Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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"...online marketplace for jobs." I won't be wrong to say that many workers live in fear of retrenchment because they are not financially prepared.
Many are wage slaves and are utterly dependent on their earned income for daily expenses. The problem is that many are not even aware of this.
I have shared stories from readers who have been retrenched before. Retrenchment is a terrible thing if we are not prepared for it and especially if the period of unemployment that follows lasts a long time.
However, in all the stories I have shared, there was always something positive that came out of a bad situation. The story today is no different.
This is about how a dual income family actually became financially healthier after retrenchment.
I believe that life can be and should be better. Even if bad things should happen, I still believe this.
To be financially healthier, it is not necessary to make a lot of money. Take a hard look at our expenses. Even if we make less money now, if our expenses should reduce a lot more, we could actually be saving more money than ever. It is not how much we make but how much we save that determines if we have money. Bad things happen in life sometimes but like a Phoenix, a beautiful symbol of rebirth, good things can emerge from the ashes.
Reader: I am very interested in your views on Japan. I don't have any investment in Japan because everyone tells me the population is shrinking and the economy is dead. However, you seem to be doing well investing in Japan. I regret not investing in Saizen. I feel like investing in Croesus and Accordia now. Any advice?
AK: Nope, I don't have advice for you. You could search my blog for my views on CRT and AGT if you like. The related post at the end of this blog could be a start. Know that these are investments primarily for income. Know what you want and see if these do the job. Throwing some speculative flavor into the spin here. Bad AK! Bad AK!
A personal finance blog says if a designer bag you want arrived earlier than expected and you haven't saved enough for it, there are some credit cards with benefits which you can consider using. OMG! It doesn't matter what they say after that because that is just so wrong in more ways than one.
Ask why the blogger said something like that? What was that blog trying to do? The blog says "We compare, you save." I find that ironic. I think they are comparing the wrong things lah. I compare for you and you save some money. Why this bag cannot use? This bag $50 only. Why must get a $500 bag? What? $500 is not designer? $500 is mass market? $10,000 then designer? OMG! OK, you might not like this but if you must save money to buy a designer bag, obviously, that bag is not for you. Sorry if it hurts. Often, the truth does. Remember, to someone with $1,000,000 in savings, $10,000 is like $100 to someone with $10,000 in savings. If you only have $10,000 in savings and you spend it on a $10,000 designer bag, you have nothing left. Zilch! That millionaire might no longer be a millionaire after buying the same designer bag but $990,000 is still a lot more money than zero. What? Not enough money, use credit card? Who say one? Oh, that blogger say one.
Saw the video? AK even has the weight of the MAS behind him hor. Which MAS? You say leh? AK got slogan or not?
"AKnags, you save." Alamak! Who threw a shoe at me?
---------------------- From my FB wall:
I have warned against the evil installment plans and their minions. Don't remember? See related post at the end of this blog post. Minions can be in your face or minions can be in disguise. One way or another, they will lead to wealth destruction. What? Pay for a purchase using interest free installment plan offered by your credit card is not wealth destructive? Aiyoh, they will take money from you in another way lor. Don't believe me? Reader: AK, did you blog about how having a lot of credit cards and debit cards will insidiously suck annual fees out from you when you least expect it? Recently i have been hit with quite a number of those and some banks refused to waive the fees. And i couldn't cancel the card as i have a on-going installment payment. Hopefully can warn others reading your blog not to charge those 12 or 36 months payments anyhow to your credit cards, later you kena those banks don't want to waive your annual fees and you can't do anything about it. I'm cancelling all my credit and debit cards save the 365 credit card and two ATM cards. Thoroughly disgusted :( $192 down the drain.
AK Oh, I never use installment plans de. That is consumption debt. I dun like. I buy, I pay one time and that's it. I can cut and paste your experience in my blog. Can?
Reader says...
AK talks about how we should make more money, save more money and try to be financially free.
I am trying my hardest to be like him. Must have $150K in annual passive income and $700K in CPF account by age 45.
Alamak! AK didn't say to be like him! Mai luan luan gong hor.
I always say I am only talking to myself here in my blog but since so many people walk past my home and eavesdrop on a daily basis, I want to issue two statements in my loudest voice.
1. Don't compare yourself with AK or anyone else! You are you. I am I. They are they. Everyone's circumstances are different. Do what you need to do to become financially free but do what you can do. Don't give yourself too much stress!
