with a base of 800k to 1mil) be a source of passive income in the retirement years! Support u AK!

  10. Hi AK,

    There are many roads to Rome. If stashing money in a metal tin gives the peace of mind, so be it. Don't we agree peace of mind is priceless? What's compounding interest compared to something priceless? ;)

    Personally, I take responsibility for my own finances and decisions. Many times, my parents had given their 'advice' on how I should not have made certain investment decisions. I told them I was fully aware of the risks involved and willing to bear the consequences of my being wrong. Truth be told, I was wrong quite a good number of times. But the times that I got it right brought me to where I am today. Mistakes were valuable lessons. Nothing ventured, nothing gained. :)

    Do we need to share the same perspectives as our loved ones on money matters? More importantly, do we need to follow them when views differ?

  11. hi AK,

    I also did a transfer of oa to sa to make it 40k to get the 5% but I still cannot do the action to top up with cash since my net income is not high.

    I still have hdb loan. Maybe to keep oa to pay house instead of transfer oa to sa?


  12. Hi OT,

    Everyone's circumstances are different. Of course, if we have a mortgage that needs servicing, we should not transfer all the funds in the OA to the SA.

    Having said this, I think leaving enough funds in the OA for about 24 months' worth of payment would be sufficient to give me peace of mind. The rest of the money in the OA can go to the SA. ;)

  13. Hi EY,

    Well said. Point taken. Peace of mind wins (even though it might cause some hardship later). LOL.

  14. AK71: "Well said. Point taken. Peace of mind wins (even though it might cause some hardship later). LOL."

    alamak, loaded statement leh.
    You mean if people dont take your "advice" on CPF will result in hardship later? u mean peace of mind actions wont lead to better outcome, or if people do as u recommend will NOT result in worse outcome? C'mon the future is uncertain, how do u know?? i think u are trying too hard liao lah LOL ;)

  15. Hi Recruit Ong,

    I said "might". I did not say "will".

    The choice of modals is important. :)

  16. hi AK,

    which is why i also stress what u missed out... that is peace of mind actions does not mean it will be hardship later, or if people do as u recommend will NOT result in hardship later.


  17. Any reason why OA needs to be completely emptied in order to calculate the housing loan balance to service? Are we allowed to decline? It will take a while to re-build the $20k base in OA and the surplus can then be used to transfer to SA to enjoy the bonus extra 1%.

  18. Hi MaoMao,

    Are you referring to when you purchase a flat? I feel that it is a matter of policy. So, the best people to direct the question to is the HDB.

    In the meantime, let's see if anyone here has the answer. :)


  19. Thx for your reply AK and totally agree. Saw your new post and if this can persuade even 100 people to change, that would help 100 families in the future. Greatly appreciate your views and share..

  20. Hi Komatineni,

    I have given it my best shot. I can only hope that it is good enough. :)

  21. I think there is no reason to discuss financial matters with parents if the person is earning his own keep and fulfill necessary and reasonable family obligations.

    Talk about money hurts the feelings.

  22. I think rather than a lack of trust, it is a lack of knowledge.

    There is usually a tradeoff between liquidity and yield. The question is, is the lack of liquidity worth the yield? How much emergency savings does the person need?

    Also, people think differences of small numbers are not significant. But a small 1% can make a big difference due to compounding effects.

    Finally, the CPF has its flaws but it is ultimately a tool for retirement. We should be finding ways to exploit it and not just complain about the "system".

  23. Hi owq,

    Yes, the CPF-SA is a tool to help us achieve retirement adequacy. We should make good use of it. :)

    4% to 5% coupon. Risk free. Volatility free. Backed by a AAA rated sovereign.

    Yes, many people out there have to be educated and to understand what all these mean. I hope my blog is helping to do this and not just preaching to the converted. -.-"

  24. While CPF does act as a risk free triple AAA sovereign bond, I will not recommend an individual to top up the max amount into his CPF if he is 35 years and below?

