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July 2014
CPF Explained
The Roy-PM Lee saga has initiated loads of queries, doubts, excitement and interest in our CPF.
The Central Provident Fund (CPF) is a social security saving plan for Singaporeans. Working Singaporeans and their employers make monthly contributions to the CPF which are divided into three accounts:
Ordinary Account - Funds which can also be used to buy a home, investment and education.
Special Account - Funds that are specifically earmarked for retirement. However, investment in retirement-related financial products are allowed.
Medisave Account - Funds which can be used for hospitalization expenses and approved medical insurance.
To better communicate with the public, the Ministry of Manpower and CPF Board recently launched a CPF & YOU educational series. This educational series explained, or at least tried to explain, our complex CPF system. The various info-graphics (shown below) should give a layman a certain understanding of our CPF system.
My views on our CPF System
There are always strengths and weaknesses in each system. In each system, it might appeal to some and might also repulse some. There are just to many possibilities to discuss on how to make a system that can benefit everyone. A Policy for Everyone! Possible? Never possible, in my humble opinion.
The minimum sum has been a sore point for a lot of Singaporeans. "Why can't we withdraw all our CPF money when we reach 55?" Why? Why? I certainly do not like that idea, I hate it! But I do believe it is really better for the greater population. Because there are just too many people that do not know how to manage money. Their retirement fund will be gone before they know it. Yes, yes, it is your money. I shall stop here.
Moving on, 20% of our salary goes to CPF whether we like it or not. If we were not allowed to use our CPF for our housing, that essentially means paying our mortgage from other income source. Since most of us are using our CPF to pay for our housing mortgage, that actually gives us more disposable cash (technically). And that savings should be invested. My view is that we should not over-rely on the CPF System. We know for sure that the minimum sum will only increase with inflation. Prices of public or private housing will always rise in the long run.
There is one thing for sure. As long as you stay employed, funds in the CPF will continue to grow. Whatever amount you have in there, you will get one source of income when you retire. So it should always be in your plans to build a second or third source of retirement fund.
What is the role of the CPF?
Why can't I withdraw all my CPF when I reach 55?
Why does the Minimum Sum keep increasing, and will it continue to go up?
What happens at age 55? How much can we withdraw from our CPF?
Can we use our property to help us withdraw more from our CPF after age 55?
When can we receive monthly payouts?
Can we still use our CPF monies to service our housing loans after we turn 55?
How much is the Government paying on our CPF Ordinary Account?
It's not too early to think about retiring - The Sunday Times
I enjoy reading The Sunday Times Invest section every week. Yesterday, there was an article about retirement again. The headline shouts, "It's not too early to think about retiring." It is similar to my tagline and I can totally relate.
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| Screenshot from The Sunday Times - 20 July 2014 |
The author, Rachel Boon, and experts interviewed suggested that the best time to start building a nest egg is when the workers are in their 20s. The article also highlighted the issues, of people at different age brackets, which hindered their funds for retirement. In the 20s, people are usually saving for their wedding, house or even a car. The people, in their 30s, are providing for their family especially their kids. While the people, in thier 40s, have their expense increased in their kid's education and elderly parent's care.
There are always different reasons to delay your plans for retirement. I believe you just have to be discipline and start as early as possible when your expenses are lower. I started early by saving hard and learning how to invest the hard way. From retrospect, at least I have saved a sum to be invested now.
I have always save a portion of my salary first. The remaining will be the amount that I am allowed to spend. Just like what the article has mentioned, start planning (save more) and investing as early as early as possible.
So Save Hard. And Invest Smart.
The Journey, My Plan
I have always been scribbling some financial goals that I hope to achieve at a certain age on some recycled paper. Nothing concrete, just pure calculation on the amount I will be able to save and invest.
2013 was a year of transition for many reasons and I started to reflect on my investment strategies. I was more interested in capital gains (I am still interested) but, slowly, I wanted a portfolio that generates a passive income.
My current portfolio is approximately $48,000. I have another $135,000 in cash. Of which $75,000, will be deposited in the banks for two reasons - raining days and a financial crisis scenario that gives me buying opportunities. The remaining $60,000 will be used to accumulate stocks over the next two years. Why not all now? I strongly believed in dollar cost averaging and there is no big bargains in the current market. In addition, I will also be saving $1,000 a month from my salary to be invested.
With my current portfolio, my dividend payout is close to $100 per month. My eventual goal is to have a monthly payout of $5,000. I have seen like-minded ordinary people achieving such goals and this strengthens my belief. For 2015, my target is to achieve a monthly payout of $500.
This journey will definitely not be easy. The plan on paper seems executable; but no one knows how the market will be like tomorrow.
Come what may. Towards one stream of passive income.
Saving too little, too late for retirement - The Straits Times
S$571,715 seems a lot. Hypothetically, at different inflation rate, the present value of the S$571,715 is as shown below:
More than S$260,000. Still seems quite an amount for retirement for today's living. At least, a good start state for retirement. Enough for retirement? Depending on lifestyle, I am sure there are tons of people screaming that is not enough.
The survey also highlighted that more than 85 per cent of those polled expect to live on a retirement income of S$3,500 per month for the next 15 to 20 years or more.
According to DBS Bank, which conducted the survey, the average savings would only last about 13 years. This means there will be a time you might just have to live only on the annuity given out by CPF Life, provided there is no change of CPF policies at that point in time. I am not sure how it will feel like when i'm in my retirement age, but i am certainly not leaving it to chance.
Anyway, the whole gist of the article was succinctly mentioned by DBS Consumer Banking Head Jeremy Soo:
"With longer life expectancy and changing expectations of retirement living, it has become increasingly important for people to start investing for retirement early. An early head start, even if it is a small amount, will increase the probability of meeting your lifestyle needs when you retire."
So it is really never to early to plan for your retirement.
Jun 2014 Portfolio Update - Growing My Passive Income
* 100 units per lot
Total Invested Capital: S$ 47,765.00
This is my humble portfolio. Still far from what i have envisaged. I will add counters as the months go by.
A Singaporean in his early 30s planning for his retirement in a very expensive city.
It is never too early to plan for your retirement, especially in an expensive city like Singapore.
This blog is all about my journey towards my goal for retirement. Living in Singapore has its merit, but it comes at a price of worrying about our retirement. I am a very goal-oriented person who have set goals at every stage of my life. My ultimate goal is to build a passive income which will allow me to retain my lifestyle even after i have retired. This blog will hopefully document the growth of my investment portfolio and share with others that is is possible to be a Millionaire (a goal i have set myself to achieve) with a middle income salary.
I have been investing for a few years, more after i have graduated. Learnt a lot along the way from my mistakes. The last couple of months i got inspired by DW (http://dividendsrichwarrior.blogspot.sg/) and realized the similarity in our style of investing. I have to credit him for such an amazing portfolio and would definitely want to mirror his success. His blog got me interested to also document my journey. I feel that it is a good way of keeping track.
So it shall begin ...
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