What are the ways to put money INTO your CPF?

Reader 'Adam' has been sharing a lot of information from his experience as a post-55er.  Here's another that he shared on ways to put money back into the CPF accounts, which I thought was worth reposting to share to a wider audience who might have missed his comments to another post.

Some people seek ways to extract money out of CPF, and certainly would not be looking at putting money into it!  So this might come across as being strange and would not resonate with that audience. Hah. So skip this if you fall into the above category.

But if you're not, read on!

--
[As shared by 'Adam' ... (with some edits) ...]

I thought it would be a fitting complement to your post on "How are the excess fund withdrawn after meeting the FRS?" with this one "What are the ways one can take to put money into their CPF accounts!"

There are a few ways one can put money into their CPF accounts besides the automatic monthly deductions from your salary and the employers' contribution.

But before I go into the above topic, I would like to highlight again this tip on the best time to make withdrawal from your CPF OA and SA if you wish to only withdraw the interests earned for the year and at the same time keep the principal amounts intact to earn further interest in the next year. This step is important especially if you have substantial money in your SA that you want to "preserve" to earn the yearly 4% interest. The best time to withdraw the interests is in Dec, and you can only withdraw 11 months' worth of interests! That is, 11 months of interest from your SA (for Jan to Nov), and likewise, 11 months of interests from your OA.

Here are the steps one can take to grow your CPF

1. Monthly deductions from your salary. The amount deducted from your salary will depend on your salary capped at $6,000 a month and a further cap of $102,000 per year. What this means is that if you earn $7,000 a month, the CPF deduction (contribution) is based on $6,000. Say, you have 5 months bonus, then the deductions from your full year of salary and the 5 months will be capped at $102,000, giving you the maximum contribution of $37,740 for the year.

2. Have more than one job. If you work two different jobs with two different employers, both employers are obliged to contribute your CPF via the employers' contribution. This way, you can exceed the limit of $37,740 per year contribution to your CPF.
[I was wondering if this is valid though? Thought the cap is an upper bound in totality?]

3. Make voluntary contributions to your CPF. Say you earn less than $6,000 a month and together with your bonus, your annual salary is less than $102,000. You can make voluntary contributions to your CPF any time to hit the yearly limit of $37,740. In my case, after I turned 55 years old, my CPF contribution was shifted to 26% instead of 37% of my salary [which was pre-55]. So I have been doing voluntary contributions to my CPF to hit the $37,740 limit each year.

4. Return money that was withdrawn for property purchase. If you have extra money, you can return the money into your CPF to redeem the amount that was withdrawn to purchase property, including the accrued interests. My wife and I have returned the full amount we withdrew from our CPF OA, including accrued interests, that we had used to purchase our properties.

5. Top up your RA. This one is only applicable to those 55 years old and above. I have topped up my RA to the ERS, and I continue to top up each year to meet the new RA ERS.

6. Invest through CPFIS. This one is a little controversial in that you could lose money through bad investment rather than build your CPF. There are investors who have successfully enlarged their CPF OA and SA through astute investment through CPFIS.

7. Inheritance. You can only receive inheritance into your MA, SA and RA up to the prevalent limit. The rest of the inheritance money will be paid to you in cash. Put another way, you cannot bequeath CPF money into your beneficiaries' OA, you can only bequeath to their SA, MA or RA, and only up to the limit prevailing.

'Adam'

Related:
Maximising CPF (post-55)
How will CPF retirement sums be formed (post-55)
How are excess CPF funds withdrawn after meeting FRS (post-55)

How are the excess CPF funds withdrawn after meeting the Full Retirement Sum?

Presuming that at age 55, you have the necessary CPF Retirement Account (RA) funded, what happens to the rest of the 'excess' money in the Ordinary Account (OA) and Special Account (SA)?  Can we withdraw freely, and how in what order will it be withdrawn from the respective accounts?

Here goes the responses from CPF Board ...

--

Question: If there is still balance in my SA after deducting the sum for RA, will it remain in the SA, or will the balance be transferred to OA?
It will remain in the SA.

Question: And thereafter, is it correct that any time after age 55, I can withdraw any balance left in both OA and SA?
Yes, your understanding is correct.

