CPF members above 55 should use it as a savings account. (Deposit for 5 years 11 months for higher returns?)

Some readers might remember this blog post:

http://singaporeanstocksinvestor.blogspot.sg/2016/06/mom-stunned-at-what-happened-to-her-cpf.html





My mom has met the minimum sum for her cohort and she has also maxed out her CPF-MA. So, guess what my reaction was when she sent me the following SMS:

"I went to XXX bank because my fixed deposit matured and they asked me to deposit for 5 years 11 months. Get 1.6% per year for first 5 years, Balance 11 months see how is performance. Get minimum 1% and maximum 2%. Principle guaranteed upon maturity but suffer penalty if withdraw before maturity. Can put or not?"

Noooooooo! 

A thousand times, nooooooo!







I told her she might as well put the money in her CPF account and enjoy 2.5% interest per annum. She is allowed to withdraw the money anytime she likes too.

5 years 11 months? 1.6% per year? Penalty for early withdrawal? 

You must be kidding me.







For those who do not wish to deposit more money into their CPF accounts, they could enjoy similar returns by simply parking their funds in Singapore Savings Bonds (SSB).

Held for 10 years, the SSB yield is about 2.1% per year but if withdrawn after 5 years, the yield is about 1.6% per year.  (See: Daily SGS Prices.) Safer and no penalty for early withdrawal too.




Don't ask barbers if we need a haircut.
Also read these which are from my FB wall:

"At 55 and older, cannot top up SA anymore.
And any top up to RA cannot be withdrawn suka suka." - AK

"After 55 (after creation of CPF-RA and meeting BRS or FRS) and if unemployed, yes (the member can still do VC to his CPF and any money in CPF-OA and SA can be withdrawn anytime).
Note that this is for regular VC which puts money into OA and SA when MA is already maxed.
If MA is not maxed, most of the VC will go to the MA for older members and will be locked up.
Top Up to the RA will also be locked up.
At 55 and older, Top Up to SA is not allowed." - AK

If the CPF member is still gainfully employed after 55, withdrawal is allowed once a year.






Shirl Wong:
The rules have changed. Withdrawal not restricted to once a year if employed. I have checked this at CPF board recently.

Desmond Lee:
Yes the rules have changed. CPF officer told me last week and I did a check at their website.

Updated on OCTOBER 17, 2017.





Related posts:
1. Nobody cares more about our money.
2. Bad experience at a local bank.
3. Singapore Savings Bond.

An average HDB household and $1 million.

Some might remember that I talked about an article written by Cai Haoxiang in The Business Times in 2013. He wrote about what an average household's monthly expenses could look like in 2042, using the Household Expenditure Survey 2007-2008 from the Department of Statistics as reference.

1997-1998, an average HDB household's expenses was S$2,681. 2007-2008, it was S$3,138. That was an increase of 17%. By 2042, if core inflation is 2% a year, that number would hit S$6,400. In 3 decades, the number doubled and then some. 

If we were to assume that costs would increase steadily, monthly expenses for an average HDB household could hit S$7,500 by 2052.





Many people say they need $1 million in savings when they retire at 65. I don't know if they know this for sure or if they are just saying it because $1 million sounds like a big deal.

OK, let us look at how long would that $1 million last?

Hold on to your seats.

At a draw down rate of $7,500 a month, about 11 years, assuming that the banks did not pay interest on savings and that there would be no further inflation. 

The money will run out at age 76.

Alamak, how like that? Many people are expected to live till 85 or older these days.

2052. 

Hmmm. 

That is 35 years away.

So, if you are 30 years old this year and you are from an average HDB household, this could well apply to you. 

Aiyoh. Stress.

OK. Before you run around doing a Chicken Little, an average HDB household was assumed to have 3 to 4 members. So, if your household size is smaller, then, expenses should be lower. 




Single or DINK at 65, anyone?

Of course, even for married couples who have children, at 65, their children should be financially independent of them. So, again, expenses should be lower than what is assumed here.

I am going to stick my neck out here and say that, in 2052, $4,000 of spending money a month could probably give most people who are 65 and retired a comfortable life.

If you are 30 this year, have $1 million in savings by age 65, you should be able to fund a $4,000 a month retirement easily into your 90s.

If we max out our CPF contributions annually and top up our CPF SA to hit the Full Retirement Sum (FRS) earlier, we could have this magical $1 million in our CPF account by the time we are 65.

Don't believe me? Read this:

http://singaporeanstocksinvestor.blogspot.sg/2016/08/1m-in-cpf-by-age-65-what-about-12m.html

From an average HDB household? If you do not have the temperament to be an investor, this is something to seriously consider.





Singles and DINKs will find this easier to achieve than those who are married with kids, everything else remaining equal.

Some might have to try harder and some might take more time but if this is important enough to attain, then, do the right thing. Start today.

Related posts:
1. Retiring a millionaire is not a dream.
2. A cornerstone in retirement funding.