All about CPF today – Part 4

On January 11, 2024January 27, 2024 By RistrettzIn CPF, Finance, Interest, New Ideas, Personal Finance Series, Retirement, Robo Advisors, Wealth & HealthLeave a comment

Understanding the CPF

Whenever or do we ever discuss the CPF system with friends and family. The actual fact is that I never really do unless it is time to do something about it. That involves tax season or even property tax season. I do feel that it is a system that we think we all know but once we delve deeper, there’s always something new to takeaway.

Let us also face it. It is a dry topic and a very long-term one. It tries to mimic a pension fund of some sort with some level of control yet it works differently for different people. I can understand why some people come to dislike the policy but in general, there’s not much hate around it. We also have to be factual that Anti-government does not mean you need to be anti-CPF. Some might differ but I think all tools that bring one to the final goal are the ultimate endpoint.

Contribution rates according to age and wages

The rules are pretty simple. Understanding that before 55 years of age, all employees have to contribute 20% of their gross salary. Subject to the ordinary wage cap which we have discussed previously.

After 55 years of age, the contribution starts to decrease. This makes sense since the decrease in employer contribution, older employees will become less expensive and it helps to make employment more affordable.

After 55 years of age, the OA and SA will be combined and set aside in one’s RA to safeguard a monthly payout in the later years. This is probably why the contribution rates start to decrease then. Further, with increasing age, the focus will be more on wealth preservation and income that can be utilized. That would be the next reason why the contribution is lesser as time goes by.

Undersdtanding CPF — Contribution by age from the CPF website

Understanding the CPF – Did you know? What contributes to your CPF?

Understanding that CPF system – These mainly include all forms of payments that are paid out to the employee by the employer.

Basic Wages
Overtime Wages
Bonus
Cash Incentives
Commissions
Cash Incentives

Understanding the CPF – Did you know? What does not contribute to your CPF?

Termination/Retrenchment Benefits
Reimbursements
Benefit in kind

Disclaimer

If you like what you are seeing, do remember to check them out and do your diligence. There is no one-size-fits-all investment strategy and no one solution to life. Join my telegram group to find out more about deals and join the community to connect for ideas: Life Journey Telegram

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

All about CPF today – Part 3

On January 10, 2024January 27, 2024 By RistrettzIn CPF, Finance, Interest, New Ideas, Personal Finance Series, Retirement, Robo Advisors, Wealth & Health1 Comment

All about CPF accounts and CPFIS

It is very interesting to know that many people are interested to know about the CPF. Hence, I’ve decided to do a simple part series that focuses on selected and focused information so that it doesn’t take too long to read and understand. In my previous CPF series, we discussed the increase in CPF contribution on Ordinary Wages aka Salary.

CPF is a complex retirement module indeed and it has different accounts. CPFIS in turn has its pros and cons. One needs to understand it to use it to your own advantage. Most of these come at retirement as a motivation or tax deductibles. That said, it works differently for everyone so good to be in the know. One can be anti-government but we should applaud a strong and stable governance. This in turn will relate to a trusty CPF system not everyone can replicate.

Types of CPF account and what they can do

Ordinary Account:

Happy Retirement is what you want to hear — Be happy retiring and be happy doing what you do when you retire

Though CPF is restrictive OA is the most flexible out of all three accounts before one turns 55. This is the account that one can use to invest a portion into selected CPF-approved investments (CPFIS), gold, approved insurance, and also property payments. One can look at index investing using a Robo Advisor of some sort. such as Endowus or StashAway. Endowus ticks a little better for me for the investing portion. If we look at the iShares US index Fund S&P 500 that Endowus offers to track the S&P500 (100 years of historical performance). I also have my funds consistently invested in them and it has worked well. What I really like is that they care about who invests with them and the fees.

You can check them out here at Endowus or in my previous posts which I slowly grew to like over 2 years. Asset Allocation does not time the market and during times when I’m distracted, I do not need to log into my app to proceed with my own adjustments or take action. (These take time and effort)

Special Account:

This account builds the Retirement account that will eventually be used in the retirement account in the form of an annuity. More restrictive than the OA, it has limits and can only be utilized for retirement-related financial products (Nothing much can be done in this account) It is also known that OA can be transferred to MA – This is well known to be irreversible once you have done so. Do consider your circumstances before you do anything)

Medisave Account:

This is the most restrictive of all and as it states Medisave means it can be used for certain medical payments with a limit. The MA account is also allowed to be used to purchase medical-related insurance.

Retirement Account:

This account is non-existent until you reach 55 years of age at the point of writing. This is the combination of your OA and SA to form the annuity payout.

There are also many ways for one to contribute to your own CPF accounts. I’ll say it is a good problem to have if you need to think of fresh ways to contribute to your own CPF funds. (i.e. self-employed and looking for proper and forced retirement). Side note that CPFs are monies that are locked away in the form of something like a trust so one can’t claim your assets in your CPF (If for some reason, you are locked up in a situation of some sort)

Some ways to look at contributing to your CPF accounts

Make cash top-ups or Top up Cash + CPF

- Your OA, SA, and MA – through these cash top-ups, you can earn interest. Note that these are long-term retirement uses.

- Can’t say that too many times if you want to do forced savings.

