How did AK amass so much money in his CPF-OA?

I received my CPF statement in the mail last night and when I was chatting with my mom, I told her how much money I have in my CPF-OA now and she was very shocked.

"How much did you say?!" my mom went. 





I passed her my CPF statement so that she could take a look for herself.

Well, to be honest, it might not be much to some people but it is quite significant to me.

So, how much is it?

How did I achieve this?

What I basically did was to do nothing to my CPF-OA after selling my last property about 3 years ago. 

In the purchase of my current home, I use my CPF-OA money sparingly as I was not and still am not able to get any interest income for my cash on hand that is close to 2.5% per annum.





Also, we have to remember that the opportunity cost of using our money in the CPF-OA is a bit more than that because we would have to pay ourselves the accrued interest lost for using our CPF-OA money. 

This happens in the event that we sell the property concerned (before we turn 55).

See:
Unemployed, almost 55 and worried about CPF.

Essentially, what happens is that instead of the government paying us interest on our CPF savings, we would have to pay ourselves interest as the CPF's primary objective is to ensure that we have a financial safety net in retirement. 

I rather prefer the idea of someone else paying me, to be sure.

For most of us, in our early years, it would probably be difficult to purchase a property in Singapore without the help of the funds in our CPF-OA.

However, if we are financially prudent enough to accumulate cash, invest to grow our wealth as we make progress in our career, it is not difficult to imagine us having more cash on hand as time goes by.

In the purchase of our second home years later, assuming that we do, it is then possible to use less of our CPF savings and more of our cash on hand, leaving money in the CPF-OA to grow.





Of course, we could always do voluntary refunds to our CPF-OA as well.

See:
How to stop accrued interest from growing?

Let the government work steadily to help pay for our retirement? 

Yes, you got it, that is the idea.

Related post:
A lot of the money in my CPF-SA is from...

Why we should buy the biggest and most expensive home?

Bro, good, knock some sense into her head!






Whenever I tell people not to buy a home that stretches their finances to the max (and beyond), often, I would get the reply that if they don't buy a home that is as big as possible, that is as expensive as possible, they might not be able to afford something like it in future due to inflation.

I have blogged about how our homes are really consumption items and not investments although it is hard for many to accept that especially when they see real estate prices in Singapore sky rocketing in recent years.




Of course, in recent months, the mood has become a tad more cautious but many people still think of their homes as investments and assets which are a good hedge against inflation. 

A recent argument put forward by someone along this line provided the catalyst for this blog post.

That someone said recently that if I were willing to buy some physical gold and silver as a hedge against inflation, why not a bigger and more expensive home?

Well, I have to say that my motivation for having some gold and silver is, in fact, an insurance against the flaws of fiat currencies. 

Embedded in that motivation, therefore, is the belief that precious metals are a hedge against inflation. So, this person is right in this respect. 

However, his understanding is incomplete.

The vast majority of us have to use leverage in the purchase of a home. 

A home purchased with a loan is a liability for the next 20 years, 25 years, 30 years or whatever the duration of the loan should be.

Only a home that is fully paid with our own money is an asset. 

Before that, we might have control over the property and the ability to enjoy using it but we do not have ownership of the property.





Another point is that if we have developed a crisis mentality, we would know that having some precious metals as insurance also makes sense because they are portable. 

Our home, even a shoebox apartment like mine, is not portable. 

Well, there are exceptions, I suppose, and those who live in caravans and houseboats might be the really smart ones.





Finally, precious metals usually form less than 10% of our wealth, for those of us who have them. 

However, for most of us, our homes easily form 50% or more of our wealth. 

This is why people say that Singaporeans are asset rich but cash poor. 

That asset they are referring to is usually our home.

"Professor Benedict Koh, director of the Singapore Management University's Centre for Silver Security, says the asset-rich, cash-poor phenomenon is an outcome of over-investment in property. And the proportion of such seniors is only going to rise as the population ages, say Prof Koh and other observers.


"Ms Peh Kim Choo, director of Hua Mei Centre for Successful Ageing, is worried that the asset-rich, cash-poor problem will be exacerbated as baby-boomers retire over the next 20 years. This is the generation that entered the workforce after CPF and the message of home ownership were introduced, she says.


"As more of these folk retire, says Ms Peh, "that is where we will see a lot more of the asset-rich, cash-poor situation". It cuts across both public and private housing, she notes. Her centre has counselled such seniors living in larger HDB flats."

