Trust in CPF?

[NealKoh]

Hello all!
The main question I have is: is it wise to have faith that the CPF will look after us at retirement age? Or avoid it altogether.

My own view point:
Three reasons I’m not volunteering my own cash in.
1) I can’t touch it until I reach government stated retirement age: 65.
2) I am not confident that in 40 years time, it will still remain at 65.
3) Will it go up in smoke, government spins another story on how we take money?

What I’m intrigued by:
Many are volunteering to put their money into SA. For tax relief, good reason enough? Am I missing some thing here?

My own situation:
I’m a recent fresh graduate with a goal to retire by 50. I have 25 years ahead of me.
I am currently investing 70% of my income into ETFs and equities.
My goal is to generate 40-50k per annum in dividends.
I should be meeting this figure in 20 years time if I invest 50k a year on average when accounting for my current low income to future higher income levels.
I believe in having my own cash, full control. And take CPF deductions as additional income tax by the government.

 

[JuniorLion]

The government of the day can do what it wants with CPF. So while it is a great thing now, you never know what is gonna happen in future.

 

[TabascoSauce]

some trust the gahment some dont.

there's no guarantee that CPF will be safe, neither are there proof that the gahment will eat ur money.

jus do wat u r comfortable with.

 

[BBCWatcher]

With the exception of ordinary consumer bank accounts, CPF is the most widely held savings vehicle in Singapore. It's popular, and it's even older than Singapore's nationhood. It's as safe as practically anything denominated in Singapore dollars since it's an agency of the AAA-rated Singapore government.

Like everything else that's Singapore dollar denominated, located in Singapore, and/or associated with Singaporean citizenship, the Singapore government could change the rules. Consequently it's prudent to diversify your investments reasonably well, and that includes having some high quality non-Singapore investments (for most people). Nobody recommends that CPF be your only savings. The government doesn't recommend that, and the government doesn't really let you do that since there are caps. You're simply not allowed unlimited CPF contributions. However, the odds are highest with CPF that, if disaster strikes, it'll be CPF that will save you. So you should treat CPF with respect and optimize it. It's your bedrock financial security, if you nail it down well.

 

[LiteHouse]

Hello all!
The main question I have is: is it wise to have faith that the CPF will look after us at retirement age? Or avoid it altogether.

My own view point:
Three reasons I’m not volunteering my own cash in.
1) I can’t touch it until I reach government stated retirement age: 65.
2) I am not confident that in 40 years time, it will still remain at 65.
3) Will it go up in smoke, government spins another story on how we take money?

What I’m intrigued by:
Many are volunteering to put their money into SA. For tax relief, good reason enough? Am I missing some thing here?

My own situation:
I’m a recent fresh graduate with a goal to retire by 50. I have 25 years ahead of me.
I am currently investing 70% of my income into ETFs and equities.
My goal is to generate 40-50k per annum in dividends.
I should be meeting this figure in 20 years time if I invest 50k a year on average when accounting for my current low income to future higher income levels.
I believe in having my own cash, full control. And take CPF deductions as additional income tax by the government.

Hi Neal. I think you have already justified your reasons for not contributing cash into your CPF.

For those who contributed cash into their SA for 1 year of tax relief, they need to be aware that it will be locked until 65 years old.

 

[cloverpark]

2) I am not confident that in 40 years time, it will still remain at 65.

40 years really too long liao. Before that, I'm quite sure there will be hyperinflation that will wipe out any kind of savings we have. By 2058, 1 plate of chicken rice will cost S$100.

 

[NealKoh]

Hi Neal. I think you have already justified your reasons for not contributing cash into your CPF.

For those who contributed cash into their SA for 1 year of tax relief, they need to be aware that it will be locked until 65 years old.

Thank you.
I just wanted to know if I was missing out anything or if there's a flaw in my reasoning.
This is because, I am very young, and am largely unaware of the pension fund in our own country with only investment knowledge from US thanks to CFA level 1. Hahaha.

Frankly speaking, how healthy are we at 65 to "enjoy the promised dreamland?"
I doubt I will be able to travel much, see the world, even if I wanted to.
Better to have my own retirement plans, I call the shots to when I want to retire. etc.

 

[mummy1234]

At the rate they tweak their policies so regularly. I would not put too much in cause it is too illiquid in case of emergencies. Like if there is prolonged unemployment before CPF life payout, u still need ur own source of passive income or emergency cash.

 

[BBCWatcher]

Frankly speaking, how healthy are we at 65 to "enjoy the promised dreamland?"
I doubt I will be able to travel much, see the world, even if I wanted to.
Better to have my own retirement plans, I call the shots to when I want to retire. etc.