2. Don't become unhappy in the pursuit of financial freedom! I know someone who was working very hard and trying to save more money. He did save a lot of money within a year but he was burnt out and depressed at the end of it. All of us are made differently. Know ourselves. Cut ourselves some slack if we have to.
Alamak, I think I am going to get a sore throat from talking so loudly. Going to brew some liang teh now. See? AK listens to his body. Aiyoh, why are you still here? What? I only talked about the happy part? I left out the wealthy part? Go read related post #2. If you understand Hokkien, go to related post #1. I hope it puts a smile on your face. Cough.
------------- "Singapore is one of the world's most unhappy nations."
Life can be unfair. Why am I not born into a super rich family? Why am I not born with super model good looks? Why am I a peasant? Oh, did I hear someone say it is unfair that this peasant is relatively wealthy? Is it unfair that I have what I have today? Well, in a way, it is.
I am being honest when I say luck plays a part in life. However, if the sour grapes just focus on when and how I have been lucky, then, they might have to stay sour or even turn bad. Why do I say this? Life is also fair because, unless we are very unlucky or lucky, we are rewarded or penalized for the decisions we make. Remember the three P words.
Prudence in personal finance means not spending more money than we make. If we are more prudent than most, all else being equal, we will save a big part of our income. Being prudent, we will keep our needs simple and our wants few to avoid wealth destruction.
Pragmatism in personal finance tells us not to complain that the system is against us. Feeling sorry for ourselves is rarely helpful. Instead, we should see how we could make the system work for us so that we are more successful in wealth creation.
Patiencein personal finance is something, unfortunately, many do not have. Patience is required for most of us to save a substantial amount of money, patience is required for compound interest to work and patience is also required to build a portfolio of investments that generates meaningful income. Being patient avoids wealth destruction as we delay gratification. Being patient helps in wealth creation.
For any peasant (i.e. an average person) who wants to be wealthier, being prudent, pragmatic and patient can hardly be wrong.
I am good friends with the guys at The Fifth Person and they also helped me in my event, "Evening with AK and friends", last year. Many readers ask me when am I going to have another "Evening with AK and friends" this year but I am feeling even lazier this year compared to last year. So, at this moment, I don't know. I promise I will let you know once I know if I am going to do it. I promise to talk to myself about this. Promise. Anyway, last night, I made a guest appearance in a show by The Fifth Person and for those who might be interested, AK was "ON AIR".
"Don't ask barbers if we need a haircut." There was a time when I enjoyed visits to the banks. As a boy, I was very interested in getting the highest interest rate possible for my savings. I enjoyed visiting the banks to update my savings passbooks when interest crediting became monthly instead of yearly. There were no auto update machines in those days but I didn't mind waiting in line for a teller.
I no longer enjoy visits to the banks. If I go to the bank, I run the risk of being accosted by bankers eager to sell me some products. Actually, these days, we don't even have to enter the banks to get accosted. Walking past a bank could be a frightful experience. Detour? I would if I could.
Recently, I had to visit the bank. It is my once a year compulsory visit, if you know what I mean.
The expected happened.
B: "This pays you 4% per year. Better than leaving your money in a fixed deposit." AK: "How does it generate 4% per year for me?"
I was given a fact sheet and I was not surprised to see that it was a unit trust which had a big exposure to bonds.
B: "The unit price dropped. You are getting a better price now. Really good." AK: "(OMG...) And do you know why the unit price has dropped?"
Awkward silence.
AK: "Would you be surprised if I tell you the unit price will drop further?" B: "How do you know?"
I was not amazed nor amused.
AK: "Did you buy this yourself since you think it is a good deal?"
Awkward silence again.
AK: "Bonds pay their holders an agreed coupon. We know interest rates are going up and if we expect interest rates to go up by 1% this year, the market would demand a proportionally higher yield. Demanding an increase in yield from the current 4% to 5% would mean a 20% drop in unit price for this fund."
Awkward silence yet again.
Then, I knew how my maths teacher felt when I gave her a blank look after she explained to me some maths thing a long, long time ago.
Dear AK, I am 53 and I have been jobless for more than a year. I have given up on job search. Fortunately, I am a saver and have almost 200k in savings. Jobless 10 years too soon, I need to make my savings last longer. My sister told me about a 5 years endowment plan from _____Life. Minimum required is $20,000. 2.25% p.a. is more than fixed deposits.(Email truncated.)
