Wednesday, 7 March 2018

My 19 Year Old CPF Account - For Millenials and Young Adults

Being a Singaporean, we're all exposed to CPF the very moment we commence work.
But once again, I believe many would have heard this from the senior Singaporeans and even to some millennial whom have just started out with their part time job.

Central Provident Funds - CPF (from CPF Official site)

"My hard-earned cash are all locked up in the CPF" 

A slight variation to the younger ones that I've heard many times personally:

"I want my 20% salary in cash, why did they take it away? I'm working hard for it!"

These are the many who felt that CPF is a Ponzi scheme and basically they would have no access to the funds that they worked hard for. It is made more "popular" when individuals like Roy Ngerng that protested at Hong Lim Park on the CPF funds earlier in 2014. Personally, I do have a number of relatives that hate the CPF system as well.



However, there is always two sides to a coin and these parts or hate come solely from the negative side.

It is true that the age or rather limitations to accessing the funds have been increasing. However, I would make a fair comment that this is due to the news that we've seen around like "Uncle being cheated by China wife off it's CPF funds" or "Auntie losing $XXX k from the stock market".

Perhaps by the time for me to truly access the funds, I might no longer be 55.

But we are not to only rely on our CPF monies for retirement, this is just another avenue we could look at.

The kick here for you to withdraw your CPF funds today is that you'll have to satisfy the BRS (Basic Retirement Sum) or FRS (Full Retirement Sum) with sufficient property pledge when you turn 55 years old (this is when the funds in OA and SA will be combined into the newly created Retirement Account).

What is a property pledge?
A property pledge is basically a pledge that you'll have to undertake and promise to return the funds that are utilize for your housing plus interest to the CPF board upon selling the property. 

But given the prices of property today, it's indeed much tougher for millennials to amass the amount in SA and OA to satisfy the retirement sum as most of them are using a big fraction of it for property. Hence, the property pledge is taken pretty much for the case when one is selling their property and this action will ensure that Singaporeans will have sufficient funds for their retirement and not sleep on the streets.

One good measure is to reduce on the amount of mortgage paid using CPF.
This can be done by injecting more cash into the repayment or better, downpayment.
It does restricts your cash flow more, but again, this is also a good measure to ensure that you'll have adequate and even promising funds in your CPF account when you're older. 

Many pioneers of Singapore having exposed to this windfall at the age of 55 previously, where there is lesser restrictions on the funds earlier, did not know how to manage this funds and indirectly caused such events. Hence, after numerous cases and news of "Uncle being cheated by China wife off his CPF funds", this had forced the government to increase the age and limitations towards accessing the funds in CPF.


Nonetheless, being a Singaporean, we're entitled to certain privileges and CPF is one of them. Instead of looking at the dull side, we should look at some brighter side to this coin.

While I'm not an advocate for CPF nor is this post an advertorial for CPF, I felt that this is a good measure and instrument that we, as a Singaporean could use to improve on our financial situation. At this very moment of writing it, assuming if I'm to make any withdrawals at 55 years old (provided this does not change till I reach 55 and that I've satisfy the BRS/FRS requirement), CPF will work out to be a 35 years bond that guarantees you at least 2.5% interest annually.



It is true that the BHS/FRS have been increasing and adjusted every year so as the MA ceiling. However, if we're able to make full use of the privileges and take this system as a risk free investment, the coin will not appear as dull as it is, only unless we're buying into the bet that Singapore collapse.


Why would I hate CPF for the risk-free interest and being a Singapore Citizen, this is what we're entitled to. Instead of whining about how this system might be flaw to you, why not think of how to make good use of this system! This indirectly also allow many Singaporeans to not sleep on the streets when they're old like what we see in many other countries!

CPF Interest earned in 2017!
For younger people starting out, you're in fact getting a little more to kick start your journey by having an additional 1% interest (3.5% on OA and 5% on SA, MA) for the first $20,000 on OA and $40,000 on SA.


Why not? I love freebies and we must remember the our CPF monies are ours after all.

In fact, recently, while I'm having some itch, I did another transfer from OA to SA, once again emptying my OA account to get that extra interest for the first $40,000 in SA as compared to leaving them in OA!

But we must bear in mind the transfer from OA to SA is irreversible. Only unless you do not need the funds in OA in short term housing, education or investment, else the transfer is pretty much going to be a burden to you in your mortgage payments etc.

While CPFIS is a considerable option, this will only come in handy after setting $20,000 aside in OA or $40,000 aside in SA. For now, it does not work really well with the equation and most importantly one must remember that the interest we get in our CPF account are risk-free and you're not exposed to the volatility of the market.