Matched Retirement Savings Scheme (MRSS)

- If you’re 55 to 70 and have yet to meet the current Basic Retirement Sum (BRS), you can make cash top-ups to get higher retirement payouts. The Singapore Government will match every dollar of cash top-ups made to your RA, up to a maximum grant of $600 a year. The scheme will run from 2021 for five years for a start. (Taken from the CPF website)
- Helping your parents or in-laws with the CP scheme helps you and the older folks as well.

Invest your OA savings

- We discussed the option of investing in a wide range of investments to grow your retirement nest egg in the form of the CPF Investment Scheme which is very highly restrictive.
- As for SA, you can invest in those too but even more restricted.

Voluntary Housing Refund

- If you have used CPF to purchase your house and have excess cash. One way is to kind of payback voluntarily. However, recently the cash returns outweigh that of CPF returns so with careful management, it does seem like it is better to hold cash but it is a better yielding instrument for now.
- Too complicated? Leave it as it is and put the cash via this method to earn that CPF consistent return.

For CPFIS/Investing – The reason for Endowus

Like a broken recorder, why do I like using them for now:

Endowus is the first and only robo-advisor to be approved by the CPF board.
100% trailer fees back to the consumer, not the fund management fee. This is really one of a kind I’ve seen so far.
They do have a decent team that makes sense when introducing their platform in my personal opinion.
I believe all retail investors should try them out because of how they are trying to disrupt investing and make investing work for everyone.

If you decide to sign up with Endowus, do remember to use my referral code: https://endowus.com/invite?code=EDZ8M

Disclaimer

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

All about CPF today – Part 2

On January 8, 2024January 27, 2024 By RistrettzIn CPF, Finance, Interest, New Ideas, Personal Finance SeriesLeave a comment

Ordinary Wages & Cap

Happy 2024 everyone! Everyone knows 2024 has a staggering change in CPF and the government has done that to help businesses to adapt. It is strange though that the last post about CPF had a bit of viewership. Perhaps the interest in CPF has really changed over the years.

Last Sep 2023, the salary cap (OW) was increased to SGD 6,300, and from 2024, there will be an increase to SGD 6,800. What that means is that more of the money that you earn goes into your CPF aka retirement account every month. Your employers will also have to contribute more to your CPF. I can’t say if that is a good or bad thing.

I guess we are touching on a sensitive part of everyone’s life. Your Salary. Salary are always a sensitive part of most people’s discussions. However, these are all hard truths that we have to come to terms with. Some people do have that special negotiation skill to make more while doing the same thing. We just have to work more productively.

Sidetracking a little, everyone is a salesperson to themselves so don’t say that you don’t do sales. When you go for a job interview, you are selling yourself for the package that you think you are worth. You will need to justify your costs to the hiring manager.

Back on track again, today we are focusing on the monies that go to your CPF. Regarding the monies on CPF, please note the statement on the CPF website that states that:

(a) The CPF Ordinary Wage (OW) ceiling limits the amount of OW that attracts CPF contributions in a calendar month for all employees. The OW ceiling will be raised from $6,000 to $8,000 by 2026, with the first increase to take place on 1 September 2023. The increase will take place in four steps to allow employers and employees to adjust to the changes.

This means that the changes are made to let business manage their cashflow instead of a bang…a 2k addition to employers’ contribution and less take-home pay for the employee (Since 2023 costs, inflation, and goods have all increased)

(b) There will be no change to the CPF annual salary ceiling of $102,000, which sets the maximum amount of CPF contributions payable for all salaries received in the year, inclusive of both Ordinary Wages and Additional Wages.

This actually means that people who have more resources than the rest will not be able to game the CPF. This is pretty fair in my opinion since this is a tool to help Singaporeans whether they have little or a lot more resources. However, the truth is also that when you have more, there’s more that you can do that others can’t. The only takeaway is that the rich get richer but only at a cap.

(c) There will be no changes to the Additional Wage ceiling and CPF Annual Limit, where they will remain at [$102,000 – Total Ordinary Wage subject to CPF for the year] and $37,740 respectively.

Same points as (b) above. There’s that cap that restricts more from getting more if you know what I mean.

I’m quite sure everyone is aware of this but probably left that somewhere. I’m just bringing it back since the changes took effect this year. I took this off the CPF website where the Salary OW cap process will happen.

Just a disclaimer that everyone’s situation is different here so it is important to stay in the know so that you can plan your finances in advance. As the saying goes, if you fail to plan, you are planning to fail:

This is something one cannot control. Employee or Employer. We can only embrace the change.
Let’s look at it positively. This will compound interests for many and help build or supplement the CPF retirement nest.
My thoughts are that this actually does hurt business owners a little more. Over time, these staff costs will indirectly translate into services, items, goods, and whatever is sold to consumers or businesses.

In my next CPF series, I will share or talk about CPF programs and how to help your parents or elders who do not believe in CPF (Or rather too complicated to understand) You just don’t reject free money.

Disclaimer

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All about CPF today – Part 4

Understanding the CPF

Contribution rates according to age and wages

Understanding the CPF – Did you know? What contributes to your CPF?

Understanding the CPF – Did you know? What does not contribute to your CPF?

Disclaimer

All about CPF today – Part 3

All about CPF accounts and CPFIS