Question: Which gets deducted first if I choose to withdraw? Must it be from SA first, before OA? Or do I have a choice?
The Board processes your withdrawal in the following deduction sequence:


Question: Is it true that I can then withdraw as often as I want after age 55? For instance, can I withdraw a monthly sum of my choosing till the balance in OA and SA are depleted?
Yes, you can withdraw all the savings in your SA and OA at any time from age 55 (i.e. multiple times in a year), provided you have set aside the FRS in your RA.
--

Related:
What happens to my CPF savings when I turn 55?
How much CPF savings can I withdraw from age 55?
How much CPF LIFE monthly payouts will I receive?

How will the CPF Retirement Sums be formed upon age 55?

So we have heard about the various CPF retirement sums, i.e. Basic (BRS), Full (FRS) and Enhanced (ERS), which gets committed upon reaching age 55, and for which these will generate lifetime of payout from age 65 onwards (or deferred till age 70 if so decided).

Here's an interesting response that a friend of mine obtained from CPF Board on his queries. It provided details on how the FRS and ERS will actually be formed.

--
[edited extract]

Question 1: Instead of FRS or ERS, can I choose any amount that is in between, even though I have enough for ERS at age 55?


Allow us to share with you how Retirement Account (RA) will be created for you when you turn 55.

By default, the Board will create your RA when you turn 55, by setting aside the applicable Full Retirement Sum (FRS) in the RA.

The transfers of CPF accounts to make up the FRS will be made in the following accounts and sequence:
(i) funds in the Special Account (SA); and
(ii) if (i) is insufficient to set aside the FRS in full, funds in the Ordinary Account (OA) will also be transferred to your RA to make up the FRS.

The process of setting aside the FRS is automatic and applies uniformly to all members turning 55.

After the RA is created (with FRS) at 55, you can then transfer the remaining savings in your SA and/or OA of any amount and at any time to your RA, as long as it is within your topping-up limit. The topping-up limit is the maximum amount you can top up to RA.

Topping-up limit in RA is computed as follows:


Hence, if you wish to transfer an amount lesser than the topping-up limit in RA (i.e. setting aside a retirement sum between FRS and ERS), you can do so as well.

Question 2: If there is still balance in my SA after deducting the sum for RA, will it remain in the SA, or will the balance be transferred to OA?


It will remain in the SA.
--

For more information:
What happens to my CPF savings when I turn 55?
How much CPF savings can I withdraw from age 55?

Related:
Maximising CPF Post-55

Maximising CPF Post-55

It's really great to hear from the post-55ers on their interesting ideas and experience in maximising retirement benefits.  Here's one from 'Adam' that cropped up in a previous conversation which I found especially interesting ... (re-posted with edits):

--
OA: Ordinary Account
SA: Special Account
RA: Retirement Account
FRS: Full Retirement Sum
ERS: Enhanced Retirement Sum
--

How do you protect your SA money from being taken to form the RA upon reaching 55 years old?

As it stands now, money in the SA earns 4% pa of interest. Likewise money in the RA also earns 4% per annum of interest. For those 55 years old and above, CPF also gives 6% per annum to the first $30,000 in your RA, and 5% per annum to the second $30,000 in your RA, while the rest of the money in your RA earns 4%.

So for example, I have $176,000 in my RA, the interest my RA money would earn in a year is: $176,000 x 0.04 + $900 = $7,940. The $900 is derived from the 6% and 5% interest for the first $30,000 and second $30,000 respectively.

Now, the issue is, how to "prevent" the CPF from taking money from your SA to form the FRS in your RA when you turn 55?

Supposing I am now 54 years and 11 months old, and I have $230,000 in my SA. Next month, when I turn 55, CPF would automatically take $176,000 from my SA to form the FRS in my RA, leaving me with only $54,000 in my SA. I would rather that CPF take the $176,000 from my OA to form the FRS in my RA and leave my $230,000 in my SA intact to earn 4% interest pa.

Right on my 55th birthday, I woke up in the morning, logged in into my CPF account and lo and behold, my RA was created. At that time, the FRS was $161,000, and all the money came from my SA with a little leftover.

