CPF – Central Provident Fund is an extremely complicated tool. Similar to many pension funds in many other countries, indeed it is complicated. But it should not stop everyone of us from understanding the tool and benefit it brings when understood correctly. It can even supplement most of our retirement fund. If you are in the sandwich class, all the more by understanding how it can help your parents as well as build for your kids/next generation will elevate the pressure for retirement.

CPF and Retirement

I’m happy to say that retirement doesn’t mean thinking about it when you are about to retire. This fact, many people actually know today. 10 years ago, no one bothered to know what retirement is exactly. The young shun it and the old procrastinate. Just having a CPF account doesn’t mean that you are ready to retire. There is science and literacy and knowledge required to understand what brings about retirement. It can be lifestyle or a state of mind. No one will bother about your money and only you can be bothered about your own money.

Explaining CPF? Nah

I’m not going to explain what CPF is. To understand something, it takes some passion and desire. By paraphrasing what I can see on the CPF website doesn’t help regardless how many times I post this out. But if I managed to intrigue you into understanding what CPF can supplement for your retirement as well as help those around you.

I personally believe that one has achieved the first step and that is taking the effort to know. The next step is to understand what you can do with CPF, this is sufficient to ensure that the interest to manage personal finance is there. The last and third step, is that one will find ways and new ways to build a community around CPF that gives you the best benefit. This is none of my effort – Because one has learned how to fish and feed yourself.

2.5%, 4% and 5% – It does interests some people and some doesn’t like it. Different people have different investment threshold. I don’t quite believe in a strategy for all or a top pick strategy. But yet to some, 20% p.a. is the approach they wish to achieve while others look at just 2% p.a.

When is retirement?

This is a very subjective question. Your targeted age of retirement also matters. The runway to retirement also depends on how old one is. I always have a concept to use the CPF for the very young. Let me set a scenario into your mind. If your new born child has a CPF/MA account and you strictly contribute $5000 a year into the account. Let me just fast-forward to compound this for you.

Compounding interests

a. Compound $5,000 *1.025 (at 2.5% – assume the OA account) or imagine compounding at the SA account at age 1 until age 21 (or 20 years)

b. Compound $5,000*1.04 at age 1 until age 21 (or 20 years)

Initial investment	$    5,000.00
Annual interest rate	2.5
Number of compounding period in a year	12
Number of years	20
At the end of 20 years	$   8,239.32
Initial investment	$    5,000.00
Annual interest rate	4
Number of compounding period in a year	12
Number of years	20
At the end of 20 years	$ 11,112.91

Now, comparing the monthly contribution:

c. Compound $5,000 *1.025 (at 2.5% – assume the OA account) or imagine compounding at the SA account at age 1 until age 21 (or 20 years) + additional monthly contribution.

d. Compound $5,000*1.04 at age 1 until age 21 (or 20 years) + additional monthly contribution.

Initial investment	$      5,000.00
Annual interest rate	2.5
Number of compounding period in a year	12
Number of years	20
Monthly contribution	416.6666667
At the end of 20 years	$ 137,810.04
Initial investment	$      5,000.00
Annual interest rate	4
Number of compounding period in a year	12
Number of years	20
Monthly contribution	416.6666667
At the end of 20 years	$ 163,933.23

Even before your kid goes into adulting, that’s a pretty decent 6 figure savings. This is great for them to kick start their own retirement and FIRE (If that is still a trend in 20 years time)

My objective here is to see how much a longer runway can give the young a headstart. Again, there isn’t a secret formula but a simple long term view.

Disclaimer

This is not a sponsored post. This is purely my own opinion. If you like what you are seeing, do remember to check they out and do your diligence. There is no one size fits all investment strategy.

If you like what I am sharing or if it resonates with you, do use my referral codes here at Referral and Recommendations

The pictures were taken from relevant website for this article. Stay Safe!