I believe I am not the only one noticing the #WhatsYourPlan (hashtag) all over social media. The Government's initiatives have definitely caught my attention, especially on the retirement front.

Just few months back, I received a cold call asking if I was interested in an annuity product from an established insurance company. I decided to hear more from the agent and fixed a date for a coffee.

Of course, I learned about their annuity product - why Singaporeans need it (blah... blah... blah...)? Retirement is getting expensive, etc. (blah... blah... blah...)?

The conversation led to the CPF Minimum Sum. These agents sure know how to lead the conversation to "why we must think about our retirement" (and their annuity products) NOW!

The agent recapped the history of the CPF Minimum Sum. He reminded me of the adjusted Minimum Sum for inflation. CPF Members who turned 55 back in 2014 had to set aside S$155,000 in their CPF-RA to receive a monthly payout of about S$1,200 when they turn 65. Next, he emphasized on the Minimum Sum for the current cohort (2015) was S$161,000. That was a S$6,000 jump.

Next, he showed  me this table (below):


Based on their calculation, the projected Minimum Sum will be S$564,797 in Year 2047. Just imagine that they were right!

Wake up! Minimum Sum will definitely go up

Cost of living will definitely go up. So will our Minimum Sum. Even, if the projection was wrong +- 20%, it will still be a big sum. If that doesn't wake you up to do something now, then just pray your kid/s or someone will be able to take care of your retirement expenses. 

At the end of each year, apart from Christmas, I look forward to the interest added to my CPF accounts (especially the CPF-SA). In 2015, the total interests added to my CPF-SA was S$4,984.38. The detailed breakdown will be S$3,054.88 interest generated directly from CPF-SA and another S$1,929.50 transferred from the interest added to the CPF-MA.

S$4,984 is more than half of the interest that was added to my account in the last 5 years (2010-2014).

Read: S$8,274 interest accumulated from CPF-SA in the last 5 years

Power of Compound Interest

The amount of interest given each year is become substantial. Let's just do a simple calculation and take S$70,000 (approximate amount in my CPF-SA), how much would the amount be in 20 years? I will be 54 years old by then and that is just a year before I transfer the amount to my CPF Retirement account. The answer is about ~S$155,000. The amount will have grown more than 2 times. That is the beauty of compound interest. And that is without adding in any employee-employer contributions monthly.

31 December 2036, I should be receiving at least S$6,200 worth of interest from the S$70,000 I have inside my CPF-SA now.

Thank you, CPF Board.

In one of my posts last year - Will CPF still be an election topic in 2045?, I mentioned that I might be considering contributing a small sum every month to the 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..." 

Decision made - Looking forward to the reward in the long term

I decided at the end of 2015 to do my first transfer of S$2,400 from CPF-OA to CPF-SA to kick-start this micro saving plan. Let's just say, I am looking forward to adding the S$139,273 to my retirement account.

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.  

The payout of S$1,863, the highest in the Enhanced Retirement Sum, is worth only S$845.37 in today's value. This is based on investing S$845.37 at a rate of 2.5% for 32 time period (that reveals my age. :) 32 years more to 65 years old).

It is tough to survive on S$845 in today's context. It will be the "same feeling" to survive on S$1,863 in 32 years time.

I can only guess what the retirement sum will be in 32 years time. Double? That sum will be "forced" into this CPF Life Plan and, definitely, it will be way higher than the current sum.

In my earlier post - Should I Transfer Savings from the OA to the SA?, I grappled with the fact of transferring some savings from my CPF OA to my CPF SA before using the rest of the saving to lower my mortgage loan. Being able to finance my hosing loan is a consideration for keeping my savings in the CPF OA.

Here are some information:

1. Purchased a BTO (Singapore's Public Housing) that will be ready in 2017.
2. Purchased the place for ~S$575,000.
3. Paid 5% down-payment + Stamp duty using my CPF OA.
4. Remaining Loan amount: ~S$550,000
5. Will be taking a loan from Housing & Development Board (HDB) at 2.6%. Or should I not? 
6. Both my partner and me are working currently with no kids.
7. My current income is ~S$5,000. My CPF OA has ~S$120,000.
8. My CPF OA contribution monthly is ~S$1,150. 
9. My wife's income is ~S$3,500 and she has ~S$30,000 in her CPF OA.
10. My wife's CPF OA contribution monthly is ~S$805.

I did an enquiry on our eligible loan cap on HDB website. Based on our current income, the estimated maximum loan is S$562,000 with a repayment period of 25 years. Estimated monthly instalment at S$2,550.


