He met the CPF minimum sum but has one regret.

Regular readers know that AK transferred all his CPF-OA money into his CPF-SA in the first few years of his working life. That provided a bigger base and a longer time for compounding to work its magic. Of course, I have shared the numbers here in my blog too.

Now, this was part of a chat this evening with a reader who is buying a HDB flat:

Reader:
do you mean that letting HDB wipe out the OA money first? My flat will be ready in 2019. So in this 3 years, do you have any views on what should be done using the CPF OA money?eg. Transfer abit to SA account? I will take your comments as opinions. Do not WORRY!"

AK:
That was what I told a friend. He transferred a large portion of his OA money into his SA about 10 years ago before he bought his flat and now his SA has already hit the minimum sum. But this will work for someone with an emergency fund on hand that would also cover the mortgage payment initially as his OA builds up again after the flat purchase.


The chat gave my memory a jog. I cannot remember exactly how many years ago but it was probably more than 10 years ago when a friend discussed with me what to do with his CPF-OA money. He was still single then and not buying a flat yet.

During a meet up a few months ago, he told me that he already hit the CPF minimum sum and to a large extent, it was thanks to the hefty interest payments received for his CPF-SA savings. He basically transferred all his CPF-OA money into his CPF-SA after the discussion we had and did nothing to his CPF-SA since. 

So, apart from the mandatory contributions from employment, the money in my friend's CPF-SA really grew through compound interest!

Did my friend regret anything?

Well, it was something like this:

"I should have transferred more money from OA to SA in the following years. Then, I would have received even more interest and hit the MS even earlier."

Alamak. If AK had done that, he would have even more money in his CPF now too. Aiyah.

Of course, all our circumstances and motivations are different. We have to question if this route is something that is good for us too.

This would work for someone who is not thinking of buying a property soon or is able to buy a property without using money in his CPF-OA. 

In the latter case, to be safer, he should have emergency cash on hand which also allows for 12 to 24 months of mortgage repayments as his CPF-OA savings is rebuilding.

For a more complete picture, please read the related posts below.

Related posts:
1. CPF-OA to CPF-SA transfer before buying flat?

2. If I had done this, I would have hit MS too.

3. A lot of my CPF-SA money...
...the interest I received in my CPF-SA has been higher than my mandatory contributions to it for many years by now... 

Why work hard and plan early for retirement? (UPDATED)

Reader said...
Actually retire also hard work to make it work well.

AK said...
Oh, I am working very hard in retirement.
Trust me, I know what you mean. ;)

(F.I.R.E. = Financial Independence & Retire Early.)

If you haven't listened to the song, listen, there is a hidden message.





Our conversation continues:

My reply:

Hi iwimsasl,

I believe that everyone's life can be and should be better.

I know people who belonged to the low income group who took affirmative action to change their lives for the better and I have shared some of their stories here in my blog too.

“If you are born poor it's not your fault but if you die poor it's your fault.” Bill Gates.





This is true especially in societies like Singapore where everyone has equal access to education and opportunities are available to those who are willing to work hard and look for them.

There is no point for the low income workers to complain or feel sorry for themselves. 

Unfortunately, many do and it doesn't change anything.

I see some complaining on FB all the time. 

They have time to complain, why not spend time to improve their lives?






Asking for CPF LIFE to start paying them earlier is unlikely to make a big difference in such an instance since there is probably not enough in their CPF-RA to last them very long. 

Pay them a monthly income from a smaller sum for life? 

The monthly payout has to be much smaller to be equitable. 

I don't think it is a reduction of only 7% or 8%.

Accumulating for only 5 years at 5% per annum (bearing in mind that the first $30K is paid 6% p.a. while the next $30K is paid 5% p.a.), CPF-RA money would only grow 27% while accumulating for 10 years, it would grow 63%!





So, with this understanding, we see that the monthly payout, proportionally, would have to be 22% lesser to be equitable if payout were to start at age 60 instead of 65.

The prudent thing to do for these CPF members would be to continue working for as long as possible, putting off retirement and allowing their CPF-RA money to accumulate for at least 10 years.






Unfortunately, for many low income workers who are much older, it might be the reality they must face as the probability for upward mobility dims for them. 

Younger low income workers who are physically and mentally whole should not give up.

I shared before in my blog that what pushed me to work harder in my younger days, holding 3 jobs at one time, working 7 days a week, and to plan early for retirement was mainly the fear of growing old and destitute. 

人无远虑, 必有近忧.

Many people just don't think ahead and I hope more people will.






Related post:
Worried you won't live to enjoy all your CPF?