Yesterday, close to 2.5M Singaporeans went to the polls. I have followed and voted in three General Election (GE) - 2006, 2011 and 2015. In all these GEs, Singapore's CPF has always been an election topic. So will CPF still be an election topic in 2045?
Money will always be a sensitive issue. I will be 60 plus years old in 2045. I really wonder how my peers or fellow Singaporeans in my age group will react when the time comes.
Should we be allowed to withdraw all our CPF savings at age 55? Yes. No. I have talked about this in a previous post. I will just leave this discussion here since we all know that we are only allowed to withdraw the sum in excess of the Minimum Sum.
2 main concerns
There will always be 2 concerns on the CPF as we near our retirement - the Minimum Sum (MS) and the Draw Down Age (DDA).
CPF savings will be paid out monthly after members reach their DDA. In 2015, the DDA is set to increase to 64 from 63. By 2018, the DDA will be 65 to keep pace with rising life expectancy. I am not expecting the DDA to go higher/ older than 65. If it goes past 65, I am sure CPF will still be an election topic.
Next, the MS is the amount that must be set aside in the CPF for retirement needs when the Singaporean turns 55. With this MS, Singaporeans will be getting monthly payouts in their retirement years. Singaporean turning 55 between July 1, 2015 to June 2016 will need S$161,000 as the MS. The amount in 2045 will definitely not be S$161,000 because it has to be adjusted annually taking into account inflation.
In general, everyone expects (really hope Singaporeans know) the MS to be adjusted up. There will be discontent when the MS is out of reach for the majority. Instead of withdrawing a nice sum of money in excess of the MS, Singaporeans will only be able to withdraw S$5,000.
This is the system. We just have to plan ahead.
Build a nest to meet the Minimum Sum
The question in my mind - How much money were from the Government (generated from the interest given by CPF) to meet the MS?
There are people like ASSI, after 19 years of effort in the workforce and various voluntary contributions to his CPF SA, has managed to amass a large sum of money in his CPF SA. As of Jan 2015, that sum was ~S$187,000. Without doing anything, his S$187,000 will be S$278,786 in 10 years. Additional interest (4% compounded) of S$91,786 was paid. In short, the CPF board actually helped him to achieve his MS partly.
Read:
A lot of the money in my CPF-SA is from the government. (AK reveals his CPF-SA numbers in detail for the first time.) [Source: ASSI]
Use:
CPF Compound Interest Calculator
Of course, there are many, many people that would not be in ASSI's shoes.
Most of us will be using our CPF OA monthly contributions to offset our housing mortgage. Our CPF OA will be "empty" and the interests generated might not be substantial.
Most of us will not even think of contributing (voluntary) to the CPF SA as part of our retirement plan.
Use your own money in CPF. Pay your own Interest. Painful!
I have seen many complaining that "we are paying interests on our own CPF money for housing".
Time and time again, the Government has explained the rational of paying the accrued interest. The CPF money is for our retirement. If we use the money for housing, we would lose out on the interest we would have earned from the Government.
So please note if you have used your CPF money for the purchase of the flat, you need to make a full refund of the CPF savings withdrawn plus accrued interest to your CPF account.
Instead of the Government paying the interest, we have to pay it. By using our own CPF money for housing, we will have helped the Government save a lot. And that is painful!
Read:
10 years plan to Clear my HDB Loan? - Cash vis-a-vis CPF Savings to pay off my Mortgage
Would you consider contributing to your CPF SA?
Well, it is understandable why we would choose to use our CPF OA monthly contribution to offset our housing mortgage. This frees up cash for most of us. And for some, it is the only way to own that property.
Whichever case it might be, I would really encourage all to think about it long term. If we are able to set a small sum aside every month, consider contributing it to CPF SA.
Let the magic of compounding show its power.
Do it early. A S$100 monthly (S$1,200 yearly) contribution for 30 years will amass a sum of S$69,636. If it is S$200 monthly (S$2,400 yearly) contribution, it will amass a sum of S$139,273. Please do note the total interest paid by the Government (see attached image below). This micro saving plan does not even include your CPF contribution while you are employed.
Read:
72, The Magic Number for Compounding Interest
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| Source: Pixel God Facebook |
I believe in understanding the system and taking advantage of it.
Will my generation be more prepared in 2045?
I certainly hope so.
Let's just hope people understand the CPF system better.
At the end of the day, your CPF should not be your only vehicle for retirement.
"Many people who are in their 60s want to work longer. They say, “If I sit at home and do nothing, I will go ga-ga. Furthermore, my wife will tell me to go and do something about it." So we raised the re-employment age to 65 three years ago. And the unions and workers were very happy. I think the employers have accepted it. They are adjusting to it and starting to benefit from it. It’s still too early to judge but so far, it seems to be working well. 
