Tea with Ms. Y: Single, turned 35 and getting a resale flat?

A guest blog by Ms. Y who recently turned 35 and got herself a resale HDB flat:

I'm just a regular white collar worker with not bad a job. Work hard and long hours and get decent pay. However, I do need to provide for my parents as they age. My biggest concern is that they do not have much insurance coverage (but might be different now with Medishield life!) Anyway, they both have some medical condition which doesn't allow them to get insurance coverage now. I'm also now eligible to buy a hdb flat!

I don't worry abt a 1 time operation need. 30k or 50k, it's not difficult to fork out of my savings or even if I have to borrow, it's not difficult. What I worry is about the long term chronic illness such as chemo for cancer and kidney dialysis that is very cash draining. Who knows? I may even have to take no pay leave to look after my parents. Or at least until I can arrange nursing home, domestic help, etc. I don't know how much all that will cost but if I have to fork out 2 to 3k per month, my finances would be drained surely.

So, my plan is to buy a cash generating asset. Need to generate 3k cash per month by renting my flat in the event of need (moving back to parents' place to take care of them as reason for renting out whole flat b4 meeting 5 years minumum occupation period can be approved by hdb).

Of course, my plan needs to be backed up by a good financial standing by complying with the TDSR and MSR. MSR is only applicable to hdb flats purchased. So, I'm using less than 30% of my monthly salary to service my loan calculated at an imputed interest rate of 3.5% by regulation. Tip: b4 buying property, get a mortgage broker to calculate all these. I did so even when I studied the regulations and calculated a couple of times.

Anyways, after getting an approval in principle from 2 banks (w help of mortgage broker), I went shopping for a flat. To yield 2 to 3k of cash flow, it has to be at least 4 room flat and at a good location. Then I checked hdb website for such rental yield and decide amongst them one of a cheaper place for such yield.

Also, I'm quite sick and tired of the >1 hr travel each way to and fro work. So, I'm getting a flat near to town area. It is expensive no doubt, but it is serving my purpose. 

Oh yeah, another reason why I do this is because I know myself. I'm not such a stock whiz that I get great returns in the stock market. Not so good in fact. I do well by squirreling cash away. Out of sight, out of mind. So, I don't spend it. Haha....I have most of my savings tucked away like this. I can say that I can afford this flat quite comfortably. In fact, after I have bought it, another transaction was done with price higher than mine.....hit above the 1 year high. Seems property market is going up again.

My flat is less than 5 years old. So, I plan to stay in it as long as I can. I will downgrade when I am retired to realized gains for retirement (hopefully). Or I'll just leave it and rent it out to finance my stay in a nursing home when I need it.

I have some amt in OA tied up in investments and paid 15% downpayment, stamp duty and lawyers fees. Found that I still have a small excess in OA. I just transferred them to my SA. My mortgage loan is ending when I am 60. So, I plan to pump up my SA now with min sum cpf top up and any excesses in my OA will be trf to SA. Trying to get govt to pay for part of my flat when I am 55.  4% interest in SA vs the around 2% mortgage interest....decision making is a piece of cake.  ;)

A nursing home in Singapore run by First REIT.

Now I have half the current prevailing min sum amt in SA and hit the ceiling of my MA. The only issue I have is that as my SA hits min sum earlier, I may not be able to make further contribution for tax relief purposes.

So, this is the story of my flat. :)

Congratulations, Ms. Y!


TDSR:
Total Debt Servicing Ratio refers to how much of our monthly income do we use to pay our debts. MAS policy is that TDSR cannot exceed 60%.

MSR:
Mortgage Service Ratio refers to how much of our monthly income do we use to pay our debt secured by properties (i.e. mortgage).  Applies to HDB flats and ECs only. MAS policy is that MSR cannot exceed 30%.


Related posts:
1. Buying an apartment: Considerations for first timers.
2. Build a bigger retirement fund with CPF-SA.
3. Don't see money, won't spend money.
4. National Day Rally: Retirement funding adequacy.
5. Millionaire or not, plan for retirement.

Should a young person contribute to his CPF or SRS?

A conversation with a reader:

Hi AK,

As i browse through your blog, I realized that I do have another question. 

I am wondering if you would recommend individuals to open a SRS account to have tax relief first or to top up and ensure our CPF has met the mim sum first? 

Which option would be a long term wiser strategy to go for?