Source:
http://www.straitstimes.com/the-big-story/case-you-missed-it/story/asset-rich-cash-poor-retirees-speak-20131203

What makes thinking that we should get the biggest and most expensive homes we can afford now because real estate prices will always go up in the long term particularly risky is complacency, the lack of a contingency plan, the lack of a crisis mentality.

Of course, vested interests would want to propagate the belief that there is never a bad time to buy a home and we don't have to time the market.

Apart from questions we should be asking these vested interests, we should ask ourselves some questions.


What if we were to lose our jobs? 

What if we were unable to continue working for any reason? 

What if we had bought at the peak of the market? 

What if the property market should crash in the next few years?


Do we have the financial resources to cope in such instances and if we should have some financial resources, would these financial resources remain strong or weaken in tandem?





I have been through a few economic cycles. 

I have seen how bad the bust in an economic cycle could be and how they affected families and friends.

It could be that this time it is different as I certainly do not possess the ability to look into the future.

However, we might want to remind ourselves that although history does not repeat, it does rhyme.




Related posts:
1. Disastrous investments in the property market.
2. Singapore properties will surely make money.
3. Two questions to ask buying investment properties.
4. Buying a home within your means.
5. Buying a property: Affordability and value for money.

For less than $10, have 5 meals ready in 15 minutes!

What is your favourite pizza?

Mine is the plain and simple Hawaiian pizza.

I decided that I could make something that would taste just like it without having to pay too much. So, that's exactly what I tried to do tonight.

What did I use?

1. Canned pineapple.

2. NTUC Fairprice honey baked ham.

3. NTUC Fairprice low fat cheese.

4. A loaf of Gardenia whitemeal bread.

5. Trans fat free margarine.

Apply some trans fat free margarine on slices of bread and pan fry them. Then, slap on slices of low fat cheese, honey baked ham and rings of pineapple on the hot toasty bread. Let the cheese have a moment to melt and it is done.

I made so many sets too. 

No prizes for guessing what I am having tomorrow for breakfast and bringing to work in my lunch box too.

How much did everything cost me? For 5 servings? Probably about $9. Can't be more than $10.

How much time did I spend doing this? About 15 minutes, give or take a minute or two.

Remember, if AK can cook, so can you! 

If AK can pack lunch to work, so can you!

Updated on 2 July 16:

Related post:
Save money by having yummy and frugal dinners.

Citibank SMRT VISA: Good deal for Chinese New Year!

I just shared a good deal on FB. What is it?

Do you have this credit card?

If you do, make your way to Kallang Wave Mall's NTUC Fairprice.

Use your Citibank SMRT card to buy $200 worth of NTUC Fairprice vouchers and you will get a $10 Kallang Wave Mall voucher free.

On top of this, you will get a 7% rebate from Citibank for the $200 purchase.

The NTUC Fairprice vouchers can be used at all NTUC Fairprice outlets, not just the one in Kallang Wave Mall.

Pay $186 and get $210! That is a 12.9% return!

Good deal! Don't say AK bo jio hor.

Related post:
AK's 7 money habits.
"Habit no. 5: I always try to get discounts off my bills."

Tea with Matthew Seah: Wealth Triangle.

Wondering how we can be wealthier? Here is another guest blog from Matthew Seah to nudge us along in the right direction.

For me, there are 3 ways to generate wealth and they are the essential tenets of my wealth building triangle:

 

1. Increase Income;

2. Reduce Expense, thereby saving what remains;

3. Invest a portion of that savings.

Due to our different circumstances, some may find it harder to strengthen one or more of these 3 legs of the triangle. However, do note that you will certainly get wealthier if you sufficiently strengthen one or more of these 3 tenets in your own wealth triangle.

In order to get wealthier at a faster rate, you must increase your income, spend less money and make your money work harder.

 

To increase your income, you can:

1. earn more at your current job;

2. get a higher paying job;

3. get additional job(s);

4. create multiple sources of income.

There are several ways to spend less money and they involve cutting back spending on excesses and wants. AK has been blogging about frugal living. So, you can learn from him.

And, finally, investing a portion of what you have saved. This not only increases your income by investing in income-generating assets, it could also increase your net worth through capital gains. You can also use leverage to increase your money’s ability to grow but do note that leverage is a double edged sword and you could lose more than your capital if used wrongly.

The ways to increase wealth are many and possibly infinite. So be creative and think of how you could make yourself rich. Of course don’t make the wrong type of money to be rich.

Some money, we cannot touch.

Some money, we should not make.

 

Related posts:
1. Do you want to be richer?
2. Have a huge amount of savings and cannot retire?
2. Free "e-book": Don't depend on wage increases for higher income.

Where to buy gold? Not from Suisse International.

