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Building a cornerstone in retirement funding with CPF.

Friday, January 8, 2016

I try to be holistic in my approach to wealth building. 

So, ASSI is not about investing in the stock market per se, it is about personal finance in general. 

One topic that comes up pretty often is "retirement".

All of us want a comfortable retirement. 

Who wants to be old and destitute?

Unfortunately, many people don't plan for retirement and I do know a few myself. 

I also know a few who over-plan for retirement. 

Actually, I could be one such over-planner and I have been trying to moderate myself. 

Hey, if a worrier like AK thinks you are over-planning, then, you are probably over-planning. 

Anyway, an important part of retirement planning for Singaporeans is understanding how the CPF works and how we could be maxing out the benefits. 

These are benefits we could and should enjoy as Singaporeans.

The CPF is one of the very little welfare Singaporeans can get from our non pro welfare country. 

So, if you are still clamouring for some welfarism, hey, get moving.

I blog about the CPF often and I notice that the subject generates a lot more interest than when I blog about investing. 

I guess it is something that more people can understand and are able to participate in with less fear.

So, I am inspired to come up with another "e-book" which is really a collection of some popular blog posts on the CPF for ease of reference and sharing. 

This is probably something I should have done sooner:

Chapter 1:
The original mission of the CPF is to help members fund our retirement. 

However, many have said that the CPF is not enough to retire on. 

Sharper ones will ask if they have done anything beyond complaining? 

Yes, it is true that the CPF is not enough to retire on but we can certainly make it a larger amount to retire on.
How to upsize $100K to $225K in 20 years?

Chapter 2:
The government has implemented some changes to the CPF system to help give a boost to retirement funding for CPF members. 

Count our blessings. Every little bit helps.
2016 changes to the CPF and SRS.

Chapter 3:
Bearing in mind the original mission of the CPF, remember that if we should use more of our CPF funds to pay for our home, we would have less money in our CPF. It is not magic. 

It is math. 

Yes, there is such a thing as over-consuming when it comes to housing.
See: Buy the biggest and most expensive home we can afford.

Chapter 4:
Hate the idea of having to pay accrued interest for money we took from our CPF accounts for housing? 

We might want to think about voluntarily refunding money we borrowed from our own CPF accounts to pay for our homes. 

Why pay interest to ourselves when we can have the government pay us instead? 

See: How to stop the interest we owe ourselves from growing?

Chapter 5:
All of us are worried about costs. 

Rising cost of healthcare is probably one at the top of the list. 

We need to have insurance. 

This is the only way to get a handle on the issue. 

However, what about the cost of insurance? 

Ah, but this is more manageable because we can budget for this. 

Hey, did I tell you it is possible to get free health insurance in Singapore. 

Don't believe me?
How to get free medical insurance in our old age?

Chapter 6:
I have shared my CPF OA, SA and MA numbers in a shock and awe tactic but remember Rome was not built in a day. 

It has been a 20 years journey for me.
AK is showing off his CPF numbers.

Chapter 7:
Of course, all of us have different circumstances in life. 

However, if we share the same philosophy and goals, we will all move in the same direction. 

The magnitude of success is not as important. 

Everyone who has taken affirmative action is a success story. 

Start and stay at it.
See: Two friends and their CPF savings.

Chapter 8:
The CPF Minimum Sum or what is called the Full Retirement Sum now is not impossible to reach. 

The constantly increasing level is not impossible to keep up with. 

In fact, we might not even have to do anything to keep up with the increases.
If I had done this, I would have hit the MS too!

Chapter 9:
If we want a basic level of certainty in retirement funding, we would probably do well to consider getting an annuity. 

You know what? 

The CPF Life which starts paying us monthly for life from age 65 is the best annuity there is.
See: An annuity: Would you rather have it or not?

Chapter 10:
Lastly, for the investors amongst us, if we believe that we should hold some investment grade bonds in our portfolio for diversification, then, the CPF is the most attractive AAA rated sovereign bond there is and with very attractive coupons to boot. 

Of course, it could be considered a long term or short term bond, depending on our age. 

A risk free and volatility free investment? 

You want?
See: AK is buying a AAA rated bond.

It is not magic. It is just math.

If AK can do it, so can you.

(There are hundreds of blog posts on the CPF here in ASSI. So, it is probably a good idea to treat this "e-book" as just an introduction to the topic. Use the "Search ASSI" function at the top of the blog to read more.)

UPDATE: 14 August 2016

Another investment avenue - using CPF savings - is the recently introduced Lifetime Retirement Investment Scheme (LRIS), mooted by the CPF Advisory Panel. The LRIS is an alternative, simplified investment option that will offer a small number of low-fee, well-diversified and passively managed funds. It is targeted at CPF members who do not have the financial expertise or time to select and monitor their investments.