Right from the start, I had planned to top up my RA to ERS. If I were to use my CPF money to top up my RA to ERS, they would take money from SA first before taking money from the OA. Since I didn't want my SA to be hollowed out, I had to use cash ($80,500) to top up my RA to the then ERS of $241,500.

Every January 1st since then, I have been topping up my RA with $7,500 in cash, to keep up with the new ERS limit. The interest earned in your RA each year is not counted towards the new ERS limit. Let me explain:

This year the ERS limit is $264,000. By next year, it would be increased by $7,500 to the 2020 limit of $271,500. My current RA amount is $296,000 including the interests earned over the few years, but I would still be able to top up another $7,500 in January 2020.

So you can indeed continue to top up your RA to meet the new ERS amount of each progressive year up till you are 70 years old. 70 years old is the latest age at which you can join the CPF Life plan. 55 years old is the earliest age at which you can opt to join the CPF Life plan.
[This para may be misleading. Firstly, what Adam is saying is that a CPF member can choose to delay CPF LIFE payout till age 70. So up till then, top-ups to RA up to ERS are still possible. Secondly, a CPF member can decide which CPF LIFE scheme to select any time after age 55, up till a decision is made to begin payout (latest by age 70).]

The biggest hurdle (and pain) is the very first top-up from the FRS to ERS. For those turning 55 years old this year, the FRS is $176,000 and the ERS is $264,000, this makes the top sum to be a whopping $88,000!! This is no small sum and takes some saving effort to build up. So if you intend to top up your RA to ERS, you must plan and start saving early. After that first top-up, every year is $7,500, a more manageable sum.
--

How's that for maximising our CPF?

--
[Appended ...]
Stay tuned for next two weeks' posts on CPF Board's responses to some related queries.

Using CPF-OA as a High-Yield Savings Account

Property is really expensive in Singapore. For most, buying a home is pretty ingrained as a basic need to establish a family. So it is often the case that we would tap on our CPF as a source of cash to fund the purchase of a house.

We are poor savers, by and large, particularly at the tender ages of 20's to 30's. Being new in our career, with a salary at its lowest point, and yet filled with floords of commitments and distractions. Plus, we're probably dead silly in the way we manage our money anyway.

So we raid our CPF-OA (Ordinary Account) to help fund a huge chunk of the property purchase and continue to ride on our CPF-OA to pay the consequent installments. And we thank the gahmen for forcing us to compulsorily contribute to this. Over time, it can be a really huge chunk that we take out of our CPF-OA.

Now, there is actually no requirement to pay it back, unless we sell away our property. It remains optional to pay back what we took, plus accrued interest, otherwise. And so we never have to if we don't wish to, till the day we kaput (transit to the netherworld).

So here's an idea:

Suppose you are already past 55 years of age, and you have fully funded the Full or Enhanced Retirement Sum (FRS/ERS) into the CPF-RA (Retirement Account).  And because you have achieved FIRE, you are happily retired, drawing a passive income that is generated from a range of investment instruments. Well done! Being the studious hack that you are, you are looking for ways to manage this cash flow generation.

Suppose you generate $50,000 a year, but you only require $4,000 a month to cover monthly expenses.  Instead of keeping the remaining $46,000 for the rest of the year in cash in a bank savings account at a pathetic savings interest rate, what if you do a voluntary cash refund of CPF savings used for housing into your CPF?  The money goes into your CPF-OA where it earns 2.5% (or whatever prevailing rate). But because these are excess over the fully funded FRS/ERS, we can request to withdraw anytime, any number of times, as you're already post-55. So we can gradually withdraw $4,000 per month thereafter. Rinse and repeat.

Now, 2.5% (or whatever it may be) is pretty much risk-free and not to be scoffed at.

Is this workable?  Any catch?

--
This is what the CPF website says:

You can refund any amount, capped at the full principal amount you have withdrawn for the property with the accrued interest. Please complete the Application to make cash refund of CPF savings used for property (HSD/VR) (PDF, 0.4MB) and enclose a cheque/cashier's order in favour of 'CPF Board' for the amount you want to refund. Mail both the form and the cheque/cashier’s order to: Central Provident Fund Board Housing Schemes Department Robinson Road P.O. Box 3060 Singapore 905060 Alternatively, you can deposit the cheque/cashier's order and the form at any of the CPF service centres. The refund will be made to your CPF account within 7 working days from the receipt of your cheque/cashier's order (subject to fund clearance).