You're looking at this quite wrong.

The more and more reliable funds you have from age 55+ and age 65+, the less you need to depend on other funds to carry you through your golden years. That means you're more free to spend your other funds that much more and earlier, perhaps even to retire earlier than otherwise and to travel the world, or whatever. You can prudently deploy your non-CPF funds in a slightly more aggressive investment posture than the alternative scenario without optimized/exploited CPF. Those CPF funds also functionally act as an excellent life insurance policy if you happen to expire before your golden years and leave behind one or more dependents, so you can safely dial back your life insurance (and associated premiums) a bit.

If you try to fight CPF for philosophical or political reasons, you're most probably going to be poorer, I'm afraid. If you use CPF as just another tool in your tool chest, and optimize/exploit it as best you can, you're most likely going to be wealthier.

CPF mostly doesn't work if your plan is suicide at about age 55 with no dependents. But if that's not your plan, then the smart play is to make CPF sing (or at least hum a tune) as part of your overall life and financial plan.

 

[NealKoh]

You're looking at this quite wrong.

The more and more reliable funds you have from age 55+ and age 65+, the less you need to depend on other funds to carry you through your golden years. That means you're more free to spend your other funds that much more and earlier, perhaps even to retire earlier than otherwise and to travel the world, or whatever. You can prudently deploy your non-CPF funds in a slightly more aggressive investment posture than the alternative scenario without optimized/exploited CPF. Those CPF funds also functionally act as an excellent life insurance policy if you happen to expire before your golden years and leave behind one or more dependents, so you can safely dial back your life insurance (and associated premiums) a bit.

If you try to fight CPF for philosophical or political reasons, you're most probably going to be poorer, I'm afraid. If you use CPF as just another tool in your tool chest, and optimize/exploit it as best you can, you're most likely going to be wealthier.

CPF mostly doesn't work if your plan is suicide at about age 55 with no dependents. But if that's not your plan, then the smart play is to make CPF sing (or at least hum a tune) as part of your overall life and financial plan.

After much discussions, I'll still adjust in the future when I'm more certain.
I don't fight CPF for philosophical or political reasons, I just question whether CPF withdrawal rules might change in the next 30 years. I don't want to become those people complaining about how their hopes for CPF didn't come true and what not.

At the end of the day, I'll focus on my own investment vehicle, use CPF as an additional tool. Throw in some dividend cash or money into SA for tax relief and treat it as charity. Given that I have another 30 years till 55. If I throw in about 10k a year on average, depending on how much is needed at each given year to reduce my taxable income. There should be 300k in the SA account before interest by 55. That's way more than minimum sum. I still meet the criteria for the best monthly payout.
Is this what everyone else is thinking?

At this stage of my life, my own thoughts on loved ones or kids would be, it is a privilege to have my money, not an entitlement.

Thus, I do not invest with them in mind, I invest for my sole pleasure in the future.

I'll read up on the best way to exploit CPF.
Currently this is my idea. 2 pronged approach. Personal and CPF. CPF as a backup and support.

CPF
OA - Pay HDB entirely. It'll be empty till the day loan is paid off.
SA - Self-top up - earn that 4%, it will meet the minimum sum on it's own.
Medisave - Top up when I'm at my peak income and I've maxed out SA and allocated enough to my own investment vehicle.

Personal Cash - Invest everything in a diversified portfolio earning 4-5% dividends. - eventually this dividend will be used to fund SA and pay off HDB loan.

Reasoning for emptying OA - because it only generates 2.5% interest, no use paying off my HDB, might as well use that to generate a bigger money machine and pay off in the future.

What I will be left with at the end of this.
Personal portfolio that should generate enough dividends for me to retire at 45-55.
SA - converted into Retirement - meets minimum sum. So at age 65, should I still be alive, well and kicking. I'll have a boosted annual passive income.
OA - almost empty like everyone else?
Medisave - to help pay for my illnesses that will kick in at 65 and above.

 

[FrostWurm]

What's the point of being the richest guy in the graveyard?

Putting extra money into CPF gives you some nice tax-savings, but at a severe cost to liquidity. A cost that is almost ridiculous.

When you are young and able, take the money and spend it to acquire experiences, learn new things and enhance yourself.

When you are old, there is really not much you can do anyway even if you wanted. Your reflexes are slow, your senses are dull (baring any medical development that can somehow restore your youth). As long as you have saved prudently, life won't be bad.

Who needs to be the wealthiest on their deathbed anyway? If you are always living in the future, you never enjoy the present. And ultimately you die having never really lived.

 

[BBCWatcher]

....I don't fight CPF for philosophical or political reasons, I just question whether CPF withdrawal rules might change in the next 30 years.

They might! The very same government might also introduce/reintroduce an estate or inheritance, a wealth tax, a capital gains tax, a dividends tax, a tax on interest.... All quite possible. As a matter of fact, the government raised stamp duty this past February (2018) literally overnight. That affected many real estate investors, instantly. Sorry, but everything you can possibly do financially has those sorts of risks.

Nobody -- and I mean nobody -- recommends that CPF be your only savings. Likewise, nobody recommends that you pour your entire fortune into real estate. (Well, real estate agents might, but I think you can figure out what motivates them.) I don't recommend investing solely in any single tiny country, for that matter. Even Singapore, which is a rather good one. Or even in any single big country.

What's the point of being the richest guy in the graveyard?

There are absolutely no circumstances when optimizing/exploiting CPF will make you "the richest guy in the graveyard." CPF contributions are very strictly capped. CPF can never be genuinely lavish -- impossible. You're dreaming of a problem that doesn't actually exist.

What you can do, if you wish, is to spend every last penny of your withdrawal-able CPF savings at age 55, spend every last penny of your non-CPF wealth before age 65 (or before age 70 if you prefer, or anywhere in between), then spend the rest of your days living off a CPF LIFE annuity stream, which is never lavish. If you want to live extremely non-lavishly in your golden years, CPF absolutely won't prevent you from doing that -- no problem.

 

[TabascoSauce]

What's the point of being the richest guy in the graveyard?

Putting extra money into CPF gives you some nice tax-savings, but at a severe cost to liquidity. A cost that is almost ridiculous.

When you are young and able, take the money and spend it to acquire experiences, learn new things and enhance yourself.

When you are old, there is really not much you can do anyway even if you wanted. Your reflexes are slow, your senses are dull (baring any medical development that can somehow restore your youth). As long as you have saved prudently, life won't be bad.

Who needs to be the wealthiest on their deathbed anyway? If you are always living in the future, you never enjoy the present. And ultimately you die having never really lived.

ppl who top up cpf are typically high earners and less likely to have liquidity issue. 7k is probably less than 10% of the annual savings.

 

[NealKoh]

They might! The very same government might also introduce/reintroduce an estate or inheritance, a wealth tax, a capital gains tax, a dividends tax, a tax on interest.... All quite possible. As a matter of fact, the government raised stamp duty this past February (2018) literally overnight. That affected many real estate investors, instantly. Sorry, but everything you can possibly do financially has those sorts of risks.

Nobody -- and I mean nobody -- recommends that CPF be your only savings. Likewise, nobody recommends that you pour your entire fortune into real estate. (Well, real estate agents might, but I think you can figure out what motivates them.) I don't recommend investing solely in any single tiny country, for that matter. Even Singapore, which is a rather good one. Or even in any single big country.

What you can do, if you wish, is to spend every last penny of your withdrawal-able CPF savings at age 55, spend every last penny of your non-CPF wealth before age 65 (or before age 70 if you prefer, or anywhere in between), then spend the rest of your days living off a CPF LIFE annuity stream, which is never lavish. If you want to live extremely non-lavishly in your golden years, CPF absolutely won't prevent you from doing that -- no problem.

Thank you!
If there's anything I took away from this thread and several other threads.
Diversification.
On top of being diversified in my own personal portfolio, this should be integrated as well for further diversification to reduce risk.

Anyway, this is my current plan for the future, subjected to changes along the way.

Is this still considered overspending, normal, or frugal?
Condition: 30 - 35 years old, married.
Income level: combined 12-15k/month.

If one splurge only on this three things.
1) House renovation - $50k
2) House stuff - minimal items but everything state of the art. - $25k
3) 4 room resale, high floor, about $800k in good central location.

Wedding - 20k - am I disillusioned? Is it considered too much or too little.

Lifestyle:
Vacation: Once a year - estimated spending - max - combined 6k.
Mostly to rent nice airbnb houses $2-3k a week, enjoy scenery, rent a car for $1k a week

Retirement - 1/4 of the time overseas.
Renting Airbnbs in western countries to enjoy their scenery, culture and good air. $5000/month?
This would be the time where I would cash in, liquidate slowly.

Maid
A maid is replaced by robots.
Floor - robot vacuum
Dishes - Dishwasher - waste water - should still cost less than a maid and remove the need put up with cultural differences.
Laundry - the remaining chore that can't be entirely replaced by robot yet. ):

Car
Use Grab or public transport instead.

Reason being, get a nice house to stay in.
Then no need go for fancy vacations/staycation.
Holidays just stay at home and chill.
Cook at home with state of the art items to feel good.
Example: Minimalist House

 

[NealKoh]

ppl who top up cpf are typically high earners and less likely to have liquidity issue. 7k is probably less than 10% of the annual savings.

