Maybe it’s just me, but when I was in my 20’s, a high 3 digit / low 4 digit annual tax savings would not be nearly enough to secure my home ownership goals, even after 10 years.
You weren't a Singaporean citizen with a Housing Development Board and forced savings from employment income, were you?
On the other hand, keeping my 5 digit annual savings invested in unrestricted accounts would allow me the flexibility to cover more scenarios, including keeping it invested for the long-term.
OK, but have you noticed the market interest rates lately?
lets assume , TS is in his late 20s, say age 27. what would you do if you where in his shoes? not getting married anytime soon. maybe planning to get a place in 8 years time? wont the monthly CPF contribution for 8-10 years be able to cover the down payment required? also assuming TS is not a total dumbass that spends 100% of his earnings on clubbing/ other non essential stuff, he would have a sizeable cash savings no?
Yes, precisely.
You mentioned you're in the 7% tax bracket, so I'm going to assume something like $5,500/month of gross income from employment, or $66,000/year. (That'll be knocked down to a lower chargeable income but will probably still be in the 7% bracket.) That'll also mean compulsory employment-related CPF contributions of $24,420 per year, of which about 62% currently flows into your CPF Ordinary Account -- ~$15,140/year.
Very roughly, after 8 years, that'll mean ~$135,500 in your Ordinary Account. Then you go buy your 2 room HDB BTO under the Singles Scheme (if you wish). Let's assume for sake of argument your $5,500/month income doesn't increase but you don't qualify for the HDB concessionary loan (currently at a $7,000/month income limit). Obviously this isn't realistic, but let's go with this ultra pessimistic assumption. You'll then need a 25% down payment for your bank loan financed 2 room HDB BTO, of which 20% can be from CPF OA. If $135,500 represents 20% of the 2 room HDB BTO, that's a $677,500 flat even if you don't qualify for any grants. (You'll need 5%, or $33,875 in 2028 dollars, in cash -- easier to do when you're getting tax relief from the 7% tax bracket along the way.)
Do you think there's a $677,500 2 room HDB BTO flat available for sale in 2028? I don't. In 2020 there are some ~$150K 2 room BTOs, but $677K in 2028? Highly, highly doubtful.
See how this works? You create a model then test it. And it turns out that if your plan is to buy a 2 room HDB BTO at age 35+ under the Singles Scheme, and you're age 27 today and in the 7% tax bracket (even on the low side of it), you should be utterly awash in funds available for a down payment at age 35+.(*) So it should be perfectly fine, even better than fine, to win some tax relief with MA, SA, and/or SRS account voluntary contributions/top ups. Simply construct a forecast model, run the numbers, and see what they look like. Then run some "What if?" forecasts.
Yes, I created such forecast models and ran them even before age 27. Yes, I concluded that it was eminently sensible to make
both 401(k) and IRA contributions in my circumstances, and to their maximums actually. Those vehicles are conceptually equivalent to SRS account contributions. N.B.
Both 401(k) and IRA contributions, meaning employer matching funds were obviously nice but the model suggested they weren't necessary to make the case for those contributions, even with shorter-term savings objectives, and in my particular circumstances. You can often financially walk and chew gum at the same time, so to speak, and it's lovely when you can.
Anyway, hopefully you get the basic point, that when you're trying to converge on a target outcome (have enough for a home down payment, plus a little more for renovation and moving in, plus maintenance of emergency reserve) 8+ years hence, you create a plan to converge on that target outcome. You don't need to
overshoot that target outcome. Surpluses above your 8+ year goal can and should be saved and invested in longer-term oriented ways. Build the model, tweak it, and let it speak. "Don't assume."
(*) If this is what your model shows, then it also means you should transfer some OA dollars to SA. Ideally you transfer all those OA dollars until you reach the point in time where you will start to need them to get ready for your down payment, because that way you earn more 4% interest earlier, which means you're wealthier than if you try to hold OA as OA now, then start transferring surpluses later. Check my math on that, but I'm pretty sure that's what you'll find.