I don't understand why they still go with cheque though. *shrug*

End of Life - What happens to the CPF?

While we are still growing up in our twenties, CPF is just a 'sinkhole' where part of our salary ends up in. Goes in, never come out.

Over time though, as we progress towards our thirties, it becomes the source upon which we can only be glad that there is money to help pay for our housing.

And when you are getting closer towards retirement in your forties, you think about how to accelerate the build-up of CPF to get the desired retirement funds desired. As well as tax-deductible top-ups to reduce the burden of taxation.

In our fifties, we start to want to know how the CPF money will fund CPF LIFE to support our retirement.

By the sixties, we are looking forward to finally collecting CPF LIFE payouts.

But what about upon death? I know it's morbid. But that is really something important to take care of as well. A CPF nomination needs to be made to determine how the CPF money would be distributed.

What's the significance?

A CPF Nomination covers:

• CPF savings in the Ordinary, Special, Retirement and Medical Accounts
• Unused CPF Life premiums
• Discounted SingTel shares

A CPF Nomination does not cover:

• Properties bought using CPF 
• Payouts from Dependent Protection Scheme
• Investments in CPF Investment Accounts - i.e. CPFIS-OA and CPFIS-SA.

Well, years ago, Pa and Ma both did their respective CPF nominations. That was a good thing. Trouble is, nobody knew who they actually nominated!  Over time, we did eventually figure out that they had nominated each other. Perhaps they should have told somebody or have the information attached to a Will for reference?

When Pa passed away some years back, CPF Board automatically issued a cheque of the balance left in his CPF in Ma's name and sent to her home address. No actions were required from anybody. Apparently, when the death certificate was applied, it automatically triggered notices to various government agencies, including CPF Board. And CPF Board took action to process accordingly and the nominee would receive a cheque within two weeks.

More recently, Ma passed away too. Unfortunately, her nominee was my Pa. So how?  Since he was no longer around.

• We looked around for a recent copy of her CPF statement. Took a while to find it.  There wouldn't even be one if you had accepted the paperless option! The CPF statement would indicate if she had made a nomination, and in which year. So that was a clue.
• We considered checking her CPF online, but she didn't even have a Singpass account to begin with! Best to have one. 

Well, apparently, if the nominated parties are no longer alive, the CPF money gets transferred to the Public Trustee who will investigate and distribute the money according to the Intestate Succession Act. That would take about 2 to 4 months to conclude, and there is some fee involved. It takes a bit longer. I hope it works out.

Related Information:
For a quick overview: CPF Pamphlet on Losing Loved One
And for more details: CPF Guide on Preparations for Death
If you're hearing some nonsense, read this: Government Debunks False Message
For a quick idea of the Intestate Succession Act: Dealing with the CPF Monies of Someone Who Has Passed Away

Can You Top-up CPF-RA Beyond FRS to Achieve ERS After Age 55?

Here's something that I've been puzzling about regarding the CPF retirement sum.

Say you only managed to accumulate enough for a Full Retirement Sum (FRS) of $176,000 by age 55. But you actually wanted to achieve the Enhanced Retirement Sum (ERS) of $264,000. Can you still do so somehow later?

Up to age 55, you can contribute to the Special Account (SA) up till the FRS amount. And at age 55, the Ordinary Account (OA) and Special Account (SA) are then poured into the Retirement Account (RA). But let's suppose you didn't have any money left in the OA, and the SA had $176,000. So the resultant RA would only be $176,000.

Post-55 though, you can contribute to the RA up to the ERS amount.  But how do you move from FRS to catch up all the way to ERS? Is it a matter of topping up the difference of $88,000?  I think not.

This article offers some clue (see page 9): CPF Retirement Planning Booklet - Be Ready With CPF.

"The retirement sum that you set aside at age 55 will grow with interest over time. The table below shows how much your retirement savings will grow to at different ages. If you would like to have a specific level of monthly payout, these are the estimated RA savings you should set aside at the various ages. Do note that the amount you can top up to is capped at the current Enhanced Retirement Sum for members aged 55 and above." 