    Firstly, this is because he is locking himself to at least 20 years at 5% per annum. This restricts his ability to use the money to capitalise on investing in ETF or good stocks (if he knows how to analyse companies). These two emthods will yield more than 5% p.a. over the long run.

    Secondly, as he is at the age of 35, following a Singaporean's life cycle, an individual will have loans to pay and have 1-2 child. Putting the money in "liquid" than locking it up, will help. it can be used as a contingency fund o again be invested in quality stocks which can be liquidated should he need it for emergency.

    CPF SA top up is viable when one approaches closer to the "55 age". This is because there is less time gap from withdrawal. I personally favour having the money in liquid form than locking in for a long time till 55.

  25. Hi Chan Yuan,

    The CPF-SA is a tool to help us to achieve retirement adequacy. How each person chooses to use the tool whether fully or not is up to the individual. Of course, the person could choose not to use the tool as well. ;)

    What I did was to transfer funds in my OA to SA in the first 4 years of my working life. After that, the magic of compounding took over. It is about giving compound interest more time to perform its magic. (See my blog post after this one.)

    From the 5th year on, don't do any further transfer. I think this will work too. Just treat it as putting off marriage plans by 4 years. ;p

    I am not making a recommendation. Just an idea for consideration. :)

  26. For the investment savvy, or even those with some investment knowledge, it is certainly not difficult to find investments that have returns of more than 5%. But this also really depends on individual personalities. If you are able to stomach the volatility and risks of equity, bonds and property, then yes by all means.

    But some people are ultra conservative - ie. myself, and although I have the means to invest a six-figure amount right now, I wouldn't. Placing it into a risk-free account that gives 5% annually and allows it to compound is more than good enough for me. Regardless of what happens to the markets, I have a certain peace of mind. I aim to max out the MS by 35, and it's better than money sitting in the bank with such low interest rates. Furthermore, the money contributed should be properly calculated so that it doesn't affect your standard of living (that much)

  27. Hi Sammy,

    For those who are investment savvy, they would also understand the need for a risk free, volatility free component in their investment portfolio. Often, that would take the form of investment grade bonds such as AAA rated sovereign bonds. The CPF is the best fit for those who are able to take advantage of it.

    Savvy investing is not just about looking for higher yield but also about prudent capital allocation to mitigate overall downside during bad times.

  28. On FB:

    "... sad that 8 of 10 people i shared on top up CPF scolded me..."

    "We can only lead the horse to water..."

  29. On FB:

    Mark Lim Teng Lye:
    To quote you: " I do know friends and also family members who are deeply suspicious of the system. Some are actually extremely negative about the CPF, to put it mildly." This negative feeling about the CPF is because the govt keep shifting the withdrawal timing, from 55, 60, 62 now 65. I told my older friend (>60+) that I can have monthly payout when I reach 65 in a few years time. He laughed and said when my time comes, it will may likely shift to 67 and the shifting up of years will always be there. "You wait long long," he said. (he is speaking from experience). So, how can trust govt?

    The system had flaws. Changes had to be made. I don't mind changes as long as the reasons for them are convincing.

  30. Reader:
    I started working a few months ago. While chatting with my senior about savings and CPF, I said my parents have always talked bad about the CPF and I grew up believing them. My senior recommended your blog and, now, I am a convert but what should I tell my parents?

    Alamak. I don't want to get involved in domestic disputes. :(
    Maybe, you want to read this blog.

  31. Reader:
    Saw ur post today and told my mum she could do the same and earn good interest while being secure and able to draw out the money anytime.

    She told me. If even the Lee family who are so rich are fighting over money, the money inside CPF is not secure! Better don't believe the government so much.

    I believe in the CPF system a lot but is unable to convince my mum..

    she won 4D the other day, gave me $100 and I topped up my SA with it..

  32. Hi AK
    I figured since I'm not going to withdraw my money from CPF anyway, I might as well play them at their own game. I transferred everything from my OA to my SA. So, it doesn't matter if the economy tanks or war occurs in Singapore...CPF still owes me my 4%. As the saying goes: If you can't beat them, time them and join them! Fingers crossed...