Regards,
C

My reply:

Hi C,

The CPF is always my first preference because it earns relatively attractive risk free returns of 2.5% to 5.0% per annum. 

For MS-Top Ups of up to $7K a year to the CPF-SA, we will enjoy income tax relief too. 

The downside is the minimum lock up period to age 55.





The SRS is called "Supplementary" for a good reason. 

If our income is higher and we would like to enjoy more income tax relief, the SRS is a good idea to help us save towards retirement adequacy.

There is some flexibility for early withdrawal with the SRS (but this comes with a penalty) while there isn't any such option with the CPF. 

The downside is that the interest rate for money in our SRS account is very low and we will have to think of investing for higher returns.

Best wishes,
AK

Reader's reply:

Hi AK,

Thanks for your prompt response. 

I now see the CPF as a better option first due to the interest of 5%. 

I am wondering that if currently I have not met the criteria of 20k for OA and 40K for SA before being able to utilize the funds for investment, should I still go ahead and top up my SA? 

(I am going to be 25 this year, and I have just started working for a year, so I do not have a lot of money in my cpf, but I am planning for the future first). 

If I top up my SA now, it's more for tax relief now. I am about 32k away from the min 40k right now, and if i contribute 7k yearly, it will be 5 more years at least before I can use the funds for investment. 

I am quite confused so to what's the best way for me now. 

Regards,

C

My reply:

Hi C,

I think you know what the CPF and SRS are for now and how they work.

The next thing you need to do is to be very clear about what you want to achieve. 

Then, act accordingly.

Take your time to make a decision you are comfortable with. 

There is no need to rush.  :)

Best wishes,
AK







Related posts:
1. Achieving Level 1 Financial Security.
2. Securing risk free returns early for retirement.
3. Retiring before 60 is not a dream.
"Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer." Charlie Munger.

Should he do a VC or a MS Top Up to his CPF?

E-mail from reader:

Hello AK,

Hope this finds you well.

Firstly, thank you for sharing your knowledge with the readers! 

Been reading up on your blog posts since last year to improve my financial literacy and I have gained a lot.





Just a short introduction, I am 20 this year awaiting for my enlistment to NS. 

I intend to settle down at the age of 28 and hence, would need to save up quite an amount to afford for the wedding and a HDB flat. 

After reading your blog, I decided to make voluntary contribution to my CPF account starting next year to prepare for a sum of money. 

For example, contributing to OA from age 21 to 28 and thereafter, contribute to the SA till I retire which I aim for it to be at 55 years old.





Can you share with me your opinion on this plan of mine as I want to cover any loopholes as much as possible in my planning. 

Also, is it possible to just make a voluntary contribution to a specific account such as OA and not to all 3 accounts? 

I tried searching for the information on the CPF website but it was quite difficult for me to navigate around it.

Thank you for taking time out to read this and I look forward to your future blog posts!
Regards,N

Money tree? I go for low hanging fruits.

My reply:

Hi N,

Welcome to my blog. :)

Using cash, you could choose to do either a MS Top Up to your SA or a VC to your OA, SA and MA. 

A MS Top Up to your SA requires more serious consideration because you won't be able to use the money for housing unlike money in the OA. 

However, it would be more rewarding with much higher interest rate of 4% to 5% if your objective is to save early for retirement. 





The magic of compounding is amazing, given more time.

However, if you are not sure and it is hard to be sure when you are only 20, it is best not to do a MS Top Up yet. 

Doing VC to all three accounts will give you more flexibility and enjoy 2.5% to 5% in interest rates at the same time. 

A percentage of the money in the OA could be used for approved investments too while money in the MA could be drawn upon in case of hospitalisation (and MA is also used to pay for our H&S insurance plan).

When you start life as a working adult a couple of years later, you might want to consider doing an OA to SA transfer. 

This will not be an out of pocket exercise. 

It is money in your CPF OA that is being moved. 





You might choose to do this for the first 3 or 4 years. 

It will give your SA a boost and the magic of compounding will do the rest for the next 30 years. 

Of course, you might have to push back your plan to settle down by 3 or 4 years, in such a case.

Think carefully your own circumstances and what you want in future. 






The CPF is a useful tool in planning for a more comfortable and secure retirement but there are competing uses for our financial resources. 

