Trust in CPF?

[cheongmanz]

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?

Based on my understanding, yes. Provided that you don't sell your hdb because by doing that, the accrued interest can be a pain in the a**.

 

[NealKoh]

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.

Finally!
Marriage isn’t about cash. It’s about love.
My potential wife, the one I’m dating holds a degree with a government job. Although it wouldn’t be all well paying, its sufficient to uphold a decent lifestyle. She’s not good in investment so I doubt she’ll be able to retire comfortably on her own. She will belong to the group that depends entirely on CPF. Like many others.

So in the meantime, I see myself earning a much higher salary. Armed with investment knowledge. I find it wiser to invest most of my salary and get a decent portfolio out of it it.
Therefore when we are near retirement, my dividends will be able to support the whole family.

If you are saying that I should in the meantime buy stupid things like gucci bag to lavish her. Then that’s not how I would lavish her. I intend to lavish her with quality time. Time is the most precious commodity. Instead of buying her stuff, I spend time with her, going to parks, nice dinners once in awhile, chill at our beloved home. Like I said. I intend to live like I’m in the 90s, minimal technology. Technology would be used to do house chores instead of entertainment.

Back when I was a child, I wanted a gameboy so much. But looking back, I regretted having one. The moment I got one, my grades went downhill. My social skills went downhill. That’s not how I will want to raise a kid, to become another society slave. I want it to learn that he can’t have something just because he want it. He has to strategize, think of ways to get something, legally.

 

[cheongmanz]

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?

I'm not advising TS to pay installment using cash. I'm just stating the fact that by clearing OA to reduce hdb interest is allowing more accrued interest to start early. If TS do not intend to sell his hdb at all, then the accrued interest shouldn't matter to him.

 

[fr33d0m]

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.

The same can be said for any financial product or even cash itself. Cash in any currency subjects to its issuing government. Investment subjects to its underlying performance and market perception, of which, neither is certain.

CPF has higher transparency than any investments you have and higher visibility of future payment. What lacks is liquidity, which can be supplemented by other more liquid instruments.

It’s funny to think that CPF is a worse financial instrument than any other investment.

 

[BBCWatcher]

Provided that you don't sell your hdb because by doing that, the accrued interest can be a pain in the a**.

Not really. When the property is sold, the withdrawal plus accrued interest (at 2.5%/year) flows right back into your Ordinary Account. If that's before age 55, you can:

(a) Use OA funds for any eligible purpose, including housing again.
(b) Convert any amount of OA funds to SA, up until your SA hits the then current Full Retirement Sum.

If you're age 55 or older, item (b) is no longer available but you have another option:

(c) Partially or fully withdraw funds above your retirement set-aside. However, your withdrawals will first come from any surplus Special Account funds, then from your Ordinary Account funds. (Although you might be able to "hack" this using the CPF Investment Scheme-Special Account, to shield SA funds temporarily while you make your withdrawal.)

Those are the major options, anyway.

 

[NealKoh]

Based on my understanding, yes. Provided that you don't sell your hdb because by doing that, the accrued interest can be a pain in the a**.

Then it's fine. I don't intend to resell my future house anyway.

 

[Mecisteus]

Understand the risks and trade offs for the instruments. Make an informed decision.

For CPF, rates have been reasonably high, little principal risk but very very poor liquidity.

If you are young and aggressive, maximizing CPF balance is definitely not the way to go.

If you are older or low risk taker, maximizing CPF balance might be better.

 

[Mecisteus]

Based on my understanding, yes. Provided that you don't sell your hdb because by doing that, the accrued interest can be a pain in the a**.

Hello. What pain are you talking about.

You utilize more cash and less CPF to pay for your flat, that means you give up liquidity now. You have less cash now but more cash in future. Assuming you sell your flat in future.

You utilize less cash and more CPF to pay for your flat, that means you accumulate liquidity now. You have more cash now but less in future. Assuming you sell your flat in future.

Can you see the trade offs?

 

[BBCWatcher]

If you are young and aggressive, maximizing CPF balance is definitely not the way to go.

The available data do not agree. See downthread for the dollar cost averaged STI ETF total return comparison, but looking at 5 successive 10 year periods of dollar cost averaging total STI ETF returns have been averaging about 4.14% with taxed money, which is just not good enough to beat MA/SA/RA at 4.0% plus bonus interest and pre-tax/never taxed money. Moreover, CPF balances are creditor and judgment proof, worldwide. If you're "young and aggressive," that aspect is also quite important.

Also, if you nail down CPF you can prudently be that much more aggressive (and still young) with your other monies. As you de-risk one part of your total portfolio, you can prudently up-risk the rest, ceteris paribus. So you've got a weirdly better-than-STI ETF bond-like part of your portfolio...and can still punt 100% on stocks (and cryptocurrencies and dubious business ventures and South American rubber plantations...whatever) with your other money if you like. Wow, that's awesome, sign me up. (OK, except the cryptocurrencies and dubious business ventures and rubber plantations parts.)