  33. Hi Kevin,

    And transferring a more meaningful amount from OA to SA earlier was what I did. It takes a huge load off my shoulders when it comes to meeting the minimum sum or, now, the full retirement sum. :)

  34. Singapore Man of Leisure said...
    This CPF SA thing must be the closest thing to "bao jiak" no?
    Eh, we wait patiently. Sooner or later bound to have someone come and find bones in your egg.
    You can then go "oink, oink, here" and I go "mei, mei, there" (I goat).
    Old McDonald had a farm, yi ya yi ya eh!

    AK says...
    You say leh?
    Well, if Big Bird could have an imaginary friend, why can't we have imaginary bones in eggs? Hmmm... Oink. ;p

  35. Hi AK & SMOL,

    The CPF thing is a shifting goalpost as per my perspective. I feel that this is the normal trend. Things do change in the current climate. What is relevant today might not be the same in a few years' time. The only constant is change.

    My take is that one should be flexible in the approach and mindset. One make decisions in accordance to the prevailing circumstance which he/she think to the best of his/her own benefits.

    I do not have high hope on the withdrawal of CPF. However, I still transferred the fund from OA to the SA to the FRS limit sometimes in early 2016. I still make voluntary contribution to the CPF accounts on yearly basis. At the current juncture, I do not consider CPF monies as part of my FIRE fund. It's like setting aside the fund which is beyond my sight. If I do live to ripe old age, it is considered like a surprise bonus if I can withdraw the CPF monies at the current allowable age of 70.

    My two cents worth of views.


  36. Hi Ben,

    I keep saying that the CPF should be a cornerstone in our retirement funding strategy and that is all it is.

    A cornerstone means that the CPF should only be part of the strategy.

    Retirement funding means that we have to think long term.

    If we accept that the only constant is change, then, people have to change to embrace sensible changes in the CPF over time or else get left behind.

  37. Hi AK,

    Discovered your blog a couple of months ago and found it both inspiring and educational. Having read varied opinions on the topic of CPF, I felt compelled to share my thoughts.

    Since I started working after graduation, I have been transferring all my money in the OA account into my SA account on the advice of my mother, who despite having only pre-university education, knows the power of compounding interest. Many of my friends (regardless of whether they are single/attached/married) worry that they will not be able to afford a flat in the future if the money in the OA is transferred to SA. There is always a big "what-if" hanging over their heads. On the other hand, I thought that I would remain single forever and thus would not need to buy a flat. I will cross the bridge when I get to it. So, I simply kept transferring.

    I met my significant other just before I turned 30. At 32, CPF stopped allowing me to transfer anymore money from my OA to SA :). I am lucky that my job pays reasonably well, so I have been able to accumulate a significant sum in my OA for flat.

    I think many young people have always thought that money in OA = Flat. Many fear that if they cannot afford a flat, they cannot get married and risk losing their significant other. Others who are single want to have the option of being able to use the money in OA when they want to.

    My approach is considered very risky by my friends. In my 20s, I was laughed at for being silly. It is bad enough that we cannot withdraw the money in OA, but at least we can use it to buy a flat. Why so silly to lock it deeper into SA when we won't see it until we reach retirement and have a minimum sum? None of my friends took up my suggestion. I can understand the rationale of those who need to buy a flat. But I cannot understand the rationale of the rest. After all, if we are single, we can only buy a flat when we reach 35. Or maybe some intend to purchase private property.

    In short, while a certain degree of skepticism in life is healthy, too much of it is a hindrance to progress. We waste time when we hesitate, and as you have mentioned it, compound interest is magic that takes time.

    I cannot agree more with you.

    Keep blogging :)


  38. Winston Wee says...
    You are doing an excellent job of enlightening Singaporeans about CPF.
    I personally believe CPF is probably the best retirement and home ownership scheme in the world and has served Singaporeans well.
    With greater longevity, the CPF has to make adjustment to protect Singaporeans living longer.

  39. Hi Spotlessmind,

    If readers thought that my story is amazing, yours should rock them off their seats!

    I am in awe!