The main reason for me to buy gold is to guard against the inherent problems of fiat currencies which are very flawed. So, having some physical gold, to me, is an insurance. 

All of us need some insurance and having up to 5% of our wealth in the form of gold isn't excessive.

Why not buy gold and receive income from it? 

Yes, that was what some entities out there told some "investors". Unless you do not read the news at all, you would have heard of such cases. 

If you know of other entities which are still saying this, trying to make you part with your money, be afraid. Be very afraid. 

Oh, while you are trembling with fear, do everyone a favour and report these entities to the Monetary Authority of Singapore (MAS).

Please don't be like Mr. Louis Tan who put in $40,000 and persuaded his friends to do the same because he would get a better rate for himself if he were to bring in more business for the company.




Mr. Louis Tan is ignorant, greedy, selfish and soon to lose a few friends.

Report these entities to the MAS and you could be saving people like housewife Y.H. Yang who is 53 years old and seem set to lose $2.2 million, her life savings which included money she received after selling her ancestral home in Shanghai.

We had Genneva Gold in 2012 and Gold Guarantee in 2013. Now, we have Suisse International.

Read report: here.

"After we joined, we also brought our friends in because (Suisse) promised to give us better returns and sell us gold at a cheaper rate if we recommended others," said operations manager Louis Tan, 36, who put in $40,000 last June. 

It was easy to convince their friends to join because the company promised them about $1,000 a month, which worked out to a 20 per cent return, for every kilogram of gold they bought.

Remember, scams come in many shapes and sizes. They could be as small and simple as some magic stones but they could also be quite sophisticated and much bigger like oily pods, plots of land which should be profitable or houses which are ecological.  

Ecological? Green is the color of money, isn't it? 

Related post:

1. Taking money is like taking candy from a baby.

2. Advice from a fraudster.

3. Thought process of scam victims.

Should I terminate an expensive ILP bought from a friend?

I received an email from a reader on an ILP she bought and I am going to share an edited version here.

Please remember that life insurance is essential but the cost of insurance should be kept low.

Hi AK,

I have recently started to read your blog and I really appreciate how you post unbiased financial advice for your readers. As such, I am really hoping you can help me with this dilemma that I have.

I have graduated last year and bought an ILP from my friend. I am investing $xxx every month into this plan for about x months now. This is a 30 year plan, and recently I'm having second thoughts about whether to continue this plan or not. 

...

I was wondering if I should discontinue the plan (because the costs are exorbitant) and invest the money myself in the OCBC BCIP, or should I just lower my contribution to $xxx a month since that is the minimum amount. Because if I cancel the plan now, I would have lost the (money) that I put in already. Please advise! Thank you in advance!

Warmest regards,

AK's reply:

Hi,

......

I wouldn't touch ILPs with a 5 feet pole myself.

Since you have come to the realisation on your own that the cost of having an ILP is exhorbitant, you might want to cut your losses instead of throwing more money into the plan. Just a thought. Not advice.

Do a comparison to see how much money you would save if you were to buy term life instead to enjoy the equivalent amount of coverage. You could invest the savings using a program like OCBC BCIP which you have identified.

I am not giving any advice. Just sharing my thoughts. :)

Best wishes,
AK


I think that this is quite a fortunate case as the reader realised quite early on how expensive the ILP actually is and is thinking of taking steps to remedy the situation quickly now. Others could be less fortunate.

Before signing on the dotted line of any proposal, it is important to read every word, sentence and paragraph carefully. Do the necessary due diligence. Then, make a well informed decision. 

If we don't understand something, make sure to clarify. If we are still confused, do not accept the proposal. Walk away.

Cultivate this habit and it will guard us against unnecessary expenses and angst in all aspects of life, not just with life insurance proposals or shopping in Sim Lim Square for the latest iPhone.

Related posts:
1. Term Life Insurance: Why buy term?
2. How much term life insurance should fresh grads have?
3. Free ILPs or Term Life Policies?
(Warning: This is highly controversial!)

Should I put money in a foreign currency fixed deposit?

Long, long time ago, I was attracted to the high interest rates of a foreign currency fixed deposit. 

Upon maturity, the interest received was not even able to cover the exchange rate loss. 

Ouch.

不好玩





No more such adventures for me. 

Once bitten, twice shy.

Even now, why do banks give higher interest rates for foreign currency fixed deposits in A$ but a lower interest rate for US$? 

Why? Why?





Clue:

Unlike a fixed deposit in S$, there is no bao jiak with fixed deposits in a foreign currency. 






Well, for us living in Singapore anyway.