I am only sharing what has worked for me in my blog. :)

Best wishes,
AK

Note:
VC = Voluntary Contributions
MS Top Up = Minimum Sum Top Up






Related posts:
1. A lot of money in the CPF-SA...
2. How did AK amass so much money in CPF-OA?
3. Beef up to attain financial freedom sooner.

A conversation on the CPF and investing in stocks.

A conversation which I think might motivate a few others here:

Hi AK,

I have been going through your blog on max up minimum sum. I really like the idea to have govt help to build our retirement fund.

Can i seek your opinion that if my SA has not hit the minimum sum of 161k, is it better to do cash top-up (even more than 7k, no tax rebate beyond that though) to SA? Is when we hit the minimum sum, then we do VC to further build up our CPF account. Whats your view?

Thanks and regards,
G

Hi G,

If you want to give your SA a boost, I think doing the MS top-up is a good idea. You will hit the minimum sum faster and get income tax relief (up to the first $7K yearly) to boot. Of course, it really has to be money that you won't be needing for anything else. Remember that the process is irreversible.

However, if we do this yearly, we would be saving a lot in taxes and we are also very likely to receive a very meaningful lump sum payment at age 55 (with most of the money being from the government). :)

Best wishes,
AK

--

Hi AK,

So am i right to say we should only do VC after we have max up SA to MS and not before?

Thanks and regards,
G

--

Hi G,

If you want to benefit from the income tax relief, yes, that line of thought is logical. :)

However, remember that we can only do VC if our mandatory contributions do not hit the contribution cap set by the CPF Board. This cap is revised yearly. I believe it is $31,450 for 2015, for example.

Best wishes,
AK

Thanks AK for the confirmation. Your blog really change my view on CPF and how we can build our retirement fund.

In your view, do you think govt will keep increasing the minimum sum? I dont think there is issue with PMET but for those low or low-middle income earner might be tough as they might not meet the MS by the time they retire.

---

Hi G,

The minimum sum will increase yearly by about 3% to keep pace with inflation. This is a given.

The CPF is really to help the common people. You can tell this by how there is extra interest income for the first $60K in our account and how there is a limit to how much we can top up our CPF accounts. It is not meant to benefit the rich.

We need to educate those who need the CPF most for a financially more secure retirement. If lower income workers diligently top up their CPF-SA while staying financially prudent, the magic of compounding will help them have a meaningful retirement income for life. They need to start doing this as early as possible. :)

Best wishes,
AK

Hi AK,

Yes, i can appreciate after going through your blog. Thank you for the enlightenment.

I attended few of your sessions and like the way you analyse stocks. Can you share how you filter stocks, any key criteria before you put in your shortlist and start going through in details?

Thanks and regards,
G

--

Hi G,

Oh, you did? I am glad you enjoyed the sessions. :)

Well, I cannot give you a set of criteria. Like Charlie Munger would say:

"I can never make it easy by saying. ‘Here are three things’. You have to derive it yourself to ingrain it in your head for the rest of your life."

However, I would tell you my starting point. I invest mostly for income. So, whether a stock pays a dividend is an important consideration. Then, pick it up from there. If you were to invest for growth, you would have a different starting point. It is important to match our motivation and our methods. :)

I have a section in my blog's right sidebar titled "Food for Thought". You might want to read the books listed there. Good primers. :)

Best wishes,
AK

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Beef up financially to attain financial freedom sooner.

Reader says...

First stop, thanks again for sharing your knowledge on financial literacy. I have made progress again, lol! 

The best part is the progress is very tangible and someone could actually see these effects within months.






Anyway, I have a question on the topping up of our CPF. 

As much as I do understand that topping up the SA account is important, given the 4% risk free interest rate coupled with 0 re-investment risk, this is just too good to ignore. 

However, what do you think of topping up the medisave account to its mms before putting money into SA instead?

Therefore, once the amount in medisave hits the ceiling , the amount that is supposed to be allocated into the medisave would go into our OA in which then one could subsequently transfer into the SA account. 

In this way, this will result in a higher contribution into the SA account per year. Do correct me if I'm wrong.






Something else which I would like to ask you is, what do you think is a good amount for Singaporean to set aside in the OA account assuming that they haven't bought their flat.

Just to share, I used to have this habit of wasting money on the latest gadgets released. 

After knowing you (technically yes, since a blog post is almost like a one-to-one conversation), whenever such thoughts of spending money crosses my mind, I transfer half of this money into CPF and the remaining half into a separate savings account.

