Our parents and their CPF plans.

Reader:
I have been thinking about topping up my mum's CPF account in order to earn a higher interest for her monies because she currently keeps the allowances me and my sibling gives her at home 😓..

I tried to read up online on the CPF schemes but got a little confused along the way. She is 60 this year, and I believe she is not under CPF LIFE, she was given an option to opt in but she did not do so. Thus, this would mean she is under the Retirement Sum Scheme and she has around $91k in her RA. Her FRS is $131k and she can choose to receive monthly payouts when she reaches 65.

I understand that I will be able to make use of the Retirement Sum Top Up Scheme to top up her account and also earn tax relief while I do that. However, how would I be able to calculate the impact of my top-ups in order to convince her? Or should she opt for CPF LIFE instead?






AK:
Sometimes, when we think of what is best for our parents, we forget to ask them what is on their minds. I am guilty of that pretty often.

So, ask your mom what does she want to do with her CPF money? It could be that she has no intention to touch her CPF money at all. She might want to leave it as a parting gift for her children. Well, that was what my mom told me she planned to do quite recently.

In such a case, if we top up her CPF-RA, we are actually saving money for our own inheritance. I had a good laugh when I thought of this.

And some older folks are quite resistant to the idea of putting more money into their CPF accounts than what is required by the law. Best to avoid getting into an argument with parents. In my old age, I have less energy for debates.

I bring this up because it sounds like it could be the case for you since you asked me how to "convince" your mom of the benefits.




Talk to your mom and see what she has in mind first. If she plans on receiving monthly payout once she turns 65, I believe that CPF Life would be a better option since it would provide a monthly income for life. Then, let CPF Board know of this decision ASAP.

How to convince her to go with CPF Life? I think being able to receive a monthly income for as long as she lives is a pretty attractive idea.

How to convince her that topping up her CPF-RA is a good idea? I don't know your mom and how resistant she is to the idea. That is your hot potato. Not mine.




OK, I feel that you only need to convince her if you are going to take away her monthly allowance she is now getting from you and putting it into her CPF-RA instead.

If you are going to do a top up to her CPF-RA without taking away or reducing her monthly allowance, I don't think you need to do any convincing. 

The top up is on top of what she is getting from you in such a case. ;p

Part 2: Is CPF the answer?

Related posts:
1. Young people get 6% CPF interest!
2. Don't be stupid to top up CPF!

Why retirement is not an option for some people?

Ever since I went on a low carbohydrate diet, I have been consuming more protein and fats. 

One of the things I do eat from time to time is fish and I enjoy Batang fish quite a bit.

This evening, I paid almost $5 for my fish dinner:

150 grams of Batang fish. 

Just nice for a grown man or at least for me.

A dusting of turmeric powder, a sprinkling of garlic salt and some butter. 

1 minute in the microwave oven at 800 watts, followed by a drizzle of extra virgin olive oil and it is good to eat.

Yummy.

Anyway, as I was walking home from the supermarket, I tossed some numbers in my head.




$5 doesn't seem like a lot of money but to someone who makes $100 a day, that is 5% of his daily pay. 

(Once upon a time, that was my daily pay too.)

Considering the fact that $20 goes to his CPF, $5 is actually 6.25% of his take home pay. 

This is quite a big percentage.





Let us say this person depends solely on his CPF savings to fund his retirement and let us say he hit the FRS 10 years ago and CPF Life pays him $1,380 a month from today for life, he would get $46 in pocket money a day. 

In such a case, $5 is going to be almost 11% if his daily allowance!

The price of Batang fish would probably increase over time too.

Of course, he probably won't be eating Batang fish everyday but it is just an example to show how our CPF savings are probably not going to be enough to retire on.

If we depend solely on our CPF savings for retirement funding, it is quite possible that we would have to continue working beyond age 65.




This is for CPF members who have the FRS at age 55 too as this fishy example shows. 

For CPF members who do not have the FRS or even the BRS at age 55 and if their CPF is the only source of retirement funding, the chance of them ever being able to stop working is almost non-existent.





To people who are still unhappy with having money locked up in their CPF accounts and who want their CPF money returned to them because they have no savings to retire on, you have to wake up. 

You cannot retire. 

You have to continue working.





Related post:
CPF Life payout estimator.