A recent article by Business Insider - 5 frugal habits of the world's richest people - got me thinking if I was even frugal in the first place.

I always thought I was. At least, I try my best to be one.

Five (5) Frugal Habits of the Wealthy

"Research and anecdotes teach that wealthy people, including the very wealthiest, are surprisingly frugal.

That's not saying they're cheap.

After all, there is a difference between being cheap and frugal. Frugal means being smarter and wiser at prioritizing your funds, finding the best value, and making solid investments - traits that have fattened the bank accounts of the richest people in the world. They have so much wealth because they realize the real value of money."

Source: Image from CNA

In a Channel NewsAsia (CNA) article on 18 Sept, it reported that more people in Singapore are making voluntary contributions to their CPF account. According to the CPF Board, these top-ups amounted to about S$500 million in 2014. That is 25% more as compared to 2013. A former investment analyst Lim Chin Yong, a 56 year old, is one of the those who made voluntary contributions to their own CPF account.



Read: More making voluntary contributions to CPF account - CNA

Guesstimate on the Age Categories of these Contributors

Source: Screenshot from CNA

It would be great if the report indicated a breakdown on the age
categories of these contributors. There were nearly 74,811 top-ups last year (2014).

My guess is that people nearing their retirement might be the bulk who are making these voluntary contribution to their CPF account. People like Lim Chin Yong.

If I am close to retirement age, and I have spare cash, and I was looking for alternatives to earn the extra interest, putting it into my CPF retirement account might be an option for me.

What about voluntary contributions to my CPF now?

I personally have not made any voluntary contributions to my own CPF account. I contemplated if I should transfer savings from the CPF OA to the CPF SA. But I have not done so.

Read: Should I Transfer Savings from the OA to the SA

People, in my age category, might not see voluntary contributions to CPF as a viable option in many fronts. First, the transfer is irreversible, especially so for CPF SA. This creates inflexibility. There might be options for me to be investing in a higher yield (more than 4%) investment. There might be reasons you need a sudden sum of money. Just imagine depositing your money in the bank but the withdrawal age is 55-years-old.

This inflexibility puts any personal major top-ups on hold.

Having said that, I might consider transferring a small amount (max S$3,600) from my CPF OA to my CPF SA yearly to accumulate the higher interest over a long period of time. But no cash top-ups.

To sum up, if you decided to top-up your CPF, please remember it is irreversible. Do not totally rely on your CPF for retirement. You should have other retirement pillars to sustain your lifestyle after you retire.

I have been writing CPF-related blogs and how we should be using the Magic of Compound Interest (risk-free) in our CPF to our advantage. This really got me wondering how much interest has my CPF SA accumulated over the years.



I was pretty happy to know - from the start of 2010 to the end of 2014 - that a total of S$8,274 was "generated" from my CPF-SA.

This S$8,274 amount is 14.6% of my CPF-SA fund (at the end of 2014). The Government has already provided me with 5.1% of the current Minimum Sum (of S$161,000). With another 25-30 years more to go, this S$8,274 will be compounded further.

I will be keeping track of my CPF-SA yearly more closely.

Read:
1. CPF-related poster 'Misleading' or 'Informative'?
2. Will CPF still be an election topic in 2045?
3. 10 years plan to Clear my HDB Loan? - Cash vis-a-vis CPF Savings to pay off my Mortgage

I came across this picture of a CPF-related poster on Facebook recently.



Different people shared it with different captions. Here are some of the captions:

"Next time if people ask you to explain compounded interest, show them our CPF amount."

"From 1cent can become 5.6 Million dollars....In just 30 days! PAP HUAT AH!  This time we really HOSEH LIAO! All becoming millionaire la kakis!" 

I will just stop at the captions and not even proceed to the comments.

I personally felt that the poster was meant to remind people that amount of money needed for retirement is not a small sum. The CPF (Special Account) savings earn risk-free interest up to 5% p.a. The message was to show how the interest earned gets compounded over time. To explain the concept of "making your savings work harder for you".

To illustrate the Magic of Compound Interest, the creator use an example of doubling the amount (100% interest daily) for a period of 30 days. Starting at 1 cent on Day 1 to $5,368,709.12 at the end of Day 30.

Read: 72, The Magic Number for Compounding Interest

Well, there was nothing wrong in the maths. There was nothing wrong in the explanation.

I just felt a more realistic example would suffice to explain how the CPF-SA generates substantial interest over a period of time.

To be fair, I do see other CPF-related posters at the background. Maybe, this particular poster was one of the many to explain the CPF to a layman.

To better set the expectation (for a layman), the actual 4% rate could be used to illustrate how your CPF SA "grows" the money.

A non-appealing example:

1. Xiao Ming, 25 years old
2. Monthly Salary: S$2,500
3. Total CPF contribution: S$925
• Employee (Xiao Ming) - S$500
• Employer (Boss of Xiao Ming) - S$425
4. With S$925 contribution to CPF, the breakdown will be:
• Ordinary Account - S$575.08
• Special Account - S$149.94
• Medisave Account - S$199.98 

If Xiao Ming works for the next 30 years, without a pay raise or a bonus, how much money would he have accumulated in his CPF-SA?


Xiao Ming surely knows that he has contributed close to S$54,000 in his 30 years of hard work. That is the easy maths - S$149.94 x 12 months x 30 years = S$53,978.40. With this example, Xiao Ming would realize he has earned ~S$51,000 of interest. I think he will be happy and probably did not bother how the Magic of Compounding worked.

At the end of day, I think my example would not entice people. It will not explain compounding interest. It just shows that our CPF-SA does its work to save a small sum for retirement from a monthly contribution of ~S$150.

Money really does work for you when you have a compounded interest of 4% (risk-free).

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?

Source: AsiaOne

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

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.  

Singapore's Prime Minister Lee Hsien Loong mentioned in this year's National Day Rally that the re-employment age will be raised from 65 to 67 by 2017.