Without money being accessible, no money to spend, no money to waste! Best part, money is saved! Thanks again!

Learn from the squirrels?

AK says...

I am very happy to learn that you are beefing up financially. 

Having financial muscles early in life will set the stage for, ultimately, achieving financial freedom later on in life. ;)

Should someone in his 20s top up his CPF-SA or the CPF-MA first? 

Well, my preference is to top up the CPF-SA first because the first $40K in the CPF-SA will earn 5% per annum. 

Topping up the CPF-MA has more practical considerations, of course. 

So, perhaps, after reaching $40K in the CPF-SA, switch to topping up the CPF-MA instead. :)





How much should we accumulate in the CPF-OA before buying a flat? 

I think this is rather subjective. 

So, please remember that this is just my opinion and I am going off tangent to share what I feel is more important.

I will try to use as little of my CPF-OA money as possible in the purchase of my home. 

This is because it earns a risk free 2.5% to 3.5% per annum. 





In the future, when I sell my home, I will have to pay interest to my CPF-OA (i.e. the accrued interest for the money in the CPF-OA I used). 

This was how I approached the subject on the use of my savings in the CPF-OA in the purchase of my first home donkey years ago.

I like how you ended your email. 

Yes, don't see money, won't spend money. 

I told this to a spendthrift friend before too. Haha... ;)

Where did our money go?

Reader says...

Indeed, and learning that each step we take is bringing us closer towards financial freedom just makes things feel so much more joyful.

On the part of frugality, being frugal has made me happier as a person in total as I learnt to be contented with what I have while balancing the equation of needs and wants.

Sadly, as my generation of folks (gen y) are largely exposed to new age media content, its hard not to be taken in by those fancy marketing campaigns for the latest product and service offerings that are largely wants but hardly needs. 

Unfortunately, the result of which is more expenses incurred on an individual, worse still, these things hardly produce much tangible benefits to warrant the expenditure.





However, the best part is, we all have choices. 

As opposed to spending, we could instead save this amount of money, and subsequently making them work harder for us through investments. 

If one has the discipline and is regularly putting aside income into savings while investing for a sensible return via both cash and the CPF-SA, financial freedom is not as far fetched as it sounds, and is in fact very achievable for a commoner like myself.

On that front, I started out by reminding myself of the opportunity costs incurred for this purchase which would potentially set me back from my eventual goal. 

Now, I don't even have to post mental reminders to myself anymore, it has been infused into my habits. 





I hope I don't sound like a drug addict who has just successfully undergone rehabilitation. =P

Noted on the point you have made on the CPF-SA. 

Right before I started to type this email, 

I have already transferred a proportion of my CPF-OA into CPF-SA, resulting in a $40k amount in my CPF-SA. 





And upon keying some numbers into the calculator, I finally understand why $40k is seemingly the "magic" number and why the government has provided additional incentives in the form of an additional 1% interest rate on the CPF-SA account of below $40k. 

Yet another blessing for Singaporeans to count!

Yes! Money saved = money earned. You shared that before too.

I should be the one thanking you as your sharing has changed me and I'm sure many others as well. =)





Related posts:
1. Do the right things and transform our lives.
2. How did AK amass so much in his CPF-OA?
3. Don't see money, won't spend money.
4. Money management: Needs and wants.
5. A dollar saved is a dollar earned.

Tea with LS: The Pros and Cons of topping up the CPF-SA.

LS left a very good comment on the CPF recently in my blog and I suggested that a guest blog could be next and here we have the maiden guest blog:

Just want to share with you some of my thoughts on the CPF cash top up to SA. Please note that we are talking about CPF cash top up, not transfer of OA to SA.

I know you have being recommending readers to do cash top up to SA early as this will greatly assist them in achieving their Minimum sum(MS) in the future. While this advice is mathematically sound, does it applies equally to all? Is there any cons involved in such a plan? Let’s us look at some of the pros and cons.

Pros

1) You can enjoy up to $7000 in tax relief per calendar year. The amount of tax relief you get is the amount you contribute to OA/SA, up to S$7000. How much saving do you get from this?  If you are earning more than $80k, the tax rate after the first $80k is 11.5%. Which mean you get a one-time saving of $805 from the $7000 top up. That is a very respectable amount for a one time saving fee. Average Singaporean will be earning between S$40-80k so the tax rate is only 7% which work out to be a one-time saving of $490. Still a decent amount. This clearly works better for the higher income earners but the lesser income earners do get quite a bit of saving too.