On top of all that, there is something called the CPF Investment Scheme if you wish, if you're "young and aggressive," and you get to punt using pre-tax/never taxed money. You can also go pursue your dreams of real estate tycoonism with your OA funds, again with pre-tax money. (Although property investing itself is taxed.)

Work the system, that's all. Play the game well, and there is lots of game playing opportunity here. Not infinite opportunity -- CPF is strictly capped -- but it's an excellent tool.

If you are older or low risk taker, maximizing CPF balance might be better.

Might be?!?!?

Who else is offering 55+ year olds (or near 55s) a AAA rated, Singapore dollar, on demand savings account at >>2.5% (blended OA and SA rate) with up to $37,740 in annual deposits?(*) That's one hell of a fixed income investment!

(*) Assumes FRS (or BRS with property pledge), and thus lifetime retirement income, and BHS attained (and thus medical financial security).

 

[Mecisteus]

The available data do not agree. See downthread for the dollar cost averaged STI ETF total return comparison, but over successive 10 year periods of dollar cost averaging total STI ETF returns have been averaging about 4.14%, which is just not good enough to beat MA/SA/RA at 4.0% plus bonus interest and pre-tax/never taxed money. Moreover, CPF balances are creditor and judgment proof, worldwide. If you're "young and aggressive," that aspect is also quite important.

1) I don't visit investmentmoats but I glanced at his calculations. There is a flaw in his calculation.

2) You are assuming investment in cash is limited to STI ETF only.

3) Even if you take the numbers are correct, 4.14% pa after 10 years effortlessly and you can cash out the sum of money. Don't you see the benefit?

 

[hwmook]

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.

Nothing wrong, as long as you are happy with your decision.

How much are you planning to have at 45 to retire? How old are you now?

 

[w1rbelw1nd]

CPF has higher transparency than any investments you have and higher visibility of future payment. What lacks is liquidity, which can be supplemented by other more liquid instruments.

It’s funny to think that CPF is a worse financial instrument than any other investment.

Those are very subjective statements, about transparency as well as CPF being a better/worse instrument. To me CPF is indeed transparent, but not necessarily worse. If you ask me, I rather have cash and lose the opportunity of illiquid 2.5% /4% + whatever additional interest. I understand why some people would rather have it, and I don't necessarily disagree with their view.

 

[BBCWatcher]

1) I don't visit investmentmoats but I glanced at his calculations. There is a flaw in his calculation.

Which is?

2) You are assuming investment in cash is limited to STI ETF only.

Oh, here we go now with the "if only you had a crystal ball...." stuff.

A DCA STI ETF comparison is a perfectly reasonable benchmark here -- the #1 most reasonable benchmark for long-term investing in Singapore. These are Singapore dollars we're talking about.

3) Even if you take the numbers are correct, 4.14% pa after 10 years effortlessly and you can cash out the sum of money. Don't you see the benefit?

Ah yes, the "it must not be real if I can't convert everything I hold to a bank check within the next 5 minutes" argument. Which is the same argument compulsive gamblers and financial crime victims make, as it happens.

[And don't you see the benefit of creditor and judgment proof assets?]

I certainly think you ought to have some liquid assets.(*) I always point out that building up an emergency reserve fund (SSBs work!) is a higher priority than investing, and I do so again now. So is paying off high cost debt and covering essential insurance needs (but not over-insuring). But if you're going to insist that 100% of your assets must meet a 5 minute bank check test, you will be poorer on average. For example, your own educational investments in yourself cannot possibly meet that test -- you cannot instantly or near-instantly convert your university degree into a cash bank check. If you then want to argue that that means you shouldn't invest in your own (and in your children's/spouse's) education(s), I'm going to disagree with you again.

Jeff Bezos didn't become the world's wealthiest individual because he maniacally focused on maintaining 100% liquidity at every point in time. Very, very much the opposite -- and Wall Street got very upset with him at certain points. He built firm-specific and highly illiquid (and low fair market value) capital, then leveraged the hell out of it over decades, really.

(*) A good or better credit score with access to some low-cost credit is nice, too.

 

[Mecisteus]

Oh, here we go now with the "if only you had a crystal ball...." stuff.

lol didn't I tell you cash gives you the liquidity? You can do whatever you want with your cash.

Remember I said a high risk taker will minimize contribution into CPF. You can take on more risks in exchange for higher returns.

For taking higher risks, you must accept the downside. So there is nothing about crystal ball here.

 

[BBCWatcher]

You can take on more risks in exchange for higher returns.

