What happens to our CPF money at age 55?

Reader's email:

Dear AK,

I have been following your blog regularly for the past two years. 

I found it very educational and useful for me - an ordinary worker trying to strive for financial freedom.






Among the discussion, I had also paid close attention on those mentioning taking advantage of the 4% interest in CPF-SA. 

Over the last two years, I had made a substantial amount of transfer from my OA to SA account. 

With this and my continued contribution, I'm quite confident that I will be able to meet the enhanced retirement sum at 55 years old. 


This year, I'm also considering voluntary top up to my CPF-SA account.





My question for you is that should i still perform voluntary top up to my CPF-SA given the new regulations ie only $5000 withdrawal allowed at 55 years old and 20% at 65 years old? 

In the event that I continue to perform voluntary top up, amount of funds in CPF-SA will exceed enhanced retirement fund at 55 years old however withdrawal of only $5000 is allow. 

Will the balance in the CPF-SA in excess of enhanced retirement sum be unnecessarily locked up without me having access to it?

thank you.

Warmest regards
C









My reply:

Hi C,

Welcome to my blog. :)

My understanding is that at age 55, we will be allowed to withdraw a lump sum that is in excess of the prevailing minimum sum at that point in time. 





Those who are not able to meet the minimum sum will get only $5,000 at age 55.

You might want to double check with the CPF Board to be sure. ;)

Best wishes,
AK

Who are the right people to ask?

Reader's reply:

Dear AK,

Thank you for the very prompt reply. I finally managed to get through to the cpf board today. You are right! :) 

Lump sum withdrawal in excess of the prevailing minimum sum still holds true with the new changes although the staff I spoke to couldn't provide me more info on the 20% withdrawal at 65 yo.

Will have to wait for more info on the latter as more announcements are being made.

Thanks once again for your help! :)

Warmest regards
C





Always the best to hear from the horse's mouth. Make sure it is the right horse. ;)

Related posts:
1. Tea with EY: CPF questions.
2. Videos on reaching 55 and CPF Life.

How did AK create a 6 digits annual passive income? (How did AK achieve financial freedom?)

(Be better savers sooner.)



The original title for this blog post was:

"How did AK create a 6 digits annual passive income after almost 20 years with a mid to high 4 digits monthly salary? Secrets revealed."

I decided it was too long and, perhaps, too dramatic.




This was the email that started it all:

Hi AK,

I am a new follower of your blog. I have questions which are a bit sensitive if you don't mind. If you do not answer, I understand.

You said you make mid to high 4 figure monthly salary. 

I estimate $60,000 to $100,000 a year. 






Over 20 years, if you don't spend money, you have $1.2m to $2m. If we invest for income, at 5%, it will give $60K to $100K of passive income a year. You managed more. How?

I am even more confused because you have a war chest which is spare money. 

So, it means you have even more money on standby. It seems impossible. 






Please enlighten me how you do this with your salary?

I ask because my salary is like yours and I am in my mid 30s. 

I cannot imagine I can do what you have done.

Sincerely,
LL

Money magic?

My reply:

Hi LL,

Welcome to my blog. I guess the easiest thing for me to do is to ask you to comb my blog for the answers and, trust me, the answers are there in past blog posts. 

However, I know navigating my blog is like walking in a labyrinth. That's my fault. -.-"

OK, this is going to be a long email. 






Here goes:

1. It is difficult but not impossible for anyone who has the kind of earned income that I have to achieve what I have achieved financially. 

The most important thing to remember is to be careful with our money. 

A penny saved is a penny earned. Try to make some extra money on the side (e.g. tutoring) in our free time. 

As we make more money, don't spend more, save more.

Don't say I say one.

2. Do not wait 20 years before investing for income. Like you said, if we saved all our earned income and not spend a single cent, with my kind of earned income, 20 years later, investing for a 5% dividend yield would give us (only) $60K to $100K in passive income. 

Of course, it is impossible not to spend a single cent in those 20 years!





3. Start investing in the stock market early (once all the basics have been taken care of). Don't just leave money in our bank accounts. 

The earlier we start, the earlier we will enjoy another stream of income, passive income. The idea is to have our earned income supplemented by passive income. 

Have a war chest ready so that we can invest more in years when Mr. Market is feeling particularly depressed. 

So, doing this, in effect, my total income grew year after year.





4. I am also lucky. I was lucky enough to win a car in a lucky draw a few years ago. So, my car is actually free. 

I am also lucky that my parents don't need financial support from me. I am lucky that my health is not too bad. I am lucky that I came to my senses very early in life to be prudent with money. I am lucky I don't have any children. 

Well, at least I think I don't have any. All these meant that I avoided wealth destruction.





5. Expanding on the above point on luck, I did a fair bit of trading in the stock market before and I was lucky that I made more money than I lost. 

I bought a couple of private properties at the right time too. I sold them a few years ago, making some hefty capital gains. 

So, I was lucky when it comes to wealth creation and not just in avoiding wealth destruction. Most of the money made went into my war chest. 

I have shared my experience and insights on real estate in Singapore in my blog too, if you are interested to know more. 

It is important to recognise opportunities and not restrict ourselves to any one asset class.




6. The last thing I want to say has nothing to do with your questions but I feel that it is important to make a point that there is always a place for a risk free and volatility free instrument in our portfolio. 

If we believe that investment grade bonds have a place in our portfolio, then, we won't be wrong to look at money in our CPF accounts as the bond component of our portfolio. 

We should let the government help build our retirement fund. 

Why reject highly rated assistance?






So, in summary, for anyone who wants to achieve what I have achieved,

1. Be financially prudent.

2. Monetise spare time.

3. Don't spend more as you make more money.

4. Start investing early.

5. Invest more during bear markets.

6. A bit of luck helps.

7. Accept help from the government.






I hope you won't think of what I have achieved for anyone with a salary like mine as an impossibility anymore. 

It is not easy, I will admit, but it is not impossible.

Best wishes,
AK




Other related posts:
1. 9 wealth building blog posts.
2. Be prepared for war.
3. Retire by age 45.