Here are the plans:

Plan A:

1. Wipe out all our CPF OA savings (total: ~S$150,000) and take a loan of S$400,000 from HDB.
2. Estimated monthly instalment is S$1,815.
3. Continue to use CPF OA to service our loan instalment (total: S$1,150 + S$805 = S$1,955, more than enough).
4. No additional cash needed to service the loan instalment.
5. Big Assumption: Both will continue to work and earn the same income. Still thinking what we will be doing if we are going to have kids. That is a discussion on its own.

Plan B:

1. Wipe out only S$50,000 from our CPF OA savings and take a loan of S$500,000 from HDB. The remaining S$100,000 will still be in my CPF OA account. In order to do that, I will have to transfer S$100,000 into some investment product before transferring it back to CPF OA. I have to do my research if it is feasible.
2. Estimated monthly instalment is S$2,269
3. Use full cash to service the monthly loan instalment. My wife will contribute S$500 and I will pay the remaining S$1,769.
4. CPF OA continue to grow with monthly contribution of S$1,150.
5. Big Assumption: Both will continue to work and earn the same income.

Fast forward ten years, let's envisage what it will be like on Plan A:



Using DBS Repayment Scheduler Calculator (as shown above):

1. Remaining Principal Amount: S$270,239.69.
2. Interest Paid (so far): S$88,001.05 (painful!).
3. Both our CPF OA account will have S$0 (ZERO). Assumption is that we do not have any pay increment or bonuses.
4. Assumption - Since I am not on Scenario B, I will be able to save the S$1,700 monthly. Without investing in anything, I would have accumulated S$204,000 in ten years. If I have invested in something that gives me a yield of 2.5%, I would have accumulated ~ S$228,550. As for my wife, knowing her, no money will be saved.

Now, let's envisage for it will be like if I had serviced the loan on Plan B:


Using DBS Repayment Scheduler Calculator:

1. Remaining Principal Amount: S$337,799.62.
2. Interest Paid (so far): S$110,001.31 (very painful!).
3. My CPF OA account will have ~S$285,293. My wife's CPF OA account will have ~S$109,847. See below. Assumption is that we do not have any pay increment or bonuses. 
4. I will be super poor. S$1,700 a month :(. That is a big chuck of my salary.
5. We are able to finish paying the mortgage at the end of the 10 year using our CPF OA savings.

While there are some assumptions made, a well executed Plan B will allow me to finish paying my HDB apartment in 10 years. I am currently still in a discussion with my wife. A hybrid model using a portion of Cash and CPF OA savings to finance might be another option. Probably, using my wife's CPF OA contribution + my Cash to finance the loan is a better option.

Maybe, I will not transfer my savings from the CPF OA to the SA.

So, Cash vis-a-vis CPF Savings to pay off my Mortgage. That's the important question. 

I am contemplating if I should transfer my savings in my CPF Ordinary Account (OA) to my Special Account (SA). If I do transfer savings from the OA to the SA, I will be able to earn higher interest. However, I do know that the transfer is irreversible and you can only transfer an amount up to the prevailing Minimum Sum in your SA.

CPF (hopefully everyone knows it is called Central Provident Fund) is Singapore's social security system that enables Singaporeans and Permanent Residents to set aside funds for retirement. It also addresses healthcare and home ownership.

Source: ASSI

The CPF savings in the OA earn a guaranteed interest rate of 2.5% per year, while savings in the SA earn a guaranteed interest rate of 4% per year. There is an additional 1% interest per year for the first S$60,000 of your combined CPF balances.

Read: CPF Explained

Recently, I read AK blog entry titled - A lot of money in my CPF SA is from the Government, which he also decided to reveal his CPF SA number publicly for the first time. AK has beefed up his CPF SA through OA-SA transfers and even voluntary contribution. To cut the story short, just look at the interest paid to his CPF SA - SS$7,651.65.

So, is beefing up my CPF SA a good idea. In theory, the higher interest compounded will make my money work harder. This will purely be for my retirement account and I will have less flexibility over the cash. In AK's words, "Why not let the government help me meet the minimum sum?"

The government would have to pay more interest with a higher balance in your CPF SA and this will go towards meeting the minimum sum required at retirement age.

Logical as it sounds, the question is should I use the savings in the OA to pay for my upcoming house or should i transfer some savings over to the SA to earn a higher interest.

CPF Board is going the distance to communicate with Singaporean with their latest video. A simple video to explain:

Source: Ministry of National Development - dated 4 September 2014

• All owners at CPF Draw-Down Age (currently, the age is 63 years old) or older
• At least one owner is a Singapore Citizen

• 4-room or smaller HDB flat (exclude HDB terrace houses)
• No concurrent ownership of second property
• All owners have lived in flat for at least 5 years
• Have at least 20 years of lease to sell for proceeds

Source: PM Lee's Facebook page.

Mr and Mrs Tan's Retirement Plan - Screenshot from The Straits Times - dated 18 Aug 2014