Sounds like a fabulous plan. So what's beating 4.0% plus bonus interest on pre-tax/never taxed Singapore dollars? Long-term dollar cost averaging into a STI ETF isn't even beating that. Are you recommending orange juice futures? Investing in coconut plantations in Borneo (to destroy more tropical rainforest)? Punting on Bitcoin? Trips to Sentosa and the poker tables? What investment (or "investment") schemes are you recommending?

....OK, I'll nominate something: dollar cost averaging over the long-term into IWDA/SWDA or VWRL/VWRD. That's a popular choice, and for good reason. I think you should do that (after covering the basics: emergency reserve fund, paying off high cost debt, and basic insurance necessities), and I think it'll probably yield 6%/year over a long time horizon. But stocks are pretty richly valued at the moment by all traditional measures, and I could be wrong in my yield forecast, so I think you should grab CPF's 4.0% plus bonus interest on pre-tax money deal, too. They're both quite attractive, for young and old alike.(*)

And guess what I do? Both. Well, OK, not IWDA/SWDA or VWRL/VWRD since I'm a U.S. person, but I do the equivalent in the U.S. instead of in Ireland.

(*) For older investors the stock ETFs are less attractive but not necessarily unattractive. I'm OK with holding up to 30% of your total wealth in stocks at any age, and as a "rule of thumb" subject to adjustment in your personal circumstances.

 

[cheongmanz]

Hello. What pain are you talking about.

You utilize more cash and less CPF to pay for your flat, that means you give up liquidity now. You have less cash now but more cash in future. Assuming you sell your flat in future.

You utilize less cash and more CPF to pay for your flat, that means you accumulate liquidity now. You have more cash now but less in future. Assuming you sell your flat in future.

Can you see the trade offs?

Fair enough, but bottomline is why do we want to sell our hdb in the first place? If the objective is to flip and have more liquidity, doesn't the accrued interest prevent you from doing it?

 

[fr33d0m]

lol didn't I tell you cash gives you the liquidity? You can do whatever you want with your cash.

Remember I said a high risk taker will minimize contribution into CPF. You can take on more risks in exchange for higher returns.

For taking higher risks, you must accept the downside. So there is nothing about crystal ball here.

You can do whatever with cash and after that, then? It is no longer cash. It is not wise to hold much cash or short term deposit. There is a lot of free liquidity around, e.g. Credit card, which can be used for most needs [for short term].

Cash should be of small allocation and temporary.

 

[TabascoSauce]

Nothing wrong, as long as you are happy with your decision.

How much are you planning to have at 45 to retire? How old are you now?

About 2 mil excluding primary resident. Dose not include my future Wife (now gf) savings.

28yo now. Worked for 3 years. About 13% towards my target if include CPF SA and Medisave.

 

[SibehHL]

About 2 mil excluding primary resident. Dose not include my future Wife (now gf) savings.

28yo now. Worked for 3 years. About 13% towards my target if include CPF SA and Medisave.

Personally think you have set a reasonable achievable target. But on the other hand, don't get too focus on achieving the "target" that you forget to slow down sometimes to smell the roses. Once again, it's my personal experience.

Sort of reminds me of a Chinese song - "她以为她很美丽"... waited too long and ended up being a BBFA...

 

[Maeda_Toshiie]

Finally!
Marriage isn’t about cash. It’s about love.
My potential wife, the one I’m dating holds a degree with a government job. Although it wouldn’t be all well paying, its sufficient to uphold a decent lifestyle. She’s not good in investment so I doubt she’ll be able to retire comfortably on her own. She will belong to the group that depends entirely on CPF. Like many others.

Frugality is probably more important than investment acumen. Investment acumen doesn't count for much if there is no proper budgeting. Investment acumen isn't going to save most people because they can't control their own spendings.

So in the meantime, I see myself earning a much higher salary. Armed with investment knowledge. I find it wiser to invest most of my salary and get a decent portfolio out of it it.
Therefore when we are near retirement, my dividends will be able to support the whole family.

If you are saying that I should in the meantime buy stupid things like gucci bag to lavish her. Then that’s not how I would lavish her. I intend to lavish her with quality time. Time is the most precious commodity. Instead of buying her stuff, I spend time with her, going to parks, nice dinners once in awhile, chill at our beloved home. Like I said. I intend to live like I’m in the 90s, minimal technology. Technology would be used to do house chores instead of entertainment.

Two words for you: Women's Charter.

Back when I was a child, I wanted a gameboy so much. But looking back, I regretted having one. The moment I got one, my grades went downhill. My social skills went downhill. That’s not how I will want to raise a kid, to become another society slave. I want it to learn that he can’t have something just because he want it. He has to strategize, think of ways to get something, legally.

Good luck trying to do that in Singapore.