A river called CPF and the stubborn horses.

In my last blog, I said that as long as personal financial conditions permit, I would like to continue making voluntary contributions to my CPF account at least till I am 55 years of age. 

See:
How much passive income is enough for you?

I believe that it should not come as a surprise to anyone that this plan is ridiculed by people unhappy with the CPF.

Some people unhappy with the CPF even got angry at me for sharing my thoughts on how to make the CPF work as a cornerstone in our retirement funding strategy.

See:
Unhappy with CPF and angry with AK.





Looking through some of my unfinished blogs which are pretty numerous, I decided to spruce up one on the CPF.

There are so many reasons why many blogs remain unfinished.

Of course, AK being lazy is one reason.

However, this blog was left unfinished probably out of respect for a friend.

I say "probably" because I am not sure if it was out of respect or out of pity.

He is actually more of a friend's friend than a friend.

What's the difference?

Anyway, it was something that happened more than a year ago.







The original blog went like this:

I am once again reminded of human mortality as I attended a funeral wake recently.

As I grow older, I suppose I might be attending more of such necessary and unhappy events.

I will avoid them if at all possible.

I sat at a table with some friends and in the chatter, someone said something about the CPF locking up our hard earned money and that it is as good as gone.

It was in response to another person who said it is better to live life to the fullest and there is no point in dying with lots of money left behind.

Anyway, I wasn't feeling talkative and I wanted to go home as soon as I was done with the dinner buffet.

AK is so anti-social.

So, I kept quiet and kept eating.

When they started talking about children and parents, I gulped down my drink and said farewell.

Why do I prefer my own company?

I wonder.





I know that there are quite a few out there who do not trust the government.

It is good not to be too trusting.

That is for sure.

Too trusting and we are in danger of becoming gullible.

However, if we become overly suspicious, we are in danger of becoming irrational.

We should ask the right questions before making a decision, absolutely.

When we become irrational, however, we ask all the wrong questions or start imagining things.

Anyway, this is a topic that I have covered multiple times.





1. The CPF is not a national PONZI scheme.

There is a maximum amount we can contribute to our CPF account each year.

Want to contribute more?

Sorry, not allowed.

Does a PONZI scheme work this way?

Read:
CPF is really a PONZI scheme!







2. The CPF is designed to help all members achieve a basic level of retirement funding adequacy.

"The CPF is a system that is meant to help the masses to help themselves.

"If we think the system cannot help us, it is probably because we have not tried to help ourselves."

Read:
Purpose of the CPF is to make the rich richer?







3. If we are very rich, we probably will have to look for other tools on top of the CPF.

"For most ordinary Singaporeans, if they want to hold some bonds to prepare for retirement, maxing out their CPF membership benefits is all they need."

Read:
CPF is all we need unless we are very rich.

Read: $800K in his CPF!

The CPF is a good thing and we Singaporeans are a fortunate bunch.

Unfortunately, many who really need to make better use of the CPF do not realise what a good thing the CPF is.

We can bring horses to water but we cannot make them drink it or so the saying goes.

Fortunately, the mandatory component of the CPF makes the horses drink some water.

LOL. ;p

The horses might not be grateful and they complain a lot but they sure are lucky. :p





Related post:
CPF interest is passive income and CPF savings is real money.

You might also be interested in these blogs:
1. How much passive income is enough for you now?
2. CPF SA time and income lost due to peer pressure.

How much passive income is enough for you now? (AK tells you how much he needs now.)

I have always been a worrier.

Some tell me that I think too much.

I cannot help it.

For some reason, I always ended up in schools that required long bus rides from home and I would spend the time on the bus thinking.

It is probably because I am a worrier that I have sleep disorders.

Has achieving financial freedom freed me from this mental illness?

Not at all.

I just worry about different things.

Told you AK is mental.

Anyway, I read somewhere that penning down my thoughts helps to deal with the problem and this is something that I do now and then.

Sometimes, I would share those thoughts here in my blog and this is one of those times.

I don't know if the illness is contagious.

You have been warned.

Pause.

Pause.

Pause.

Still here?

OK, I guess I am not the only crazy one here. ;p

This blog is not going to be just about money.

It is also going to be about family, my family.

I turn 48 this year and my parents are in their 70s.

My parents worked hard till their late 60s.

While they were working, they didn't ask for any financial support from me.

I remember blogging about how lucky I was that way.

Read:
How did AK create a 6 figure annual passive income?

It is probably a big reason why I was able to achieve financial freedom at a relatively young age.

My parents, however, are not very savvy financially and they are also pretty stubborn.

Not a good combination.

Although not absolutely sure that it would happen, I fear that they might outlive their savings.

Like with so many things, of course, it could be just me worrying for nothing.

Although they didn't need any financial support, in the last few years, since achieving a six figure annual passive income from my investments, I have been giving my parents big red packets on their birthdays, on Mother's Day and Father's Day.

Big red packets?

How big is big?

The red packets amounted to $20,000 or so a year.

There was a year when I gave them $40,000 in total.

Pretty big to me.

In those years, I had both earned income and passive income.

So, it was definitely something I could afford to do more easily.

What about now?

Of course, I became totally economically inactive about three years ago.

Read:
Income tax payable in 2019?

