Tea with Kai Xiang: Two friends and their CPF savings.

I always enjoy a good story and Kai Xiang wrote a pretty good one to share with me. 

He has graciously allowed me to share the story.






A and B are good friends. 

They went to NS at 19 yrs old after finishing their poly diplomas and started work as technicians at the age of 21 with a starting salary of $2,000 (median gross for poly graduates).

Both A and B have the following balance after their 2 year NS stint:

OA: $2,738

SA: $708

MA: $962

However, B realised that the SA offers an excellent 4% interest rate and decided to match his CPF SA contributions every month with cash from his disposable income and plan for his retirement.

A didn't bother because he feels retirement is too far away and he would rather have his money with him.

Both worked at the same factory and received a salary increment of 2.5% of their last drawn pay annually.










At the age of 31, both had CPF balances like this:

(A and B) OA: $75,320

MA: $29,064

(A)SA: $21,868

(B) SA :$41,983

At the age of 36, both A and Bs' MA have reached the cap of $48,500 and any further increases to MA over this amount would be transferred to their SA.





At that time, their CPF balances look like this:

(A and B) OA :$125,190

(A) SA: $41,331

(B) SA: $76,929

All the way until this point, B had religiously matched dollar for dollar his CPF contribution to his SA. 

B decided to continue contributing cash to his SA every month but fixed it at $200 monthly.

B hits the MS ceiling for his SA at age 43, where he is no longer allowed to contribute cash to his SA. 

A hits the same ceiling about 6 years later at 49.





When both men eventually reached the age of 55, their balances look like this:

(A and B) OA: $400,848

(A) SA: $307,601

(B) SA: $414,973

A was able to withdraw about $140k from his SA while B was able to withdraw $250k.





Hope you enjoyed the story too. 

If you did, you might want to share it with your friends and family. 

I hope they enjoy it too.





Related posts:
1. A lot of money in my CPF SA...
2. If I had done this, I would have hit MS.

What we do with our CPF money is our business.

This blog post is in response to a comment by a reader: here.

The CPF is a topic I blog about frequently and regular readers would know why I consider it a cornerstone in my retirement adequacy strategy. 

I have also shared how we could essentially get the government to help part pay for our retirement, taking back our own money at age 55 in the process.

I have also shared how we could have the government pay for our medical insurance and, ultimately, our hospitalisation bills.






I think if people are willing to keep an open mind and meditate on what I have shared, my own experience included, they will see that what I have shared is viable.

I also have readers who wrote to me to say that after reading my blog, they put what I shared into practice and they are amazed by the results after just a couple of years.

Of course, the government might not tell you why the CPF is good the way AK has told the story. 

Maybe, they should.

Anyway, here is my reply to the reader:

AK says...

I supposed you are responding to Mike's comment but I will kaypoh a bit.

I think if the government should return all CPF money to CPF members at age 55 and then tell them that they are on their own from then on, it is risky to trust that most CPF members will be prudent with money. 

Notice I did not say "all".





Actually, most people are not even interested in improving their knowledge in personal finance. 

This is the honest truth which is also why blogs like mine have so much lower traffic compared to blogs on some other topics such as lifestyle or humor, for examples.





Then, we would also have very cautious people who decide to simply lock up their money in fixed deposits. 

If interest rates remain relatively low, they will deplete their funds relatively quickly. 

They won't get an income for life in their old age.





What about giving people a choice whether to withdraw all their CPF money at age 55 or not? 

I think this is a popular suggestion but, once again, it goes back to the question on whether we can trust people to be prudent with money, specifically, those who choose to withdraw all their CPF savings.

Could it become a case of the prudent paying for the less prudent in some years down the line?




If the government allows CPF members to withdraw all our CPF savings at age 55 and then say that what we do with the money is our own business, the government is throwing caution to the winds.

For the sake of the fellow Singaporeans who are financially more prudent, I would rather that the government err on the side of caution.


Do you think the government should let all CPF members withdraw all their CPF savings at age 55?





Related posts:
1. Get free medical insurance in Singapore?
2. If I had done this, I'd have hit the min sum too.
3. How to upsize $100K to $225K in 20 years?
4. CPF: A simple case of so near and yet so far?
5. An annuity proposal: A Case Study.
(Yes, CPF Life is an annuity too.)
"What? You want satisfaction? Well, then, why stop at taking back our own money? Isn't it more satisfying to take the government's money (legally)?" 
From: A lot of money in my CPF-SA...