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.
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
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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:
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)
Asset Allocation
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 Accounts
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 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
Here comes the late performance report in December 2020 for StashAway. I am still on the risk index of below 20%, split all the risk portion for 3 different portfolio let me understand how I want to do this portfolio going forward. I still maintain that having calculated risk per $ makes more sense in my opinion. It doesn’t mean high risk high rewards although it can give you high rewards.
As I have always preached, the important thing is that I am not left on the sidelines. If Mr Market decides to go either way, it would matter that much to me in my opinion. If Mr Market drops, then I will add on more to the portfolios.
Retirement Portfolio A (risk-14%)
The SRS account since deposit is currently at +3.06% as on 18 Jan 2021 (Time-weighted return). I think this is quite okay as I entered the market at a high before it dropped in March 2020. Performance wise, I think it is decent and also this is a super long term portfolio – I would say close to 25 years horizon so I’ll just leave it there to monitor on the progress.
Education Portfolio B (risk-16%)
This portfolio is set out to be on a 15-18 year investment horizon. It is at 7.61% on 18 Jan 2021 and I think that this is pretty good. I have been averaging in whenever there are market dips. The risk index is at 16% and I will adjust from time to time but try not to touch any of those if you don’t quite understand how that works.
Education Portfolio C (risk-20%)
For this portfolio, I look at this at shorter horizon of 12-15 years so I feel that I need to take on some risk to achieve my goals. This SA risk index is currently at 20% and will take on to be one of my riskiest portfolio. Return is at 14.92% at inception but as I didn’t take a screen shot on 18 Jan, this is on 22 Jan 2021, Not much of it has changed or rather it has dropped slightly but this is just a note to self and measure the monthly performance. Over time, more funds will be added to achieve the targeted invested goals.
Conclusion
So far StashAway has been a great supplement as a robo advisor. I will try to do more regular updates. I’m not sure if I can do that given things have been rather difficult of late and it has been quite busy at work.
2021 should be a test of time for most portfolios. I believe have rebalancing regularly will be the key.
To sign up or try out Stash Away, visit the website and use my referral code at Stash Away Referral
We’ll both get up to $10,000 SGD managed for free for 6 months which is a good deal.
Here comes another Robo-advisor experience from my end. To re-iterate the risk level, I am still at the risk index to below 20% as I felt that there isn’t a need to go all out Risk On going into November. I still think that having calculated risk per $ makes more sense in my opinion as news and information goes on a random rampage.
As I have always preached, the important thing is that I am not left on the sidelines. If Mr Market decides to go either way, it would matter that much to me in my opinion.
Retirement Portfolio A (risk-14%)
The SRS account since deposit is currently at +2.07% as on 11 Dec 2020. Pretty stagnant I would say but I’m not too worried about this long term portfolio. Performance wise, I went into this knowing it was pretty high end of Jan 2020.
Education Portfolio B (risk-16%)
This is something I set on a 15-18 year horizon. It is at 5.78% on 11 Dec 2020 and I think that is okay going at around 6-7%p.a. that I assume going into the end of 2020. I have been averaging in whenever there are market dips. The risk index is at 16% and I will adjust from time to time but try not to touch any of those if you don’t quite understand how that works.
Education Portfolio C (risk-20%)
This portfolio has a shorter horizon of 12-15 years so I feel that I need to take on some risk to achieve my goals. This SA risk index is currently at 20% and will take on to be one of my riskiest portfolio. Return is at 10.14% at inception which I find it fantastic to reach double digits. More funds will be added over time to achieve my targeted invested goals.
Conclusion
So far StashAway has not failed me in a sense that it fits in to my investing style and logic. I wish to put more into the accounts but I can’t bring myself to invest when prices are going higher. However, this is a pretty good supplement in my opinion.
I shall re-look into how I present the performance. Perhaps a more systematic approach so that it is more of a reference instead of just a monthly update.
a. Month on Month
b. Quarter on Quarter
c. Year on Year
To sign up or try out Stash Away, visit the website and use my referral code at Stash Away Referral
We’ll both get up to $10,000 SGD managed for free for 6 months which is a good deal.
Lifejourney 