For the ERS of $264,000 at age 55, it is $393,400 at age 65. This means that in the course of 10 years between age 55 and 65, you can contribute to the RA up till $393,000 at age 65, in order to catch up to the equivalent of FRS.  Whereupon, the estimated payout would then be $1,960 to $2,110 per month.

Is this the correct interpretation?

Related:
CPF Retirement Booklet - Your Assurance in Retirement

A Lifetime of Income for Retirement

Recent articles mentioned local survey results which suggested that an aged single could live off $1,379 per month. That works out to be $16,548 annually. A portfolio of $413,700 could generate that income perpetually based on 4% extraction (i.e. annual income needed x 25). But we need to understand that this is for a minimalist lifestyle for a single.

Referencing the last published Department of Statistics report on Household Spendings by Age Group, the average monthly household spending of those aged 50-59 was $4,837 (or $58,044 annually), and drops to $3,586 (or $43,032 annually) for those aged 60 and above.

But these were based on 2012-13 survey data. If we compound these with an estimated annual inflation of 1.5% (inflation has been low in recent years) for 6 years (from 2013 to 2019), the corresponding figures would be $63,468 (aged 50-59) and $47,053 (aged 60+) respectively.

Summary of data points:
For an annual spend of $16,548, perpetual income portfolio is $413,700.
For an annual spend of $58,044, perpetual income portfolio is $1,451,000.
For an annual spend of $43,032, perpetual income portfolio is $1,075,800.
For an annual spend of $63,468, perpetual income portfolio is $1,586,700.

For an annual spend of $47,053, perpetual income portfolio is $1,176,325.

So indeed a household spend of $120,000 annually would be quite a FAT FIRE to retire on. It should be pretty comfortable.
--

Somebody mentioned to me that assuming he retires at 65 and lives for another 25 years, he would need $3,000,000!  $120,000 x 25 = $3,000,000.  And if he was to retire earlier, he would need even more. So if he was to plan for 30 years, that would be $3,600,000!

I said no, that's not correct. Using the rule of 4%, he would only need $3,000,000 to generate a perpetual lifetime income of $120,000 annually.  $3,000,000 x 4% = $120,000.

And thanks to a little hack, all thanks to CPF, it's not even necessary to have $3,000,000 to generate $120,000 annually.

$3,000,000 for Retirement; How about $1,750,000 instead?

So there was an article in the papers a few weeks back that said a $3,000,000 portfolio is needed for retirement. That seems daunting. Scary. Seemingly beyond the possible.

I presume that magic number was derived based on a need to generate $120,000 per year for 4% extraction from the $3,000,000 portfolio.

But this can be reduced significantly for a Singaporean couple who can max out their CPF accounts. If both husband and wife (assuming of same age) can meet the Enhanced Retirement Sum ($250,000 to $275,000), they can collectively generate close to $50,000 per year from age 65 from CPF LIFE payouts (CPF LIFE Estimator).

That being the case, the investment portfolio will only need to generate the remaining shortfall of $70,000 per year. That means a portfolio of $1,750,000.  Seems far less daunting.

So all in, that is a combined investment portfolio of $1,750,000 investment portfolio, plus $250,000-$275,000 each in CPF-SA account.  More do-able?

For more info on CPF LIFE:  How much CPF LIFE payout will I receive?

p/s: Ok ok, so if you math it up, it should be $2,250,000 to $2,300,000 in terms of net asset value.

ElderShield - A Severe Disability Insurance Scheme

Well, so as expected, and rightly so, CPF Board cannot release information of its member without being authorised by the member. [Dilemmas Dealing with End-of-Life]

But what CPF Board was able to accede to was to check if she is covered under ElderShield.  Must say CPF Board was responsive and helpful. 

So here's an extract of their response:

"ElderShield was first launched by the Ministry of Health in September 2002 as a severe disability insurance scheme which provides basic financial protection to those who need long-term care, especially in their old age. It provides a monthly cash pay-out of $400 for a maximum of 72 months to help pay out-of-pocket expenses for the care of a severely disabled person. The maximum entry age to be eligible for ElderShield cover is 64 years old.  Your mother was not covered under ElderShield since she was above 64 years old when it was launched." 