Hi JK, 5 years is a long time and if we believe that interest rates are rising and could continue to rise in the next few years, then, this endowment plan is not attractive to me. In another year or so, could FDs offer 2% interest per annum? I wouldn't be surprised. Unlike a FD, a premature termination of the endowment plan would mean losing quite a bit of money. With a FD, if you break it, you just lose all or some of the interest you would have otherwise earned. Your principal sum is safe. Here is an idea. If you are quite sure you do not need the $20,000 for the next 5 years, if you have enough in your CPF to meet the Full Retirement Sum (formerly the Minimum Sum) and if your Medisave has already hit the BHS* level, you could consider a voluntary contribution to your CPF account. *(Basic Healthcare Sum (BHS) which was known as the Medisave Contribution Ceiling (MCC) in the past has been raised from $49,800 to $52,000 in 2017.) Being 53 years old, the "lock in period" is only 2 years. At 55, you would be able to withdraw from your CPF account all money (including this $20,000 and the interest earned) in excess of the Full Retirement Sum. In effect, you are getting 2.5% to 4% interest per annum for a 2 years "fixed deposit". In fact, you might want to max out the CPF Annual Limit ($37,740) this year and next. I am unemployed like you and that is what I plan on doing. I hope you like a shorter lock in period and higher interest rates. I know I would if I were in you. (Watch the video at the top of this blog post and you will learn that AK is economically inactive and JK is a discouraged worker. We are not considered unemployed by the Ministry of Manpower.) 2016 ALLOCATION RATES:
"At SPH, we recognise the power of sharing in a world that's more connected than ever, across multiple platforms." Disruption to the media industry is faster and more frightening than I had expected. Actually, if an IT dinosaur like me can be a blogger, I shouldn't be alarmed by this but I am.
That the disruption has impacted SPH is amply evident with its earnings declining in the last few years. DPS declined by 33% or so in the last 5 years and we will probably see DPS dropping by another cent or two this year. If the decline is seasonal, there is no reason to fear because some months will do better. If the decline is cyclical, we can always wait for the cycle to turn up if we are patient enough. However, if the decline is structural, whether a business can do well again would depend on whether it is able to re-invent itself to stay relevant in the face of a new reality.
The move to diversify its business to reduce reliance on the media industry made sense but although SPH has investments in real estate which provides recurring income, the bulk of its fortunes is still tied to the media industry. Witnessing its decline is very sobering for me. The world is changing and changing fast. What has not changed is my attachment to SPH. I belong to the old economy and I guess SPH still does. I have been a shareholder of SPH since before the Global Financial Crisis and taking into consideration the years of dividends received as well as the low prices I paid during the Global Financial Crisis, I doubt I have lost money being invested in SPH. Even taking into consideration the highest price I paid when SPH REIT was listed in the middle of 2013, with the dividends paid out since, I doubt I have lost money.
Will I add to my investment in SPH now? I am happy enough to hold on to my investment but to add to my investment in SPH, there must be a sign that earnings will improve or at least stop declining.
I can see that SPH is changing but is it in the right direction and is it fast enough? Of course, if Mr. Market should offer me a price that I cannot refuse, even with SPH's declining earnings, I might buy more, but, for now, I am keeping the status quo.
This is not the first time I have received an email like this but it has been quite a while. This one is actually pretty friendly: "I know about your blog from a forum... Very impressive passive income... there are people who say you are just making things up... you did not show your CDP statement... can you show?" My short answer is "no". Now, my long answer.
Why should I have to prove anything? I am not selling some investment courses that charge thousands of dollars per pax, am I? While we are on that point, how many investment gurus who do sell such courses show people their portfolios in detail, backing each of their claims with audited documentary proof? Hey, I am just a blogger. OK, I am a bit mental. So, I talk to myself and probably a bit too much.
People can eavesdrop if they want to. I cannot stop them from doing so. After eavesdropping, they can walk off and say that AK is mental. It's OK. AK doesn't mind (since AK is supposed to have lost his mind). Alamak, what are these? Can eat or not?
Must throw away many times a year.
Why do they keep sending these things to me? Must be mental. I said many times before that what is more important is my philosophy towards wealth building. People who are more concerned with the veracity of my investments and passive income have missed the point big time. Why don't these people give it a chance and try to create more meaningful passive income for themselves? Why do they choose to believe I am lying thereby denying an achievement that could possibly be theirs too?
Do they have to give money to AK until their hearts are broken? Do they have to sell their flats to give money to AK? Hmmm. Sounds like an idea. Maybe, I could day dream a little.
Yes, I know. Bad AK! Bad AK! I am quite sure that the proof of the pudding is in the eating and not the asking.
The love of money is the root of all evil or so the Church says.