2) You get free 4% interest (not accounting in the additional 1% interest for first S$40k in SA) from the government. Who do not like free money from the government? Lol. Contributing S$7000 yearly into SA for the first 10 years and leave it to roll for another 15 years will nett you around S$87k in interest alone after 25 years. That is decent return with a contribution of S$70k of your own. S$87k free money after 25 years, risk free J

3) It can also act as a risk free bond portion in your overall portfolio. This will reduce the overall volatile in your portfolio since the SA will not be affected in times of a crash.

Cons

1) While SA is earning us an interest rate of 4%, there are also other options that is earning more than 4% though not risk free. STI ETF (stock code ES3) is having an average return of 8.55%(inclusion of dividends) since inception from April 2002. Rate of returns does matters especially over a long period of time.

2) Opportunities cost. While transferring S$7000 cash per year might means confirmed 4% compounding and one-time tax saving, you will also lose opportunities to invest in cheap bargains if they do come your way (example like OCBC at S$9 last year and Keppel at S$8 this year). We can always alleviate this 4% loss by putting our money in some high yield saving accounts like OCBC 360 account which earns 3.05% with some terms and condition. (Interest will soon be changed with more details yet to be announced) These high yield accounts provide lesser returns but with no lock up of funds until age of 55. Feel like a good alternative comparing to 4% return but no flexibility in withdrawing of funds at your convenient timing. 

3) Lastly, to enjoy the fruit of the accumulated SA, we have to wait until the draw down age which is 64 in 2015, 65 in 2018 (hopefully no more adjustment to a later age though I highly doubt it) or a portion of the fruits at the age of 55 if you have excess of MS. How you will enjoy your fruit of labour is through the policy of CPF Life. You will enjoy life long monthly pay out with the amount depending on how much you have accumulated and which plan you select. What is not widely known is that the monthly payment is not fixed and will be adjusted depending on the money left in the overall pool that everyone contributes in. The solvency of the fund could be affected by many factors. Mr. Wilfred Ling had sent a post to Straits Times and MOM replied. What we are given is just a verbal assurance that CPF Life scheme is designed to be sustainable. But if they are sure, why do they feel the need to include in the non-payment in the case of insolvency in the bill? Isn’t this like preparing a back door exit and they are not as sure as they want us to believed? So is contributing guaranteed cold hard cash of S$7000 into SA really risk free? Could that money be better used investing somewhere so it will still be available if something do happen to CPF or Singapore?

  

Above are just my thoughts and I am just another common man in the streets with limited knowledge. Read everything with a huge pinch of salt and disregard any portion that you find distasteful.

Also feel free to advise me if I am misguided :P

Thanks for sharing, LS. Appreciate it. :)

Related post:

Should I do a CPF OA to SA transfer?

Should I do a CPF-OA to SA transfer before buying a flat?

I received an email from a reader in my age group regarding the purchase of a resale HDB flat. He asked if it would make sense to use up his savings in his CPF-OA to fund the purchase.

As I am not familiar with the rules in the purchase of a resale HDB flat, I would like to share our email exchange here and see if others have any ideas to share:

 

Hi AK,

I know you have blogged a lot about CPF, in particular to build one's retirement fund.


I'm 45 years old. I am buying a re-sale flat, say, $400K. I have $200K in OA and $200K in cash. But I do not want to spend all my cash and hence plan to take a bank loan between $100K to 200K.
 
Would like to know your opinion. Should I use up the money in the OA + cash or cash plus bank loan to fund the purchase?

Leaving the money in CPF (and perhaps transfer OA to SA) seems logical for beefing up my retirement fund. But it will mean I need to pay interest for bank loan, whose trend is increasing.

-------

Hi ,

If you think you are able to take a $100K loan and repay it in full in 8 years, the POSB HDB loan will save you some money still as the interest rate will be capped at 2.5% for the first 8 years. After that, given the rising SIBOR now, it will probably be higher than the 2.6% rate from the HDB Concessionary Loan.

Also, you might want to consider buying BTO, if you are eligible, against buying a resale flat. A BTO 2 room flat costs about $100K which is a small fraction of the $400K you are thinking about for a resale (3 room?) flat. Just being kaypoh. ;p

Best wishes,
AK

Hi AK

Appreciate ur reply.
Unfortunately, I'm not eligible for any new HDB flat :(

Btw, I still have friends advising me to "use up" CPF for housing. They say, govt may increase the min sum and increase the withdrawal age. Hence, our money will be stuck in CPF. 

