On recent CPF changes, and how does it affect me?
I love our Singapore government.
She takes really, really good care of all of us, more than we can ever imagine.
I am reminded of my late grandmother, who takes good care of us by cooking us nutritious soups over charcoal, painstakingly preparing the ingredients in the right proportions and boiling it many hours over the stove.
Saving up and planning for our retirement is like boiling that bowl of nutritious soup over many decades - it is not an overnight project. We will only reap the fruits of our labour many, many years later.
We are really blessed to be citizens of Singapore. Recently, I had a discussion with a Finnish friend, and while their medical bills and education are mostly taken care of by the government, their top tax rate is 44%! (Finnish tax rate starts from 12%, rising to a top bracket of 44%, while Singapore's tax rate starts at 0, and rises to a top rate of 24%)
Well, this article is not about taxes, but it does give some context to the hot button topic of the week, after the government announced changes to the CPF.
There are 2 main changes I would like to bring up here, and discuss how we can leverage on that to build up our retirement nest egg:
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The existence of the CPF Special Account has resulted in an unintended loophole. Savings in the Special Account earn a guaranteed interest of 4 per cent but the money can be withdrawn on demand after the CPF member turns 55 — and, of course, has their Full Retirement Sum parked away.
That is why, in line with the principles of liquidity vs returns (higher liquidity, lower returns and vice-versa), the government has chosen to close this loophole by closing the SA after a person turns 55, and channeling the funds into his or her retirement account and ordinary account (OA).
Hence, if a person is keen on getting returns higher than 2.5% invested in the OA, he or she can look at various options: Singapore Savings Bonds, Treasury Bills or certain funds and fixed income products. All these will generate greater returns than 2.5%, but are slightly riskier.
As the ERS is now raised to 4x of BRS, we can also maximise the amount of money in the RA, so that our payout when CPF Life kicks in from the age of 65 will be higher. (CPF Life will give payouts all the way until we go to heaven).
I hope that this sharing will shed some light on the many confusing numbers and regulations with regards to our finances.
As I volunteer regularly with CPF Board , I welcome you to join me in my next public outreach event, whether online or on-site.