Unfortunately, it turned out that my mother was not covered.  Too old lah.  Oh well.  *shrug*

p/s: Are you covered?

Dilemmas Dealing with End-of-Life

It's complex enough building up a wealth portfolio towards financial independence. I think the end-of-life part gets equally complex and deserves attention.

Here's the scenario and I welcome any suggestions how to go about it ...

My 90-year old mother lives with two of my siblings. She has not been in the best of health in recent years. Most recently, she suffered yet another fall at home and was evacuated to A&E. While at the hospital, she suffered a stroke. She is now bedridden and totally unable to communicate, or do anything whatsoever on her own accord. 

Nobody in my family knows whether she is on ElderShield.  If she does have ElderShield, I am quite sure she would qualify for the payout.  She satisfies all the conditions.  But how can we go about checking if she has ElderShield?

[Else, any ElderShield insurance she may have is as good as useless?]

Nobody is aware if she had made a CPF nomination.  There is a general consensus that she did. But nobody has a clue who she nominated. Is there some way to check?  The thing is that I was entrusted with a sum of her money to take care of for her.  Her CPF Medisave Account is apparently depleted. So I thought, why not top up her account with some of this money so that there is ready cash to pay her mounting hospital bill.  And if unused, it would earn 4%+.  But then one of the siblings pointed out that if she should unfortunately pass away, the CPF balance would get distributed to whoever was nominated.  And this may be inconsistent with her Will (for which she did do one). Is there any way to check who she nominated?

[It led me to think. If my wife and I made CPF nominations, and we both knew what each did. But our children don't know. Should one of us have passed on and the other is bedridden, how will our children be able to deal with the situation?]

What can be done now?

24 Tales in the Journey to Wealth

RETIREMENT

"Financial Independence, Retire Early" (FIRE) - that seems like a wonderful catch phrase to set the flames going. What does it take to achieve this burning desire? I think it boils down to a magic number.
[1. http://lizardorealm.blogspot.sg/2015/05/light-fire-can-i-retire-now.html]

STOCKS

To achieve this outcome, I invest in the market, diversified across market regions, namely Asia Pacific (except Japan), global emerging markets, the US, Europe and Japan. 

Unit Trust.

I use funds from the Supplementary Retirement Scheme (SRS) and CPF OA and SA funds to invest into Unit Trust on the Fundsupermart platform. Since each year I can contribute up to to $12,750 into SRS, that is the capital injection that goes into this portfolio. This unit trust portfolio is further complemented by ETFs. Fees in Unit Trusts are relatively higher compared to ETFs, but the latter tends to be less liquid.

[http://lizardorealm.blogspot.sg/2015/01/the-performance-of-unit-trusts-in-2014.html]

Singapore Stocks.

A value investment approach in dividend paying stocks can be most rewarding. I diversify across the Singapore stock market by buying a dozen stocks (or two!) to spread the risks. The wonderful part of this is that I can happily collect dividends to reinvest while waiting as well. Of late, the dividends can run into an average of $1,000 a month. This will be the means by which I intend to generate the eventual passive income for retirement. The dividends would have been more, except that I typically take up the script offer (i.e. collect more units of stocks in lieu of cash), so as to continue to build up my portfolio, and at a discount from the market value.

[2. http://lizardorealm.blogspot.sg/2015/04/my-singapore-team-of-dividend-stocks.html]

US Stocks.

Likewise, for US stocks. I invest through POEMS which hold the US stocks as a custodian account. US stocks (if you pick carefully!) have a practice of steady dividend growth. So even if you do nothing, the dividends tend to hold stead or growth with each passing year. The only problem is the 30% withholding tax on the dividends. The custodian fee that POEMS charge is quite minimal really, so that I can live with.

[3. http://lizardorealm.blogspot.sg/2015/06/my-us-team-of-dividend-stocks-2015.]

Exchange Traded Funds (ETF).
Since I already hold diversified portfolios of Singapore and US stocks, the rest of the market regions are held via ETF, which complements the Unit Trust portfolio mentioned earlier. I prefer to hold ETFs that pay out dividends - or what I refer to as an Income ETF Portfolio.