 Hence better keep cash and invest it for (hopefully) highly return than CPF.

I see merits in their points and yours. Confusing ?

----------

Hi ,

Well, if you are able to use your CPF-OA money to generate higher returns consistently than the risk free 4% offered by the CPF-SA (which you would get if you were to do an OA to SA transfer), then, you should invest the money. When we are doing the comparison, the ideas to bear in mind are "risk free" and "consistently", not "hope". ;p
 
I will say this to your friends:

1. The minimum sum will increase at a rate of 3% per annum.

2. Withdrawal age is at 55 years. You may withdraw anything that is above the minimum sum based on your cohort.

3. Our CPF money is our money. It is not "stuck". It is going to fund our retirement through CPF Life, an annuity.

Please feel free to share my blog posts on how we can make the CPF work for us with your friends. I think you will be doing them a favour. ;p
 
Best wishes,
AK

In this case, I feel that it makes sense to do an OA to SA transfer (maxing out the SA, if possible) before using the balance in the CPF-OA to help fund the purchase of the resale flat.

Of course, before doing this, the reader should consider whether he would be able to repay the loan (i.e. POSB HDB loan*) in 8 years when the interest rate is capped at 2.5%. 

This way, he would be saving on the interest payment for the home loan (in a rising interest rate environment) and also benefit from the higher interest payment on his CPF savings. Sounds good?

*It is 5 years now. Blog post on POSB HDB loan updated.

Related posts:
1. How did AK amass so much in his CPF-OA?
2. A lot of the money in my CPF-SA is from...
3. How to upsize $100K to $225K in 20 years?

Choose your own CPF adventure!

There was a creature called the MS (full name "Minimum Sum") which gained mutant powers. 

In gaining mutant powers, MS was able to mutate into a smaller creature half of its original size or into a bigger creature 50% bigger than its original size.

The creators of MS hoped that more would take a liking to MS which had been verbally abused in some quarters. 





So, with newly gained mutant powers (and a new marketing team), MS took on new names for its various forms.

The smaller and cuter MS mutant was called the BRS (full name "Basic Retirement Sum"). 

In its original size, the MS was renamed the FRS (full name "Full Retirement Sum"). 

The bigger and more powerful MS mutant was called the ERS (full name "Enhanced Retirement Sum").

Everyone had to adopt a MS but they didn't have a variety to choose from in the past. 

It was a little like the first mass produced car by Ford, the Model T. 

Everyone had a choice of color. Remember? 

It was either black or black or black. 

People still had to adopt a MS but at least they would have a choice of size with the mutant forms.




The MS had been badly misunderstood by many and far from being a monster, a closer look revealed that it was actually a cow. 

Yes, it was a simple farm animal! 

The MS was supposed to provide sustenance to its owner for an indefinite period of time once the owner turned 65. 

That was when the MS would become a deity-like bovine called the CPF-Life.




Whichever choice people should make between the BRS, FRS and ERS, these cows retained their power to become deity-like bovines later on with their powers to provide more or less sustenance for life to their owners, their powers being proportional to their sizes.

Oh, the movie had a compulsory audience participation section as well. 

It was a bit like a "Choose Your Own Adventure" component. 

Yes, some of us older folks would remember flipping through what seemed like random page numbers in those storybooks with outcomes depending on the choices we made. 

They were the craze at one time.




How would things play out? 

Well, with miniaturization still a craze, I suspect that the BRS might win hands down. 

Kawaii! 

The apathetic would probably stick to the FRS. 

A smaller more prudent but insecure feeling group would choose the ERS.

If I were to use another analogy, the BRS is like a hut made of straw while the FRS is like a hut made of wood and the ERS a hut made of bricks. 

Remember the story? 




The hut made of straw was the easiest and fastest to build while the hut made of bricks was the hardest and took the longest time to build. 

Then, remember the three little pigs which stayed in the huts?

In a less child friendly (and more realistic) version of the story, the little pigs which stayed in the straw and the wooden huts were eaten by the big bad wolf. 

Only the little pig which stayed in the brick hut survived. 




In most versions, however, all three little pigs survived because the first two pigs ran to the house made of bricks to escape the big bad wolf. 