An exchange with another blogger. Fellow blogger says: Just thought I'd share this since many investment bloggers (whose plans, like mine and yours) are to live off investments;
Not sure if it's because a significant number do not understand the trade-offs involved nor the aspirations of passive investors, but it is a poorly conceived notion that living off savings/investment is a "bad" idea for the economy because of the loss in productivity.
Perhaps many just refuse to learn how to live without the need to wake up for work everyday. It would not surprise me if a poll showed that this group only believes that a stable job and income is the way to pay bills (racked up by buying things they do not need).
Maybe they should try living for years bringing their own lunch to work and working multiple jobs just to achieve that of early retirement. But then again, these people are likely just "too lazy" to think of making the change huh?
AK: I know I am a lazy guy. So, I did what I did. If they are lazy too, they want to think about change.
All of us have choices in life.
I chose to try for financial freedom and as soon as possible because I didn't want to continue working because I had to. For people who like working, achieving financial freedom early will give them the option of working because they want to. I cannot see why it is bad to have options in life and I know you agree. :)
For anyone who pays quite a bit of income tax, I always suggest starting a SRS account. See related post #1. Since the inception of the SRS, I contributed the maximum allowed annually. I won't be doing it anymore since I no longer have an earned income and would not have to pay income tax. See related post #2.
Since I have been maxing out my SRS account annually, I must have quite a bit of money saved up. What do I do with all the money in my SRS account? Some of the money in my SRS account is invested in stocks like DBS, SATS and ST Engineering. Why these? With SRS money, I am always careful to invest only in companies which are unlikely to have a rights issue. So, these are companies with relatively strong balance sheets. See related post #3.
Although this might surprise some readers, I also placed some of my SRS money in endowment funds. I would choose single premium endowment funds with acceptable guaranteed returns. I would brush off those with very high projected returns but low guaranteed returns. More than 10 years ago, it was easy to find endowment funds which guaranteed as much as 4% return per annum. I also liked NTUC Income's Growth Plan and plonked down a low end 5 figure sum 10 years ago. Looking at the surrender value today, it has been compounding at more than 3.2% per annum. Not bad for an insurance cum savings product.
SRS money is money meant to supplement our CPF savings. It is to help with retirement adequacy. Hence, the name Supplementary Retirement Scheme (SRS). So, I have always been less adventurous with my SRS money. Together with my CPF money, they form my safety net in retirement.
Regular readers know that I suggest Eating Bread With Ink Slowly. The "S" in "slowly" stands for sizing, position sizing. See related post #4. Many might not have realised this but it is probably because I have a big safety net in my investment portfolio which is made up of bond like elements (i.e. my CPF and SRS savings) that I can be more "aggressive" when I size my positions.
Swinging on the investment trapeze, if I should fall, I know I won't hit the floor. It is about having peace of mind as an investor. As usual, I am just talking to myself. If you have picked up something useful from eavesdropping, lucky you.
I am always happiest reading happy stories. I mean who wouldn't be? OK, if you need a reason, well, they are easier for me to reply to compared to sad stories. It is true that happy stories are easier to reply to and that makes me happy but I am happiest with happy stories because they are an affirmation of the work I am doing here in my blog. I am sharing here not one but two readers' stories and I hope they pump you up to do more in 2017:
READER #1: Because of your sharing AK, I made the following changes to my life in 2016. In 2016, I paid off the remaining of my home loan in Jan 2016. Was using CPF to service loan. With that, for the whole year (2016), my CPF started growing faster and generating risk free interest at the same time. With a portion of the remaining cash, I also started investing in the stocks Dec 2015. Very happy with Saizen, AIMS, First Reit, Ireit Global, ARA, etc. Rest of cash in fixed D as war chest + emergency funds waiting to invest more when opportunity presents. Yes, all along got insurance coverage for self and family. I also made it a point to simplify life style. Conscious with spending. Eat less, exercise more, cycling a lot makes me happy. Don’t need much. I banished my 3 children (wealth destroyer)…kidding. Some money still have to spend being responsible to children & parents. Looking forward to 2017 to optimize CPF, invest more when opportunity presents, save more, simplify further. Although much to work on and a bit late, I am very pleased with making the changes last year. So please continue with the great work in “talking to yourself”.