By using CPFIS, you're exposed to the risk of the investment. Definitely a better reward with greater risk. How about setting it for the stormy weather (ie. financial crisis) or for an opportunity funds where you'll be able to get some delicious blue chip companies on bargain?

After all, this is your retirement sum and it's better to play safe!

In fact, one can even consider doing VC to CPF account to build up the funds inside to get more of it from the government when you have too much of your spare cash lingering around.

Working Adults
The CPF Ordinary Wage ceiling is capped at $6000/month. Having that said, you'll only receive at most $2,220 into your CPF accounts from salary range >$6,000. Even if you're earning $10,000 or $15,000 or $50,000 each month, the maximum amount that will be deducted of your monthly paycheck would only be $1,200 while the other $1,020 will come from your employer's contribution.

Getting paid another 17% from employer!! 



The CPF monies are then distributed according to your age into your various accounts (ie. OA, SA or MA) base on the table below:

Obtained from CPF Board official site

And yes, you're right. For those those >55, you're receiving lesser amount deducted off your paycheck to go into your CPF, which will provide you with a greater cash flow to equip you well and get you ready for your retirement.

The latest limit to CPF annual contribution is capped at $37,400. Assuming you're drawing $6,000 or more each month, you're still eligible for a Mandatory Contribution of $10,760. The amount that you can contribute voluntarily will be lesser when your bonuses are factored in.

On a side note, you're also entitled to receive tax relief for contribution to Special Account or MA. 

Students on Part-Time Job
For those earning peers around my age that are complaining about the CPF system, do remember that for each dollar you earn, your employer has to contribute another 17% into your CPF account.

In another words, we're paid more! 

Just that, we do not see the dollars in our wallet till we're over 55 year old and satisying the BRS in your combined account. While it might seem that you're getting a fraction taken off your pay check which you could be using for your holidays or the new fashion items. Why not earn more for that?

It's true that you will not look the same wearing the new fashion item when you're 55, but look. This is another way for you to increase your income if you really need or want to get it. 


I do know that all else aside, we are not to only rely on our CPF monies for retirement and this is just another avenue we could look at.

So, as a 19-year-old individual turning 20, am I pissed because my hard-earned monies are from part-time job or even full-time job are taken away for CPF? 

Beats me. But I'm loving it. What I know is - I'm working hard, and I sure know my money is too. 



Read:
Peep into the 19 year old student's CPF Account - Transfer from OA to SA
19 Year Old Student Receiving $403.41 Angbao From Government? 

22 comments:

  1. Hi Sleepydevil

    Wow I must say you are one very unique student at your age.

    Bravo!!!

    Good article and you point out aome good things there on cpf. I'm also doing VC top up from time to time into my SA in hoping to reach the FRS minimum sum hopefully in a few years time.

    ReplyDelete
    Replies
    1. Hi B,

      Good morning :)

      Let me guess. Are you at Changi Airport preparing to head over, going to work and coming back home later to do some final check on your luggage, Tao Yuan, Maoli or already at Taichung??! hehe

      I sure believe that you'll be able to achieve FRS really soon and financial freedom is just next door to you!

      I'd say that there are many instruments available around to grow wealth or rather like what Kiyosaki would say - 'letting your money work for you', and CPF is another option that many are unappreciative towards :(

      Thank you very much by your kind words and I'm pretty much flattered by the word 'unique'. But personally or probably to them, it's another synonym - 'weird'. Haha :p

      Delete
  2. sleepydevil,

    I remember fondly there was a time when CPF was 25/25 percent for both employer and employees.

    For those who badly needed the cash in their pockets, there were sad cases of employees colluding with unsrupulous employers not to declare CPF...

    I?

    I were only earnly around $600 per month so the EXTRA percentages in CPF did not make much MATERIAL difference 30 years down the road. HDB prices went up faster than CPF comopunding interest ;)

    And since I were young, single, thrifty, and livng at my parent's place, even though my after CPF take home pay was very low, I wasn't with the crowd complaining CPF taking too much off my monthly salary. But I can empathise with my older colleagues with families to feed...

    Years later, when I finally made REAL money in my career, CPF contribution rates went down :(

    It was supposed to be a "temporary" measure to fight off a recession, but I soon learnt that they were many goal posts. I guess if we have a severe recession next time, I won't be surprised if we had another round of "pay cuts"!?

    "Getting paid another 17% from employer!!"

    Perspective is very interesting.

    When you are working beyond 55, you'll understand why I don't share your sentiment above.

    You'll probably see it as a pay-cut too ;)

    LOL!


    It's always good to have different opinions. Do remember to share you disagreeing viewpoints at my watering hole too!

    I want to prevent it from becoming an echo chamber ;)

    I believe in you.