Note: 
Just the view of a local frog in a local well on an island called Singapore.

Related posts:
1. Why fixed deposits?
2. Special chests for emergencies.

References:
1. Australian dollar drops to 5.5-year low after ECB move.
2. POSB 1.88% FD for 12 months.
 

One way to save money more rapidly.

People who know me are often amazed by how quickly I am able to save money. Well, it isn't a mystery, really.

One of the things I avoid doing is dining in restaurants. How much does a meal cost in Paradise Inn or Din Tai Fung, for examples?

This doesn't mean that I don't dine in restaurants but I do it sparingly. Some might remember my fortnightly visits to Soup Restaurant, partly because I was a shareholder. Anyway, I have stopped visiting them for many moons now as I feel that the standard has dropped.

If we go to restaurants frequently, reducing the frequency meaningfully could see quite a bit of savings every month. See related post number 1 at the end of this blog post to read a family man's experience.

Feeling hungry? Just go to Old Chang Kee to get a curry puff. Doesn't cost an arm and a leg. On other days, just have simple meals at home. Sandwiches and oatmeal are easy to prepare. Porridge and noodles too.

This was what I had tonight:

Choy sum.

Chopped and rinsed.

Time for a hot water bath.

Add some fried ikan bilis and ginger. Looks good, tastes good!

Mustn't forget to have a fruit.

Home baked chocolate chip cookie, thanks to my sis.

Avoid going to restaurants and we could save money more quickly. Feed our wallets! Burp!

Related posts:
1. How to have a comfortable retirement?
"His family used to dine in restaurants every Sunday. This is now reduced to only once a month. This helps him save more than $200 each month."
2. Rich gets richer. Poor gets poorer.
"只要功夫深，铁杆磨成针."
3. If we are not rich, don't act rich.
"Now, this may sound jaded as I have said it before many times and that is we should run our lives like we would run a business!"

A tale of two Keppels: Win, lose or draw?

Keppel Corporation is going to try to take Keppel Land private. This news came shortly after Keppel Corporation declared a generous dividend per share of 36c.

If I were a shareholder of Keppel Corporation's, I would have been elated and, then, worried by the recent string of events.

The following is taken from the comments section of my blog:

When I was asked in the last few months why did I choose to invest in SembCorp Industries instead of Keppel Corporation since both of them are blue chips in the O&M category, I said that I felt better about the former's utilities business in the current environment than the latter's real estate business. Although this latest development involves Keppel Corporation's real estate arm, quite honestly, I could never have seen this form of corporate action coming. I am just a frog in a well, after all.

Paying $4.60 a share (eventually), Keppel Corporation is not getting Keppel Land at a discount to NAV since Keppel Land's NAV/share is about there. In fact, it is going to be at a slight premium. So, there is nothing for Keppel Corporation's shareholders to rejoice about. At least, if the purchase was going to be at a discount, it might make Keppel Corporation's resulting weaker balance sheet easier to swallow.

For Keppel Corporation's action to make sense, it has to be because the management feel that Keppel Land will add value either in terms of income generation or capital appreciation in the years to come. However, near term prospects are challenging as Keppel Land is still mostly dependent on income from real estate development (property trading) although they have increased the size of their recurring income stream in recent times.

Could we see Keppel Corporation's stock price weakening next week? With a 36c dividend dangling, Mr. Market might close an eye to the eventual weaker balance sheet, for now.

Related post:
SembCorp Industries and SembCorp Marine.

Hickory dickory dock, AK just bought a clock!

I don't like wall clocks not because they are not pleasing to the eye. I just don't like knocking nails into walls. So, in my apartment, you will see only desk clocks. The problem with the ones I have is that they are quite small and hard for me to see unless I am quite close to them.

So, I decided that I should get a bigger clock, one that I could tell time with easily from anywhere in the living room.

They are hard to find and the few I saw are all so expensive. Their prices are from $59 to $139. Their faces weren't very big either. They were, maybe, 6cm to 8cm across. OK, maybe, I am used to paying $2.00 for a clock but, to be fair, those were tiny with faces 3cm or so across.

Anyway, I decided to just wait and see if I could find a less expensive one in future. No hurry, I told myself. Well, guess what. My patience was recently rewarded:

I found this in an old and dusty looking watch repair shop which has lots of old watches and clocks. It has a white face which is about 13cm across with black hands and numbers. Price? $29.00. Not bad.

It is actually a working alarm clock too! OK, I know. Duh... Aiyoh, humour me lah. A wall clock wouldn't have that function, right?

Clock looks happy sitting next to my new 40" FHD LED TV.