"When the new LRIS is rolled out, Mr Wong can consider investing monies accumulated in his Ordinary Account for higher expected returns, if he is prepared to take some risk," said Mr Tan.

Source: ST, 14 Aug 2016

My take:
Since I treat my CPF savings as a risk free and volatility free component (i.e. AAA rated sovereign bond) of my investment portfolio, I am unlikely to take part in the proposed Lifetime Retirement Investment Scheme (LRIS). Of course, money in the CPF-OA doubles up as a war chest which could be deployed in the event of a stock market crash for possibly better returns than what the LRIS could deliver.

Related post:
My CPF-SA outperformed in 2015!


waikaye said...

Hello AK,

How would over-planning for retirement look like?

MaTaKazer said...

Hi AK.

I am in my mid 20s now so I probably have 30 years to the Drawn Down Age(DDA) of my CPF. Judging from the trend of how the MS, now the FRS increased historically, I projected an increase of roughly 6%PA of the FRS. This leads to a shocking 924K 30 years later!!!

What's more shocking is I don't think I am able to reach the FRS of 924k in 30 years time. Say I start working now with a gross pay of $3000 and projected annual salary increment to be a safe 3%PA. Total CPF amount at the end of 30 years from now would be 993k. That is assuming the near impossible of not withdraw a single cent from it and transferred everything from OA to SA everytime.

Bottom line is the FRS is increasing at a very fast rate it seems. Initially I was very inclined to not touch the CPF OA for housing but it seems like I can't even reach the future FRS, I might as well use the OA money instead of it being locked up in the future.

What do you think?

AK71 said...

Hi waikaye,

That is a difficult question to give a definite answer to. It is a question I struggled with for a while myself.

It all boils down to what is enough. If we already have enough for a comfortable retirement and we are still at it, we are probably overdoing it.

I am reminded of a couple who were both doctors and they were also frugal. They saved quite a bit of money but were always worried that they did not have enough to retire on. They saw a financial adviser one day and was told that their financial health was superb and they could retire if they wanted to.

The couple was not convinced but the financial adviser told them to take a break and do something they had been putting off. They took that advice, took a break and visited their son who was living in another country. It was fortunate that they took some time off to enjoy their wealth. Shortly after the trip, the husband passed away.

How much is enough? ;)

AK71 said...

You might be interested in these blog posts:

1. Are you financially on track for retirement?

2. How much do we need or what do we need?

3. Married with kids and retired at age 44?

4. A conversation on inflation and cost of living.

AK71 said...

Hi MaTa,

The MS (FRS) will not increase until 2018. From 2018, it will increase at 3% per annum. This was in the news some time ago when they announced changes to the CPF system. ;)

MaTaKazer said...


Do you have have any weblinks to the changes?

AK71 said...

Hi MaTa,

I believe an article on this appeared in The Sunday Times again on 3 Jan 16.

“The Basic Retirement Sum (BRS) for CPF members turning 55 from 2017 to 2020 will be increased by 3 per cent yearly for each cohort, to account for inflation and rising standard of living.

"The sum is made known ahead of time to allow for better retirement planning.

"It is set at $80,500 for members aged 55 this year, rises to $83,000 for those turning 55 next year and $85,500 for the next cohort of 55-year-old members in 2018.”

If we cannot meet the FRS, we can always opt for the BRS if we would like to take out a bigger lump sum at age 55. Personally, I would leave my funds in the CPF untouched in order to benefit from a bigger monthly payout from CPF Life. ;)

AK71 said...

A conversation in Facebook:

"Hi AK, what do you think of CPF lifetime retirement investment scheme?"

Assi AK:
"The scheme will offer some mutual funds/unit trusts. They will not be risk free and volatility free. If you are prepared to take on some risk and are able to stomach volatility in return for the possibility of higher returns, then, it is worth considering."

AK71 said...

The Retirement Sum Scheme provides CPF members a monthly income to support a basic standard of living during retirement for about 20 years.

To better mitigate longevity risks, the CPF LIFE Scheme was introduced in 2009 which provides a monthly income for as long as you live. You will be placed on CPF LIFE if you are a Singapore Citizen or Permanent Resident born in 1958 or after, and have at least:

$40,000 in your Retirement Account when you reach 55 years old; or
$60,000 in your Retirement Account when you reach 65 years old.

If you are not placed on CPF LIFE, you can apply to join anytime between your payout eligibility age and before you turn 80 years old or remain on the Retirement Sum Scheme.

Retirement Sum Scheme.

Cindy said...


I am thinking of doing some financial planning on my mortgage loan balance and would love your thoughts. My loan balance is $300K and interest is 1.88% a year. I used CPF to partially pay $100K of the purchase price.

My initial plan was to repay $50K per year of the outstanding loan, so it should take me 6 years to repay my loan balance but I havent been disciplined so my plans have been set back by 2 years and I am to repay by 45 years old (your retirement age!)

Ever since I came across your blog in Dec last year, i started to read more about the simple marvels of CPF. So now, I am weighing the options of firstly, repaying the $100K CPF drawdown that I took vs repaying the loan mortgage.

The Pros are 1) higher cpf rate of 2.5% vs 1.88% loan. 2) In the event of unforeseen cashflow difficulty, I have $50-$100K OA balance to repay the monthly mortgage.

Cons: Will take yet another 2 years to be debt free.

Can I ask for your comments on the above?

Thanks as always.

AK71 said...

Hi Cindy,

New reader from December 2016? Welcome to my blog. :)

You said:
"Cons: Will take yet another 2 years to be debt free."

If you did not repay yourself for money you borrowed from your CPF account, you are still in debt even after you have cleared your home loan.

Remember the accrued interest? That is interest you owe yourself. That is interest which the government would otherwise have paid you if you had not used your CPF savings.

All this time, you are losing 2.5% per annum in interest income which would have been paid by the government if you had not used your CPF and if you were to sell the property in future, you have to pay yourself this 2.5% interest (multiplied by the number of years the funds were used for). Because it is compound interest, the loss is even greater. It sounds more than 2.5%, doesn't it?

AK71 said...

You might want to read this blog:
Stop accrued interest from growing.

AK71 said...

Xie Weiming says...
I thought for those above 55 and u have met the minimum Sim. Then no need to repay the accrual interest?

AK says...
Yes, if you set aside the FRS in your RA, you could withdraw all the remaining money from your CPF OA and/or SA at 55. The accrued interest becomes a non-issue.

Wong Yao Keng says...
So morale of the story is, try to top up your SA when you can before hitting 55 and meet the FRS requirement by then.

Raymond Ng says...
Alternatively if you use cash to pay for your flat, no interest accrued.
Your OA will grow quickly.... then you can transfer some of OA to SA for retirement and earn 1.5% higher.

Frowns88 said...

Hi AK,

Like how the radio host often advised their guests, I am approaching you in the same manner seeing the "CPF membership" portion in your latest post today.

I am a 29 year old with an estimated of $30k in cash, $35k in investments, $10k in savings plan and CPF OA: $46k / SA: $16k. The key point is I am going into marriage next year and my house will be ready in 2020, which means risk appetite needs to be well managed.

While on the way to 2020, I will be saving around $2k/month in savings (excluding CPF).
Recently, I have been considering to deposit $5k CASH into low risk segments namely the SSB bond OR the CPF SA for the long term. So..

1.Do you think that this is on the right track to retirement?
2.And is this a good situation to add $5k into SSB or CPF SA?

Frowns88 said...

Hi AK,

Like how the radio host often advised their guests, I am approaching you in the same manner seeing the "CPF membership" portion.

I am a 29 year old with an estimated of $30k in cash, $35k in investments, $10k in savings plan and CPF OA: $46k / SA: $16k. The key point is I am going into marriage next year and my house will be ready in 2020, which means risk appetite needs to be well managed. While on the way to 2020, I will be saving around $2k/month in savings (excluding CPF).
Recently, I have been considering to deposit $5k CASH into low risk segments like SSB bond OR the CPF SA for the long term. So..

1.Do you think that this is on the right track to retirement?
2.And is this a good situation to add $5k into SSB or CPF SA?

AK71 said...

Hi F88,

Unless they are born with a spoon made of some precious metal in their mouths, people who do not save any money at all are definitely asking for trouble.

For people who save a meaningful amount of money regularly and invest for income, financial freedom is not just a dream.

I like the CPF-SA and I think it should form the cornerstone of our retirement funding strategy. That is key. We put money in the CPF-SA with a very long term view.

The SSB is definitely near money compared to the CPF-SA. So, if you are thinking of an emergency fund or short term savings, the SSB is a better choice.

AK71 said...


Frowns88 said...

Thanks loads, AK!

AK71 said...

Hi F88,

If AK can do it, so can you! :D

AK71 said...

K says...
Correct me if I'm wrong, after wiping out ur CPF for initial DP for HDB flat, we are forced to repay the hdb loan by wiping out our subsequent cpf monthly contributions every month?

S says...
The govt just want us to work forever and ever and ever.

AK says...
Few are able to afford their first home without tapping on their CPF savings.

You can always choose to do voluntary refunds to your CPF-OA later on when you are financially more capable.

We must never forget that the aim of the CPF is primarily to help ensure retirement funding adequacy.

AK71 said...

Over-consume on housing and we might have to "work forever and ever and ever".

We have a choice in housing type.

The government didn't tell us to buy the largest and the most expensive housing type there is available to us. ;)

AK71 said...

CH CH Ng says...
Hope more people see this as a corner stone for retirement...
My CPF interest 21.5k total for year 2018...

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