READER #2: Hello AK, happy new year! As I read about how others feel you should continue blogging, I also wanna share how your blog has benefited me. CPF continues to be 1 area my friends and I share different views on. I transferred my 3-4 years worth of OA to SA after discovering your blog, and feel excited logging into CPF today to see the interest collected. The other area is in stock investment; I used to try to time the market and it gave me unneeded stress. Your blog brought me to believe in consistent dividends, and taught me about position sizing. I find the sharings on your purchases particularly helpful and insightful. Not forgetting your thoughts in matters of insurance, savings etc. Please keep blogging! With general increased interest in such matters (I think), I believe someway or another people will chance upon your blog and hopefully review their financial well-being. BIG THANKS!
What has changed for the readers? Although individually important, it is not just about saving money, investing in stocks for income or being adequately insured, for examples. It is much more than these. Remember, all the things I do and blog about come in a package. Yes, it is a package deal.
Paying attention to only one area while ignoring other areas does not strike me as a good idea.
It is like some guy in a Chinese kung fu period drama stumbling upon a kung fu manual 亚西(ASSI)神功 which had 10 chapters and he decided to skip to chapter 10, ignoring the foundation chapters and everything else. Pouring all his energy into that one chapter alone, he走火入魔(a Chinese term traditionally used to indicate that something has gone wrong in spiritual or martial arts training... Source: Wikipedia).
I am glad it did not happen to the readers here. What the readers did was a major rethink of what they were doing or not doing. What followed was a major revamp as they took action to make changes. If we want a more secure financial future, we would do well to take a holistic approach. My philosophy in wealth building might be boring and it probably isn't suitable for everybody. Some are happy adopting it and it is only normal that some will brush it off.
I will say that it has worked for me and I am glad to know that it is helping these readers towards greater financial well being too. To anyone who is walking the same path, I agree that it could be a long walk but, to succeed, we have to believe that patience will be rewarded!
(Decide how much income you will get from an asset and pay a fair price for that.)
Very well researched and put together. Hats off to LS who originally placed this in the comments section. Hi AK,
I guess this withdrawal regarding top-up money and its interest is causing a lot of confusion. This is due to the frequent changes in CPF policies/withdrawal rules. What is making it worse is that some of our CPF officers are also not as well-versed and providing wrong information (anecdotes from my friends and some comments in forums. Please disregard this if its offensive to you) and also the CPF website is poorly designed with incomplete information all over the place.
I had trawled through the website for more than 1 hour in order to post the information below. (Maybe I am just lousy at searching for information at the CPF website, lol)
Firstly, what is causing the confusion? It is because of this particular rule...
"After setting aside your Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge, you can choose to withdraw the remaining CPF balances (excluding top-up monies, government grants, and interest earned in your Retirement Account)"
But in the same webpage, this is we can also see this;
"Your Ordinary and Special Account savings after setting aside the applicable Full Retirement Sum (FRS) or Basic Retirement Sum (BRS) with sufficient property charge/pledge."
Does this means you can withdraw all remaining funds in OA/SA after you set aside the amount for FRS/BRS? Or will the first statement take priority and takes effect (resulting in unable to withdraw the top-up money and its interest) even after we set aside enough for FRS/BRS? This is what is causing the confusion.
After searching the CPF website for over an hour, I finally found this;
"If you had received top-ups before age 55, the top-ups and accrued interest in your Special Account (SA) will be transferred to your Retirement Account (RA) when you turn 55. Any excess, above the Full Retirement Sum applicable to you, can be withdrawn when you apply for withdrawal at age 55."
What is interesting and yet confusing is this (also in the same webpage);
"In addition, top-up monies cannot be used to form part of the Basic Retirement Sum (BRS) in computing how much RA savings above their BRS that can be withdrawn through sufficient CPF property charge or pledge"
Which actually means that even if your BRS is $83,000, and you have $123,000 in your RA ($100,000 is from top-up and its interest), you will not be able to withdraw anything. That is due to after deducting your top-up money ($100,000) from your RA ($123,000), you got only $23,000 left which is less than the BRS ($83,000). You can read in detail of the example provide at the webpage.
So let us summarize :
1) If it is about FRS, you can withdraw all the remaining funds that exceeds the FRS amount,
2) if it is about BRS, the rule applies and you cannot withdraw the top-up money and its interest. You can only withdraw remaining funds if your RA still exceed BRS after deducting the top-up and its interest.
Sorry for the exceedingly long post but I hope it clears up the doubts.
P.S. actually I may be wasting my time here trying to clear things up since the withdrawal might change again 1-2 years down the road. I still have almost 2 decades before I hit the withdrawal age...
P.P.S hopefully this is useful for people who is near to the withdrawal age (55 years old)...
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