So, the little pig who took the trouble to build the hut made of bricks had to share his living quarters with his brothers. 

Well, we can choose our friends but we cannot choose our family, as the saying goes.




I believe that the movie would not only have a sequel but there could be remakes in future. 

Whatever the case might be, in the audience participation section, we would do well to choose wisely in the meantime and hope that many more would choose wisely too.

Related posts:
1. A lot of money in my CPF-SA...
2. How did AK amass money in the OA?
3. Get free medical insurance in Singapore?

https://www.cpf.gov.sg/Assets/Common/Documents/FAQs_IncreaseinSalaryCeilingandCPFConRateChanges.pdf

"From 2016, the CPF Annual Limit will be increased correspondingly from $31,450 to $37,740 (equivalent to 17 months x CPF salary ceiling of $6,000 x 37%)."
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"The panel is proposing that the sum of S$80,500 for CPF members turning 55 in 2016 be called the Basic Retirement Sum. This Basic Retirement Sum should increase by 3 per cent each year for cohorts turning 55 from 2017 to 2020, to keep pace with inflation and changes in household expenditure.


"For CPF members who are not homeowners or who do not have a CPF pledge on the their property (which refers to the sum of money that will go into his CPF account if he sells the property), the panel thinks they should set aside a sum of S$161,000 in 2016 – equivalent to the Minimum Sum for those turning 55 from July. This could be called the Full Retirement Sum, the panel said.


"Those who want to put more into their Retirement Account for higher annuity payouts should be allowed to do so, felt the panel, which is proposing that they be allowed to have up to three times the Basic Retirement Sum to pay for CPF LIFE premiums (or S$241,500 in 2016).


"Also addressed in its first set of recommendations is lump-sum withdrawal of CPF savings at the age of 65. The panel suggests allowing the withdrawal of up to 20 per cent of Retirement Account savings, inclusive of the S$5,000 that can be withdrawn from age 55."

Source: Today Online, 4 Feb 15.

See all the infographics: here.

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UPDATE: 
The Straits Times, 11 Oct 2016.

LUMP SUM WITHDRAWALS

Central Provident Fund (CPF) members who turned 55 in 2013 and later can make a lump sum withdrawal of 20 per cent from their Retirement Account when they reach the payout eligibility age (i.e. age 65).

AUTOMATIC PAYOUTS FOR RETIREMENT SUM SCHEME

Previously, members on the Retirement Sum scheme had to apply to start their payouts. Starting from 2018, payouts will begin automatically once the member turns 70.

How did AK amass so much money in his CPF-OA?

I received my CPF statement in the mail last night and when I was chatting with my mom, I told her how much money I have in my CPF-OA now and she was very shocked.

"How much did you say?!" my mom went. 





I passed her my CPF statement so that she could take a look for herself.

Well, to be honest, it might not be much to some people but it is quite significant to me.

So, how much is it?

How did I achieve this?

What I basically did was to do nothing to my CPF-OA after selling my last property about 3 years ago. 

In the purchase of my current home, I use my CPF-OA money sparingly as I was not and still am not able to get any interest income for my cash on hand that is close to 2.5% per annum.





Also, we have to remember that the opportunity cost of using our money in the CPF-OA is a bit more than that because we would have to pay ourselves the accrued interest lost for using our CPF-OA money. 

This happens in the event that we sell the property concerned (before we turn 55).

See:
Unemployed, almost 55 and worried about CPF.

Essentially, what happens is that instead of the government paying us interest on our CPF savings, we would have to pay ourselves interest as the CPF's primary objective is to ensure that we have a financial safety net in retirement. 

I rather prefer the idea of someone else paying me, to be sure.

For most of us, in our early years, it would probably be difficult to purchase a property in Singapore without the help of the funds in our CPF-OA.

However, if we are financially prudent enough to accumulate cash, invest to grow our wealth as we make progress in our career, it is not difficult to imagine us having more cash on hand as time goes by.

In the purchase of our second home years later, assuming that we do, it is then possible to use less of our CPF savings and more of our cash on hand, leaving money in the CPF-OA to grow.





Of course, we could always do voluntary refunds to our CPF-OA as well.

See:
How to stop accrued interest from growing?

Let the government work steadily to help pay for our retirement? 

Yes, you got it, that is the idea.

Related post:
A lot of the money in my CPF-SA is from...