Use CPF account as a savings account. (Prefers money close by and is CPF the answer?)

This blog is the continuation of an earlier blog:
Our parents and their CPF plans.

Reader:
Thanks for your well structured reply! It answered most of my questions :)

The reason I am concerned is because my mum keeps cash in the house instead of making it work for her.. And often she gets "tempted" by agents/bankers who sell her savings plans (10 - 15years) with "guaranteed" returns!!!

I managed to stop 1 transaction last week during the free look period but she has another savings plan that is fully paid in the next month and will pay out every year for 10 years (I will just see it as damage is done)...

Hence I thought to further explore the use of her CPF account if she wants to earn more interest over the years.

She likes the feeling of 100% liquidity (which explains keeping of money at home) and she finds it a hassle to even withdraw it at the ATM.. will need to think of an arrangement such that it will benefit her pocket in the long run.







AK:
Yup, it is as I suspected. Your mom likes the feeling of having money close at hand. Haha. So do I, to be honest, if you remember my blog on keeping some convenience cash at home.

Yes, from my habits, you can tell that AK has joint the ranks of the old folks too. Cham. How like that? Die lah.

Convenience is a good thing but there is a price to pay for convenience. Convenience has a price? Yes. I blogged about this too.

Your mom is lucky to have you look out for her, especially when it comes to guarding her against unscrupulous sales people but worse than those would be the PONZI schemes.





Try talking to her about using her CPF account as a high interest savings account. She can do voluntary contributions up to the annual contribution limit ($37,740). 

Please check that her CPF-MA has hit BHS first ($52,000) or else most of her contribution, at her age of 60, will go to her CPF-MA and will be locked up.

Of course, I feel that it is a good thing to hit the BHS because the CPF-MA pays 4% per annum and the interest of more than $2,000 a year will pay for many things but it is her money and it should be her choice.



Related posts:
1. Convenience money.
2. The price of convenience.
3. Unpleasant experience at a bank.
4. PONZI schemes.
5. CPF as a high interest savings account.

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!