There is also a story about the TV which I paid very little for a couple of months ago but I will leave that story for another time, maybe.

Related post:
Another personal story of frugality.

SembCorp Industries and SembCorp Marine: Recovery?

Here are a couple of interesting chart formations:

SCI. A long white candle formed on a high volume day.
It could be a double bottom formation.
The MACD has formed a higher low.
Neckline approximates $4.50
If that should break, eventual target is provided by the declining 200d MA (the light blue line) which is approximating $5.00 now.

SMM. Another long white candle formed on a high volume day.
Looks like it could be a double bottom formation too.
The MACD has formed a higher low.
Neckline approximates $3.30.
If that should break, the declining 200d MA is the eventual target.
Currently, the 200d MA approximates $3.70.

Based on TA, SCI and SMM look promising.

CPF: A simple case of so near and yet so far?

My reply to a comment by a reader: here.




Hi politicalwritings,

When something is significant enough, such as retirement planning, I think for the government to have an active hand is a good thing and, for some of us, it is a necessity so that the risk of growing old and destitute is reduced, if not eliminated. 

Of course, not everyone agrees.

Unfortunately, it is difficult to pinpoint who are the financially responsible ones and who are not amongst CPF members. 

So, a minimum safety net that covers everyone works. It helps to ensure basic retirement funding for everyone.




What we eat and how much we eat is not of the same level of significance as whether we would be able to achieve retirement adequacy. 

So, I don't think the example you used is appropriate.

When should we have government intervention?

When we cannot reasonably rely on everyone to act responsibly on a matter that has tremendous importance in everyone's lives, especially if irresponsible behaviour would result in the burden being shifted from such individuals to the rest of society.

Best wishes,
AK



This is something I feel strongly about. So, I decided to blog about it instead of just replying in the comments section.

Talking ever so loudly to myself here. Tsk, tsk.

AK, you are so boorish (and psychotic)!

Related post:
CPF Life.

Lump sum CPF withdrawal suggestion by NTUC is myopic.

I am very disturbed by NTUC's suggestion to let CPF members "withdraw a lump sum - of at least 20 per cent of the balances - from their retirement accounts, even if they do not meet the Minimum Sum." Reference: Today Online.

In an open letter to PM Lee on 11 June 2014, I made 3 points. One of these was to allow members with genuine needs to "micro-tap" their CPF savings (presumably from age 55 to 64). A lump sum withdrawal of at least 20% is not micro at all and I am very worried that the suggestion says "at least 20%" which means that the percentage could be higher.

Although certainly not always the case, I am sure that many CPF members who are not able to meet the minimum sum at age 55 are not financially savvy. I am not sure that letting them withdraw a bigger lump sum (even with financial counselling) is the way to do it. Once the money is gone, it is gone.

A much smaller sum that is left in the CPF-RA as a result would mean a much smaller monthly income from CPF Life from age 65. How does this help the affected members' retirement adequacy?

So, I am against this suggestion by NTUC although I would like to see more compassion and understanding in the system.

What would I suggest then?

Like I suggested before, a micro tapping of CPF-RA savings from age 55 could be considered. The actual mechanics would, of course, need more thought.

Perhaps, a withdrawal rate of 2% per annum from age 55 to 64 could be allowed. If a member did not take advantage of this allowance in the first 5 years, he would be allowed to micro-tap up to 12% of his CPF-RA savings in the 6th year if there is a need to. Of course, in the first 5 years, the money that was not withdrawn would have earned some interest (compounding at 4% a year).

This would give money in the CPF-RA a better chance (i.e. more time) to accumulate so that there would be more money to be given out on a monthly basis from CPF Life from age 65.

Although we want to be understanding and compassionate, we should not give in so much as to compromise on a CPF member's retirement funding adequacy.

Related post:
An(other) open letter to the Prime Minister.

Be richer, save money by having yummy and frugal dinners.

Decided to have an early dinner today!

Yes, rice! Healthier than bread, I am sure.

Once the pot came to a boil, I turned off the heat.

20 minutes later, the porridge was ready!

While waiting for the porridge to cook, I had a fruit.
I bought 10 of these for $3.65.

Surprise! Some of you keep saying I don't take enough vegetables.
I hear you loud and clear. I got some vegetables. Washed!

Added some salt to boiling water and gave the greens a hot bath.

Really like the bright green color.
I added some pork floss to make the dish more interesting.

Yummy dinner. Quite cheap too, I am willing to bet.

Related posts:

1. A simple meal.

2. Have an extra $1,200 a year.

3. Be $48,000 to $60,000 richer in 10 years.