My CPF Strategy

Hi everyone,  hope all is well. The markets have been getting higher in valuation and I’m unable to find deals that within my target range. Turned my attention to the CPF system which takes 20% of our monthly salary. This definitely warrants our time to know better about the system and how we can use it to our advantage. I’m sure all of us has heard people complaining about the CPF system, how the government locks up their money and the money cannot be seen BUT do you think a prosperous country like Singapore would try to do harm to its citizens?
I view the system as being here to:
1) Help us save money for our golden years
2) Safety net in case our investments or business goes bankrupt
We need to help ourselves in order for the government to help us. If there is no trust in the system then there is no point in reading on.

So what can a millennial like me do to make CPF work in our favour?

1. Transferring OA to SA
OA pays us 2.5% while the SA pays us 4%, an additional 1.5%. Don’t belittle this 1.5%, when compounded over a period of time, the end amount will be vastly different. As I would need buy a house in the near future, I would look to my CPF OA to pay the down payment. Assuming a flat of 500k, with the staggered down payment scheme, we would only need to pay 5% initially which works out to be 25k. Divided between us would be 12.5k, therefore I would have at least 20k in my OA and transfer the remainder to my SA to compound.

2. Topping up Special Account
I have been topping up ~$550 monthly into my CPF SA to the max of 7k per year. Being able to get tax relief up to my top up amount and compound my money at a secure 4% rate is a dam good deal – What’s there to dislike about it. Some may say that I will not be able to see the money until 55 and that policies will change along the way. No doubt things may change in the future but we should not worry too much about things that we cannot control. Manage things that we can control like building up our SA fast to Full Retirement sum and let the compound interest power take charge. I do not need to worry if my SA money is locked up til age 55, it is just one pillar of my retirement funds and there are still other sources of investment to aid in my retirement planning. Also, having not to worry whether the economy will collapse or the money will disappear gives me a safe peace of mind.

I like things to be simple and automated (or is it I’m just lazy) and by just doing the above two steps, we will be definitely better positioned in the future. People like ASSI & 1M65 have shown us that these simple steps really work but it is sticking to it that is tough. As long as we millennials take advantage of the time we have, start early, our future selves would thank us. Transfer OA to SA, contribute 550 to CPF monthly – definitely easier than figuring out which stocks to invest in (and you won’t lose money in CPF)


One Comment

  • Anonymous

    I think the concern is that the withdrawal age of 55 will be pushed out to 65 or later. The in-thing for authorities now is to work longer, retire later and they are starting to tweak the laws to support this.

    The 4%-5% is great for risk-free returns. For those in their late-40s or early-50s where the "maturity" date of their CPF funds is within sight, it's probably a good thing to do top-ups. Any policy change pertaining to CPF would also likely not affect them too much, as the govt will likely phase in such changes over time.

    However, if you're already prepared for 30-40 years lockup, then a globally diversified portfolio of equities (including using "look ma no brains needed" ETFs) will have a very high chance of beating that 4%-5% returns.

    You can use MSCI and Portfolio Visualiser websites to verify the long-term returns, and run monte-carlo simulations to assess the probabilities.

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