That's what I was thinking as well.
7-10k probably doesn't even mean much given the earning capabilities at that time, but might mean the world in the future.
In any case, I pay less to the government and I safeguard myself. Seems like a good deal. Hahaha.

 

[tangent314]

What I’m intrigued by:
Many are volunteering to put their money into SA. For tax relief, good reason enough? Am I missing some thing here?

My own situation:
I’m a recent fresh graduate with a goal to retire by 50. I have 25 years ahead of me.
I am currently investing 70% of my income into ETFs and equities.
My goal is to generate 40-50k per annum in dividends.
I should be meeting this figure in 20 years time if I invest 50k a year on average when accounting for my current low income to future higher income levels.
I believe in having my own cash, full control. And take CPF deductions as additional income tax by the government.

It's good that you have goals that you believe is achievable. You just need to understand that CPF does not stop you from your goals, and if you use it properly, it will enhance your goals just by some simple adjustments.

Instead of saving $50k per year in cash, save $43k in cash and voluntarily put $7k (the current limit for tax relief) into CPF SA. Depending on whether you are at the 7% or 11% tax bracket, this will save you $490 - $770 in tax payable. SAVE THIS AMOUNT ON TOP OF THE $43k.

You claim that cannot take your money out of CPF until age 65. This is not true. With the earnings from your CPF contributions, you should easily be able to hit the BRS/FRS (depending on whether you have bought a house) by age 55, and everything above this amount can be withdrawn from the CPF.

Since you plan to retire at age 50, you will not be able to take anything out of CPF for 5 years. At age 50, your cash investments at ~$43.7k/year would be lower than what it would have been if you had put in $50k/year, so you would receive less dividends for those 5 years. However, you can still draw down on your investments to make up the difference in, and when you hit age 55, you withdraw all the $7k/year plus accrued interest that you have voluntarily topped up into SA, you will end up with more cash than what you would have without doing the tax savings, allowing you to generate even more dividends from age 55 onwards than with the original plan.

 

[NealKoh]

Since you plan to retire at age 50, you will not be able to take anything out of CPF for 5 years. At age 50, your cash investments at ~$43.7k/year would be lower than what it would have been if you had put in $50k/year, so you would receive less dividends for those 5 years. However, you can still draw down on your investments to make up the difference in, and when you hit age 55, you withdraw all the $7k/year plus accrued interest that you have voluntarily topped up into SA, you will end up with more cash than what you would have without doing the tax savings, allowing you to generate even more dividends from age 55 onwards than with the original plan.

Okay, I'll be sure to do that. Thank you.
Many say to disregard the tax relief, but it's actually a substantial amount.
I'll probably not draw down on investments, but rather adjust my lifestyle.

 

[crimsontactics]

If you can't trust in CPF, how can you trust in other investment alternatives?

Remember, the gov has an advantage over other forms of investment, they can raise tax to cover shortfall in interest payment.

No other entity can do that in SG.

Sent from . using GAGT

 

[JuniorLion]

Frankly speaking, how healthy are we at 65 to "enjoy the promised dreamland?"
I doubt I will be able to travel much, see the world, even if I wanted to.
Better to have my own retirement plans, I call the shots to when I want to retire. etc.

What's the point of being the richest guy in the graveyard?

It's weird how people think they're all gonna be bed-ridden, or die at 65 or thereabouts.

What's more important is to keep a healthy lifestyle, and then you will be able to enjoy your golden years.

Instead of thinking someone is out there to cheat your money, thus resulting in you trying to protect it at all costs...

 

[BBCWatcher]

It's weird how people think they're all gonna be bed-ridden, or die at 65 or thereabouts.

Very, especially in Singapore which has the world’s third highest life expectancy and second highest healthy/active lifespan — and these longevity figures keep increasing. And it doesn’t even make logical sense since CPF’s contribution to retirement income can never be lavish.

Is Logan’s Run aired every week on Channel 5? I don’t think so.

Instead of thinking someone is out there to cheat your money, thus resulting in you trying to protect it at all costs...

Oh, there might be some people trying to cheat you, but it ain’t CPF.

Another point: if you’re willing to fork over much more money to HDB (and you are) for a 99 year leasehold, why would you trust HDB but not CPF? It’s the same government, and we’ve certainly seen HDB rule changes over time. As just a couple examples, the government has outlawed AirBnB and significantly curbed the ability of PR resale unit buyers to rent out their units. Both of these rule changes make your HDB leasehold less valuable. So surely because of policy risks you’re NOT going to buy a HDB unit, right?