I received a couple of emails from a reader this weekend and I want to share them here because I like sharing high quality content, especially those which are thought provoking and inspiring.
Hi AK,
I read this post: http://singaporeanstocksinvestor.blogspot.sg/2010/10/do-you-want-to-be-richer.html
If u never mention about the OA transfer to SA account and get the compounded interest, I wouldn't have thought about it. Thanks.
Hopefully, I can meet the minimum sum with this when I retire and float the money out so I can have money to spend between 55 to 62 else it's going to be tough working in my old age.
On using the medisave to pay for integrated shield plan, I finally found someone who shares the same view cause when I told my collegues and friends about it, they just shrugged it off. In fact, I got laughed at a bit. Well, that's life. (See: http://singaporeanstocksinvestor.blogspot.sg/2013/12/how-to-get-free-medical-insurance-in.html)
I like this quote u have as well:
"Find your strengths and build on them."
AND
Hi AK,
Thank you for taking the time to read and reply my mails again.
Well, transferring to the SA, I feel is really a good idea that is if I cannot make the 35% investible grow more than 4% per annum. Even if I can grow it at 4% what about my other 65% that's running at 20k @ 3.5% the rest at 2.5%? That's a lot of growth I need to cover. So, by transferring to SA, my risk-free rate becomes 4% rather than 2.5%.
I am 34. So, about 21 years later, I need to make sure I can meet the minimum sum. I am not too good at finance stuff so maybe some of my calculations are wrong. I just find finance a bit hard to learn. (Right after I saw your article, I moved it all to SA. There is much I need to learn and not many people will teach.)
Yes, I agree with u about using the system to beat the system. One example is when u talk about SRS. Though there is a 5% penalty but for a safe investor that can get a 3-4% dividend he can recover the cost in about 1 to 2 years. Thereafter, if he chooses, he can take it out. So, that's at least 3.5% savings in tax and a slight capital gain. But sadly people really want cash in the bank and regard the taxes they pay to IRAS as a small sum.
I really do not understand how saving $420 a year in taxes is not an incentive for them. Of course, if they did contribute to the SRS, they must not take the money out of their SRS accounts when they still have income or else they might jump to the next tax bracket or simply just pay more tax.
To me, the tax savings is like 4 months of free internet n hp bills.
In fact, this is how I see it:
1. CPF minimum sum, at age 65 drawable (in the form of CPF Life). So, that covers my late life. Gives about $1,200 pay-out per month, I think.
2. SRS, so that I can cover my journey from age 62 to 72. So, say I don't work, I can withdraw $20,000 non-taxable + personal relief $1,500-$2,000, that makes $22,000 total tax free. There's supposed to be a 50% tax rebate. So, I think maybe $40k tax free? Not sure how to calculate this though.
This is, of course, a bit of an idealism as I don't think I can save $220,000 in 20 years. Old cow cannot pull cart. so I think if I spend within my means with some occassional entertainment, that's ok.
When I see the folks working at menial jobs at an advanced age, my heart sinks a bit. They really don't look happy, some of them. Did a general survey at my workplace. It seems most people think they will not end up working after 60+ as a cleaner etc. I have my doubts and goverments around the world don't have a solution at all.
So, I think I better plan ahead. Better to be labelled a scrooge than to be screwed.
Of course, as one's situation gets better, going on long tours and stuff would be good. In short, make sure one is on firm ground before thinking about having fun.
The 1.5%/year difference in interest rate compounded monthly gives me 35 cents more per $1 after 20 years. That is like 35% more compared to if I put it into the OA and I beat the inflation by 1% even though I don't believe inflation is 3% given the price increases. I have a personal inflation index based on what I spend on.
Secondly, I think even if people do own HDB flats, they should not be too concerned about paying back too fast because people do fear about holding debt. But what I think most of the people around me don't realise is paying back the HDB too early they are doing themselves a disservice. Why?
1. There is insurance on the HDB flat. So, if one party happens to die, the loan is repaid. So, if there are dependents like kids they will get less cash compared if they didn't pay the HDB back so fast.
2. Every dollar given back to HDB, that dollar will not help them earn any interest.
3. The interest on housing loans runs on reducing balance while the interest on OA runs on simple interest. So, even if the HDB loan is 0.1 percent higher it still doesn't make sense to pay too much because the interest accumulated would outrun the savings on a lower CPF loan.
4. The fear of the hdb repossessing the flat is a bit irrational. If by some stroke of bad luck there is job loss or illness in the family resulting in skipping payments, I mean this can be negotiated or rather put it simply if they have more money in the bank they can wriggle through the situation but if they paid it all to HDB then I don't think they can get it back. However, if it was because of debtors, then, of course, the above would not be a good choice for them.
The weird thing is after explaining to friends about this, I do not know why they still want to pay their loan back as fast as possible.
If you have any ideas or experience which you would like to share with readers here in ASSI, please feel free to email to me at ak71@sillypore.com. I would be more than happy to share high quality content here in my blog. Like I always say, I don't know everything. :)
Related posts:
1.
SRS - A brief analysis.
2.
Build a bigger retirement fund: CPF-SA.
3.
Dirty CPF-HDB scheme to trick Singaporeans?
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