They chose financial independence over home ownership.

This is somewhat extreme but watch how this Canadian couple chose financial independence over home ownership. 

They are in their 30s and, well, they are retired.








If we qualified for a BTO HDB 5 room flat which costs, maybe, $500,000 today, why do we need to buy a condominium which costs $1.5 million, for example?

If we didn't need so much living space, would a BTO HDB 3 room flat in Choa Chu Kang which costs less than $180,000 be good enough for us?


Now, would you rather have $1 million in income producing assets (e.g. income stocks) or a $1 million home (which doesn't generate income but instead would incur expenses)?






Very often, people over consume when it comes to housing and, not surprisingly, they might also be the people who find financial independence out of reach despite enjoying higher than average earned incomes.

Reader says:
"Today I had a conversation with a colleague. She has a relative who is very unhappy at work due to unfair treatment and feels like quitting. 

"However, this relative's family intends to buy a condo while retaining their HDB. 

"The wife of this relative told him that if they go ahead and buy the condo, he MUST not quit. 

"If he buys a condo, he is stuck between a rock and a hard place, and that is not good for mental well-being."





AK says:
"Often, it is peer pressure.

"Keeping up appearances is more than just financially destructive.

"Do you believe me when I say that when I tell people I downsized from a 2 bedroom apartment to a 1 bedroom apartment, most of the time I would get a negative response?

"Recently, when I told my new banker that I bought a small car, he said the same thing as my dad that he would not buy a small car unless he could not afford a bigger one.

"It is peer pressure but it is also how we deal with it."





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

Reader says:
"maybe i have the wrong perception. 

"i thought AK got the funds from property investment.

"thats why you have the funds to invest in stock market."

AK says:
"You might have missed this:
How did AK create a 6 digits annual passive income?"







It doesn't hurt to have some advantages in life but unless severely disadvantaged, all of us can be financially independent.

Related posts:
1. Housing and the CPF.
2. To rent or to buy?
3. The biggest and most expensive.
Purchasing a 3-Room BTO flat:

Don't do silly things and we can retire smart too.

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




A "special feature" (what I would call an advertorial or sponsored blog post if it were to appear in my blog which it won't) by a fund manager in The EDGE:

"Your CPF may prove inadequate upon retirement because of several factors."

The fund manager suggests "that both young and middle aged workers can invest in multi asset funds for diversification benefits." 

Do this and retire smart.

AK didn't do this.

How like that? 

AK in trouble?




Is AK going to run to the fund manager and put some money in multi asset funds? 

AK will kaypoh a bit and respond to the 4 points raised first. 

Point for point:

1. Be prudent in using our CPF-OA money. Remember, our CPF money is primarily for retirement funding. 

Just because it can be used for other purposes does not mean that it should be.

2. If we have excess money in the CPF-OA (i.e. no other use for the money), think about doing OA to SA transfer to earn higher interest of 4% to 5% per annum. 

Think about possibly doing cash top ups to the CPF-SA and enjoy income tax relief (for the first $7K of top up per year).

3. Don't use our CPF money for investments (unless Mr. Market makes us offers we cannot refuse). 

Think of the CPF as the investment grade bond component of our portfolio.

4. Have a good annuity that will pay us for life and the answer is, yes, CPF Life.




Aiyoh, simi answers? 

AK just talking rubbish again, right? I blur.

No one cares more about our money than we do.

Don't do silly things like asking barbers if we need a haircut and we can retire smart too.




Related post:
Building a cornerstone in retirement funding with CPF.
If you haven't watched this before, please do.

Thinking of topping up CPF-SA with $130K.

http://singaporeanstocksinvestor.blogspot.sg/2014/08/how-to-upsize-100k-to-225k-in-20-years_4.html?showComment=1481415040678#c7130698713317820054



Hi Marcus,

Firstly, you are still young! You still have 20 years before you hit 55. Time is still on your side and your own calculation proves it. ;)

What you are thinking of doing (i.e. $130K lump sum contribution to you CPF-SA) is called a Minimum Sum Top Up (MSTU). This is meant to help us meet our retirement adequacy. My understanding is that it (together with interest earned) cannot be withdrawn for any other purpose. At age 55, the money will go to our CPF-RA and we will get a monthly payment for life from age 65.

I would suggest doing a gradual top up to the SA over a number of years. This is because the first $7K of top up each year will allow you to enjoy income tax relief. Unless you do not pay income tax or pay very little income tax, this makes good sense. 

Enjoy many years of income tax relief in this way? Sounds good to me.

So, now, you have ($130K - $7K) $123K left. You might want to put the money in some fixed deposits with promotional interest rates for 12 months. There are many offers available. Go take a look. Next year, take $7K out for MSTU and lock the rest up again in fixed deposits. 

Why fixed deposits? 

You have already decided that this is money you want to use to help fund your retirement. So, I feel that it is best not to take too much risk with it.

Actually, if you believe in having an annuity that will pay you for life from age 65, you could also opt for ERS which is 50% more than FRS. You decide when you are 55. 

Then, let's say the FRS by then is $261K as per your estimate, ERS should be $391K. This will grow to a much larger figure, compounding for 10 years, at age 65. Your monthly annuity payout will be a larger number then.

If your CPF-MA has yet to hit the ceiling, you could consider making a voluntary contribution to it. You could max it out and you, the recipient, will receive income tax relief too. 

Of course, savings in the CPF-MA will also enjoy 4% per annum in interest. In the following year, interest earned would flow into the CPF-SA if your CPF-SA has yet to hit the prevailing FRS. Otherwise, it goes into the CPF-OA.

Your plan is definitely viable and, so, remember, it doesn't matter what others (including AK) might say. Not all of us are comfortable with taking on more risk and I would go along with those who are risk averse to a point. 

To a point? 

As long as your plan is able to meet your financial needs now and in the future, it is should be good enough.

Best wishes,
AK
To read about the BRS, FRS and ERS, go to:
Changes to the CPF.
Related posts:
1. Did CPF Top Ups and denied lump sum payment.
2. Mom stunned by what happened to her CPF-RA money.
3. Worried you won't live to enjoy all your CPF savings?
Our national annuity scheme: