Trust in CPF?

[crimsontactics]

For some perspective, CPF have been providing the same interest rate as STI ETF 10 year performance with capital protection.

Of course, you lack STI ETF liquidity.

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[BBCWatcher]

For some perspective, CPF have been providing the same interest rate as STI ETF 10 year performance with capital protection.

Yes, and with zero volatility, and excluding the fact CPF contributions are Singapore pre-tax/never taxed.

Moreover, even if you prefer STI ETF investing, you're substantially allowed to do that via the CPF Investment Scheme, still with the special tax benefits.

Of course, you lack STI ETF liquidity.

Which would be an actual problem if you wanted to maximize your chances of destitution.

 

[tangent314]

For some perspective, CPF have been providing the same interest rate as STI ETF 10 year performance with capital protection.

Well yes, there's that if you had dumped a lump sum into STI ETF 10 years ago, just before the 2007 financial crisis. If you had DCAed the past 10 years you would have made A LOT more.

 

[BBCWatcher]

If you had DCAed the past 10 years you would have made A LOT more.

Probably not. This blogger ran the total return numbers in November, 2017, using a $1,000/month scenario. Here's what his calculation showed at various points in time for 10 years of dollar cost averaging into a STI ETF:

2013: 4.95%
2014: 2.82%
2015: 5.50%
2016: 2.28%
2017: 5.17% (presumably up to November since the article was written then)

I corrected what appears to be a typo from the original article (the first 2014 should be 2013). Note that the simple mean of those 5 numbers is 4.14%.

CPF MA, SA, and RA yields are really quite competitive with those annualized numbers, especially when you factor in the CPF tax advantages and bonus interest on the first $60K. I would certainly take that MA/SA/RA deal traditionally, as you're (pretty much) obliged to do anyway. CPF OA yields are not too competitive with those numbers, so....

....Once you've hit the Full Retirement Sum and Basic Healthcare Sum via compulsory contributions, OA to SA conversions, and voluntary top-ups, then you can use the CPF Investment Scheme and your Ordinary Account funds to punt on a STI ETF if you wish, and with monthly contributions as your OA receives its compulsory contributions. This blogger's data suggest that'd be a reasonable bet, provided your time horizon is long enough.

 

[crimsontactics]

Well yes, there's that if you had dumped a lump sum into STI ETF 10 years ago, just before the 2007 financial crisis. If you had DCAed the past 10 years you would have made A LOT more.

No way to predict.

If you can predict, you would have been rich.

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[FrostWurm]

You can redeem a fixed deposit for a haircut, you can sell your private equity investments for a haircut, you can even trade in your insurance policies, but once you put money into CPF, you can only take it out at an indeterminate time in the future.

And the returns they offering aren't enough to compensate for your loss in liquidity.

Just imagine yourself the prime time of your life, having money locked up with no possibility of use. I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

Dump your cash-on-hand into CPF just for some meagre tax savings? Even faust will demand a better bargain. That is of course, unless you are very old already, or you simply have too much money on hand.

Worried about being destitute and homeless when old? As long as you have planned your finances correctly, there is really nothing to worry about.

CPF is one of many tools, but not all tools are created equal. You can scream, shout, and bang the doors of parliament, but once your money goes into CPF, only god knows when you will see the money again (maybe he doesn't).

Feeling confident that Singapore is AAA? Big countries are here to stay, but small ones come and go. Credit ratings can change rapidly overnight. There are risks inherent in every aspect of life, but CPF is so silent, that you may only realise the folly of your decision many years down the road. don't tempt fate.

 

[limster]

Just imagine yourself the prime time of your life, having money locked up with no possibility of use. I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

I get plenty of use out of CPF. Housing, stock investment, and unit trust investment.

 

[NealKoh]

You can redeem a fixed deposit for a haircut, you can sell your private equity investments for a haircut, you can even trade in your insurance policies, but once you put money into CPF, you can only take it out at an indeterminate time in the future.

And the returns they offering aren't enough to compensate for your loss in liquidity.

Just imagine yourself the prime time of your life, having money locked up with no possibility of use. I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

Dump your cash-on-hand into CPF just for some meagre tax savings? Even faust will demand a better bargain. That is of course, unless you are very old already, or you simply have too much money on hand.

Worried about being destitute and homeless when old? As long as you have planned your finances correctly, there is really nothing to worry about.

CPF is one of many tools, but not all tools are created equal. You can scream, shout, and bang the doors of parliament, but once your money goes into CPF, only god knows when you will see the money again (maybe he doesn't).

Feeling confident that Singapore is AAA? Big countries are here to stay, but small ones come and go. Credit ratings can change rapidly overnight. There are risks inherent in every aspect of life, but CPF is so silent, that you may only realise the folly of your decision many years down the road. don't tempt fate.

You crystalized my thoughts perfectly. Thank you!

 

[BBCWatcher]

You can redeem a fixed deposit for a haircut, you can sell your private equity investments for a haircut, you can even trade in your insurance policies, but once you put money into CPF, you can only take it out at an indeterminate time in the future.

Yes, and since you can tap all those sources of wealth, and lots more (including wedding rings if you'd like), and (usually) lines of credit, it's not an actual, real world problem that nobody (including creditors and courts, anywhere in the world) can prematurely raid the tiny fraction of your wealth -- you are the oh-so-successful and savvy investor, after all -- that's in your CPF savings.(*)

I don't know anyone who plans to convert their entire wealth into cash (such as a bank check) and then spend it all, and within the next 5 minutes. Who does that? Who thinks that way? Answering my own question: compulsive gamblers and crime victims, but fortunately I don't know any personally.

Just imagine yourself the prime time of your life, having money locked up with no possibility of use.

Yes, imagine that. Imagine something...that isn't CPF. (See below.) And imagine not being utterly destitute for decades....

I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

Yes, and how right you are on that one point! Thank goodness then that $1 turns into $4.80 through the magic of compounded interest (4% over 40 years). Which is a lot more than $2.

Worried about being destitute and homeless when old? As long as you have planned your finances correctly, there is really nothing to worry about.

Yes, of course, because as we all know people who insist on instant or near-instant conversion of their entire wealth into a cash bank check are exactly the sort of people who never go broke. And those who are so agitated about (tightly capped/never lavish) CPF are actually fabulously wealthy people who cannot possibly ever go broke either.

Feeling confident that Singapore is AAA?

Yes, I'm quite confident the Singapore government has a AAA credit rating...because it's a fact, the truth, veritas. I'm also 100% confident the Singapore government's credit rating is better than yours or mine.

Big countries are here to stay, but small ones come and go.

You mean like The Vatican? That small country has been around since at least A.D. 313. Switzerland, another small country that begins with the letter S, has been around since 1307 or so. San Marino, which also begins with the letter S and is also very small? A.D. 301.

But literally nobody is arguing that CPF should represent your entire wealth. Also, if Singapore ceases to exist (which I cannot totally rule out), how well do you think your other investments are going to perform? How about that condo near Orchard Road...or, I should say, near the steaming pile of molten rubble after the space rock hit Orchard Road?

I'm the first to argue that your investment diversification should include some long-term global investments. IWDA and VWRD are popular choices.

Credit ratings can change rapidly overnight. There are risks inherent in every aspect of life....

Yes, exactly. And thank goodness you've got the highest quality Singapore dollar denominated savings plan to defend against the myriad higher risks elsewhere in your life.

(*) Except, actually, you can. It's a hardship withdrawal, and it's allowed if you have a really good reason. Here are the medical grounds, quoting CPF:

You can apply to withdraw your CPF savings on medical grounds if you

i. are physically or mentally incapacitated from ever continuing in any employment; or
ii. have a severely impaired life expectancy; or
iii. lack capacity within the meaning of Section 4 of the Mental Capacity Act (MCA) and the lack of capacity is likely to be permanent; or
iv. are terminally ill.

Another way you can raid your CPF savings prematurely any time you wish is if you terminate your right of residence in Singapore: either your Singapore citizenship or your Permanent Residence, as applicable. That is to say you're allowed to be destitute...just not in Singapore, thank you.

 

[hwmook]

Awesome thoughts there. It never came across your mind that you should be a provider for your family (of which your wife is a part of) ?

I think he have no intention to support a family, he is going to spend as little as possible on his children if he has any, not going to support wife and retire at 45-50.

I think it's very ambitious to plan to retire with 1M at 45-50.

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[JuniorLion]

I think he have no intention to support a family, he is going to spend as little as possible on his children if he has any, not going to support wife and retire at 45-50.

I think it's very ambitious to plan to retire with 1M at 45-50.

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That's very noble. Let the wife fend for herself (let the child fend for himself?)

 

[crimsontactics]

You can redeem a fixed deposit for a haircut, you can sell your private equity investments for a haircut, you can even trade in your insurance policies, but once you put money into CPF, you can only take it out at an indeterminate time in the future.

And the returns they offering aren't enough to compensate for your loss in liquidity.

Just imagine yourself the prime time of your life, having money locked up with no possibility of use. I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

Dump your cash-on-hand into CPF just for some meagre tax savings? Even faust will demand a better bargain. That is of course, unless you are very old already, or you simply have too much money on hand.

Worried about being destitute and homeless when old? As long as you have planned your finances correctly, there is really nothing to worry about.

CPF is one of many tools, but not all tools are created equal. You can scream, shout, and bang the doors of parliament, but once your money goes into CPF, only god knows when you will see the money again (maybe he doesn't).

Feeling confident that Singapore is AAA? Big countries are here to stay, but small ones come and go. Credit ratings can change rapidly overnight. There are risks inherent in every aspect of life, but CPF is so silent, that you may only realise the folly of your decision many years down the road. don't tempt fate.

You only invest with excess money, not money you can't afford to lose.

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[VEF888]

You can redeem a fixed deposit for a haircut, you can sell your private equity investments for a haircut, you can even trade in your insurance policies, but once you put money into CPF, you can only take it out at an indeterminate time in the future.

And the returns they offering aren't enough to compensate for your loss in liquidity.

Just imagine yourself the prime time of your life, having money locked up with no possibility of use. I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

Dump your cash-on-hand into CPF just for some meagre tax savings? Even faust will demand a better bargain. That is of course, unless you are very old already, or you simply have too much money on hand.

Worried about being destitute and homeless when old? As long as you have planned your finances correctly, there is really nothing to worry about.

CPF is one of many tools, but not all tools are created equal. You can scream, shout, and bang the doors of parliament, but once your money goes into CPF, only god knows when you will see the money again (maybe he doesn't).

Feeling confident that Singapore is AAA? Big countries are here to stay, but small ones come and go. Credit ratings can change rapidly overnight. There are risks inherent in every aspect of life, but CPF is so silent, that you may only realise the folly of your decision many years down the road. don't tempt fate.

Fact is many people are just not good at handling money/investment. Yes, it's our money and we can bloody well choose how we want to do with it.



But when one squander away all his/her money for retirement, who'll take care of them? How much more of your tax dollar are you willing to give for these people?



I have not heard of a single person who has been unable to withdraw his/her cpf when legally able to do so in our 50 years of nation building.

 

[TabascoSauce]

I think he have no intention to support a family, he is going to spend as little as possible on his children if he has any, not going to support wife and retire at 45-50.

I think it's very ambitious to plan to retire with 1M at 45-50.

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Wats wrong with it? If my wife is a degree holder, I expect her to be able to support herself financially too. Firstly, it helps the family to achieve financial freedom faster. Secondly, if one party left (death or whatever), the other can still carry on.

I personally plan to be able to retire at 45 too.

 

[BBCWatcher]

That's very noble. Let the wife fend for herself (let the child fend for himself?)

If two adults want to get married with the clear understanding that Spouse A doesn’t give a s**t about Spouse B’s and any child’s welfare and never will — if Spouse B freely and competently enters into that arrangement, clearly understood — I suppose that’s up to them. Who ever said romance was dead?

Fortunately for society and for spousal/child welfare, courts don’t actually allow that arrangement to be too vigorously enforced if either spouse doesn’t want it to be. Spouse B has the right to divorce Spouse A (i.e. to cancel the agreement), with a court-ordered financial settlement and legal enforcement. And if you don’t like that bit of “tyranny,” no problem: don’t get married, and don’t bring a child into this world. Those are two separate concepts for these purposes since courts can certainly order child support with or without a marriage.

 

[Elloell]

You can redeem a fixed deposit for a haircut, you can sell your private equity investments for a haircut, you can even trade in your insurance policies, but once you put money into CPF, you can only take it out at an indeterminate time in the future.

And the returns they offering aren't enough to compensate for your loss in liquidity.

Just imagine yourself the prime time of your life, having money locked up with no possibility of use. I don't know about you, but a dollar at 29 years old is definitely worth more than two dollars at 69 to me.

Dump your cash-on-hand into CPF just for some meagre tax savings? Even faust will demand a better bargain. That is of course, unless you are very old already, or you simply have too much money on hand.

Worried about being destitute and homeless when old? As long as you have planned your finances correctly, there is really nothing to worry about.

CPF is one of many tools, but not all tools are created equal. You can scream, shout, and bang the doors of parliament, but once your money goes into CPF, only god knows when you will see the money again (maybe he doesn't).

Feeling confident that Singapore is AAA? Big countries are here to stay, but small ones come and go. Credit ratings can change rapidly overnight. There are risks inherent in every aspect of life, but CPF is so silent, that you may only realise the folly of your decision many years down the road. don't tempt fate.

Very well said !

 

[w1rbelw1nd]

You only invest with excess money, not money you can't afford to lose.

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Pretty statement, but meaningless if "money you can't afford to lose" is undefined.

 

[w1rbelw1nd]

I have not heard of a single person who has been unable to withdraw his/her cpf when legally able to do so in our 50 years of nation building.

Historical records are not indicator of future actions, especially for something so fluid such as government policies.

Anyway, having some level of scepticism ( or informed lack of it) of how CPF will be administered (withdrawal dates, minimum sum, interest rate) can only help us make a better decision. Again, may not be a hard yes/no answer, but may be a certain "hurdle" tax savings rate for CPF SA contribution, or a certain "hurdle" expected liquid investment return before we decide to keep CPF intact and pay down our mortgages using cash.

 

[Elloell]

TS, clearing your OA to reduce hdb interest is a double edge sword if you plan to sell your hdb in future. The accrued interest can snowball as time goes by.

Is there any difference? Accrued interest is what u should have if u left the sum unused in OA. Unless you’re talking about paying installment with cash?

 

[NealKoh]

Is there any difference? Accrued interest is what u should have if u left the sum unused in OA. Unless you’re talking about paying installment with cash?

Here’s a dilemma that might seem stupid but I rather have it clarified. Someday I need to go down to the CPF office and ask them point blank.

So assuming this OA account has 300k owed to myself.
SA account has 400k. But since it’s technically my money.
The retirement fund should just be 400k - OA $0 and SA $400k. Correct?