    ReplyDelete
    Replies
    1. Hi Jared,

      Welcome welcome! Wow 25/25. It's really impressive. Each time you have $1000 in your bank for salary, there's another $500 in CPF.

      Yes. Perspective. Coin always got 2 side one.
      When you're working beyond 55, you'll receive a 'pay-cut'
      Alternatively, I'm being paid 'more' into my bank!

      Fun to poke poke with perspective. As the norm or fallacy that CPF is a terrible instrument, this post here today is to open the window from the other side :)

      It may be bright out of your room's window. But walk to the kitchen and see :)

      It might be cloudy and a thunderstorm might be looming! hehehe
      I'm always a 'noisy' reader in your watering hole! No need scared. Here I come.

      Delete
  3. Hey Sleepydevil,

    Thats a very good start for someone at your age. I believe that part of people not believing into the CPF is due to ignorance; You won't trust what you dont know. Since the system is here to stay, make full use for it! Good post once again.

    Cheers,
    Cupcake

    ReplyDelete
    Replies
    1. Hi Cupcake,

      Welcome to my blog and thank you for the kind compliments.
      We must remember that as a Singaporean, this is one of our privileges :)

      If we don't make use of our privileges, it's hard for anyone to help us :)

      Delete
  4. haha.. i think you are a younger version of AK.. ?!! (or maybe his son?)

    i admit i loathe the cpf when i was younger.. but as i grow older (much older) then i realise its not that bad after all. who can guarantee 4% (and +1% for first 60k)?

    anw, well done..

    ReplyDelete
    Replies
    1. Hi Foolish Chameleon,

      Long time since you last disturb me here.. hehe and thanks for the kind words!! To be really honest, my journey hasn't even start. Many would say that I'm nuts and too early.

      Some are making good use of the system but some are not.
      But ultimately, all our aim is the same :)
      Some don't even need it!!

      With these words from you, I'm more confident to tell people that I'm not nuts :)

      Delete
    2. On a side note. If I’m a younger version of AK, I would seriously hope with toes crossed as well that I’ll turn out like the original AK in 20 years time :(

      Delete
    3. AK will surely instantly collapse from heart-attack the moment he hears he has a son. Lol.

      Delete
  5. Seriously you need a proof reader to be taken seriously as a blogger. I have up at the third grating grammatical mistake

    ReplyDelete
    Replies
    1. so says someone who cant spell properly.

      Delete
    2. Thanks FC! It's true that a rider will always help rider!! :) Vrooooooooom!!

      Hi Unknown,

      To begin with, English had all along been my weakest subject in school and I do not consider myself as a blogger. Nonetheless, I've been trying to overcome this by writing and reading more :)

      I view 'Blogger' as a platform that I'm using to write about thoughts, journey and most importantly learn and interact with wise seniors and peers around.

      Thanks for your recommendation on proof reader :)

      Delete
  6. Don't forget to save some OA for your housing !

    ReplyDelete
    Replies
    1. Hi Lady,

      Most honored to have you here :) Happy 'lady' day hehe!

      It's time for me to earn more :(

      Delete
  7. how come CPF never include u as a influencer in their recent budget campaign that made the news.

    ReplyDelete
    Replies
    1. Hi MIM,

      No la.. I’m just an ordinary Singaporean that is expressing my thoughts silently on this platform :)

      Not influencer nor looking to me one. CPFB won’t ask me one hehe. I’m really honoured by your comment tho!! Thanks HAHAHA.

      Delete
    2. carry the CPF logo, stand outside the busiest street in japan.
      wear the kawaii jepun short mini skirt.. with the knee length white socks, tie your hair sailermoon style...
      lets see if CPF will notice you, (or anyone for that matter!)

      Delete
    3. Wow FC, that sounds like some cosplay character! I would probably be on STOMP or hardwarezone instead! HAHAHA! In that case, I’ll need to get my tickets ready :)

      Delete
    4. With that kind of over-the-top display, SD will certainly find himself included into EDMW's "Yishun Siao Lang" hall-of-infamy thread even if he's not from Yishun. Lol.

      Quote.
      carry the CPF logo, stand outside the busiest street in japan.
      wear the kawaii jepun short mini skirt.. with the knee length white socks, tie your hair sailermoon style...
      lets see if CPF will notice you, (or anyone for that matter!)
      Unquote.

      Delete
  8. An excellent writeup that clearly shows your sensibility, prudence and maturity of thoughts.
    I've forwarded the link to my friends and encouraged them to read and learn. Some even have around your age group and I won't be surprised a few will be envious.

    ReplyDelete
    Replies
    1. Hi Laurence,

      Thank you very much for the kind compliments! I believe there's much more ahead of me for me to learn along :)

      I hope your friends will not mind my post ! :(

      Delete