Even so, lacking earned income, I was still giving my parents red packets amounting to almost $20,000 a year.

I can still afford to do so even if I must depend solely on the amount of passive income I receive from my investments.

However, earlier this year, I decided that things would have to change.





So, how like that?

Is AK going to cut back, you wonder?

I wonder how many think that way?

No, not happening. 

Although my parents did not ask for help, earlier this year, I decided that I should help to pay a big proportion of their major recurring expenses.

Financially, it means a doubling of what I give to my parents to $40,000 a year and this is going to be a long term commitment.

It is not something that I am doing just for one year or two.

It is something I gave a lot of thought to before deciding that I can pull this off.

I want my parents to be able to enjoy their retirement as much as possible.

I don't want them to have to worry about money.

I want them to have peace of mind.

They deserve it.

Even doing this will not stop me from worrying about my parents completely but it definitely makes me happier that I am doing more.

Of course, a move like this would mean having less "retained earnings" to invest with.

How like that?

Well, unless we are very rich, money will always be a scarce resource which is why if we want to retire comfortably, growing our wealth has to be a priority for most of us.

However, we have to question when this priority becomes less of a priority in life?

Know what I mean?





Anyway, I decided that putting more resources into growing my wealth at a faster pace isn't a priority for me anymore.

It is no longer a need for me.

I probably have enough financial resources I will be able to draw upon as well as sufficient income generating assets to be quite comfortable for the rest of my life although I suspect I will always feel somewhat insecure if I don't grow my wealth somehow.

This feeling of insecurity is unlikely to ever go away.

I guess it keeps me on my toes (and also keeps me awake at night sometimes).

Yes, it is just AK being mental.

Fortunately, I am a CPF member.

I will still be voluntarily contributing to my CPF account and this means setting aside almost $40,000 of my passive income annually.

Unless something disastrous happens, this is something I plan on doing until I am 55 years of age, at least.

When I turn 55, I will decide if I should continue to do voluntary contributions or if I should enjoy life a bit more.

After all, it is most likely that even without any voluntary contribution after I turn 55, I would have quite a meaningful sum of money in my CPF account by the time I turn 65 thanks to the magic of compound interest.

Read:
$1.5m in CPF savings by doing nothing.





The question I would have to ask when I turn 55 is whether it would be enough of a safety net.

Would the monthly payout from CPF LIFE (i.e. the annuity by the CPF) be enough to pay for the basics in life by the time I turn 65?

I will cross the bridge when I come to it, I suppose.

After all, I could be worrying for nothing again since I could also draw upon my CPF savings in the OA and SA which is in excess of the Full Retirement Sum in the newly created RA at any time once I turn 55 if things were to go horribly wrong with my investments then.

Knock on wood.

Read:
CPF LIFE Payout Estimator.









So, $40,000 for my parents and $40,000 for my CPF account.

That is about $80,000 which I have to put aside yearly.

What about the rest of my passive income?

A big chunk of what is left of my annual passive income will be used for other expenses.

After some rough estimates, $40,000 a year seems like a fairly comfortable amount to cover 

1. recurring expenses, 

2. donations to charities, 

3. outings and gifts for family 

as well as 

4. other discretionary spending.

Having what I have now, I should not (and really don't want to) live life on a shoestring budget like I did once upon a time.

It was pretty crazy and some would even say miserable to live on $300 a month.

I am still learning to be more easy going with money.

I think I have made good progress though.

Read:
Is AK a rags to riches story?

So, it seems that I would need roughly $120,000 in annual passive income to cover everything.

If my investments do not generate significantly more than $120,000 a year in passive income, there really isn't going to be much left of it to invest with.

Anyway, doing what I have been doing for so many years, I hope I continue to be approximately right most of the time in my decisions.

A change in my priorities this way isn't a bad thing, I feel.

After all, money is but a tool and one of its functions, if not its main function for ordinary people, is to make life better either now or in the future.

Anyway, it is not as if my personal wealth will stop growing altogether.

Although at a slower pace, my personal wealth will at least continue to grow steadily.

This is achieved mainly through growth in my CPF savings which, of course, I think of as the investment grade bond component of my portfolio.

Some of you might be interested in this blog on bonds which I penned in 2015:

Read:
Why have bonds in our portfolio?

Of course, there could be changes in future.

For the foreseeable future, however, having enough passive income 

1. to cover my expenses, 

2. to help provide for my parents 

and 

3. to grow my CPF savings 

is sufficient to make me quite happy.

OK, I guess that's it. 

------------------------

This blog has taken me way too many hours to craft and I hope this very personal sharing session has also provided you with some food for thought.

The only constant in life is change or so the saying goes.

So, it is probably good not to be too rigid about how much passive income we need.





Know that life might throw us some lemons from time to time.

If we are prepared, we will be able to make some lemonade.

Having buffers, I feel, is always a good idea.

So, how much passive income is enough for you?

Put on your thinking caps and try to have fun. ;p

Give me freedom!
Read: Give me F.I.R.E.





Mr. Bean's Teddy is on F.I.R.E. ;p

Related post:
My family almost went bankrupt.

In case you missed it, the following blog was published earlier this month:
3Q 2019 passive income: Numbers.