[4. http://lizardorealm.blogspot.sg/2015/01/2-portfolios-of-etfs-growth-vs-income.html]

BONDS

The stock portfolios are complemented by bonds and cash. While my plan was to maintain only 10% in bonds and cash (or bond-like instruments), it has typically reached 20%. In addition, I maintain 6 to 9 months worth of expenses in cash instruments.

Preference Shares and Retail Bonds. 

These can be bought off the SGX. The coupon payments, usually half-yearly, provides yet another income stream.

[5. http://lizardorealm.blogspot.sg/2015/01/non-convertible-preference-shares.]

Bondsupermart.
More recently, a wider spread of bonds can also be bought through Fundsupermart. Aside from the few retail bonds, the majority will require hefty $250,000+ investments. Something beyond my reach and need for now, so it's something to keep in view as a future option. As an income stream, perpetual bonds can be quite attractive.

[6. http://lizardorealm.blogspot.sg/2015/05/bondsupermart.html]

Singapore Savings Bond.
This offering from the Singapore Government will be available to retail investor soon. While not a inflation-linked bond, it has some semblance of it. I will most certainly park some of my cash components here. That will serve as an emergency buffer that can be cashed out if needed.
[7. http://lizardorealm.blogspot.sg/2015/04/singapore-savings-bond-as-safe-as-it.html]

Central Provident Fund (CPF).
The compulsory savings into CPF actually is another bond component, offering steady and fairly risk-free growth. The only problem is the lock-in. The lock-in becomes less of a worry for someone like me who is reaching the half-century mark. CPF funds has serveed many useful purposes thus far, especially to fund housing (used), support the kids' education (an option not yet used), or invested into stock or unit trust funds if I prefer to take more risks.
[8. http://lizardorealm.blogspot.sg/2015/02/a-great-retirement-offer-from-cpf.html]

Bank Savings Accounts.
Even the traditional banks can offer interesting saving accounts with higher interest rates. But a bit of acrobatics need to be done. This is the other component of my cash funds.
[9. http://lizardorealm.blogspot.sg/2015/06/how-can-we-stretch-interest-on-our-bank.html]

MAXIMISING SAVINGS, REDUCING EXPENSES

Even as the investment portfolios are being built up, it is also worthwhile to examine options to reduce 'leakages'.

Supplementary Retirement Scheme (SRS).
Taxation is such a killer, especially at higher incomes. One sure way to reduce the tax burden is to contribute to the SRS (and invest the money sitting in SRS!).
[10. http://lizardorealm.blogspot.sg/2015/02/one-way-to-avoid-paying-more-tax-srs.html]

Donations.
And if you have a charitable heart, donation is another way of reducing the tax burden while doing some good deeds.
[11. http://lizardorealm.blogspot.sg/2015/02/another-way-to-avoid-paying-more-tax.html]

Credit Cards.
Some people view credit cards as an evil thing. But used wisely, it can actually help reduce our expenses.
[12. http://lizardorealm.blogspot.sg/2015/06/4-credit-cards-with-great-cashbacks-and.html]

EXOTICS & ALTERNATIVES

There are many exotic options and alternatives to grow that investment pie. But be very careful! Perhaps, it suffices to keep things simple.

Crowdfunding.
A recent trend has been the growth of crowd-funding platforms. These have arrived on our shores, offering the lure of 12% returns or more. In reality, they are even more risky than junk bonds. I am keeping this in view for now.
[13. http://lizardorealm.blogspot.sg/2015/02/moolahsense-embarks-on-new-fundraising.html]

Starting a Business.
This requires more careful considerations. I'm not quite ready for that leap.
[14. http://lizardorealm.blogspot.sg/2015/01/running-cafes-as-business-owner.html]

Inheritance.
One could wait for an inheritance, if there is any to be had! But I wouldn't bet on this.
[15. http://lizardorealm.blogspot.sg/2014/12/20-years-and-200000-mothers-savings.html]

Exciting Bank Offers.
This is an oxymoron. With the exception of the aforementioned special savings accounts, what can they offer that can do better than all the self-help options mentioned earlier given their exorbitant charges?
[16. http://lizardorealm.blogspot.sg/2015/05/a-fantastic-investment-deal-at-bank-or.html]

STAY HEALTHY

Be Healthy.
Most importantly, is to stay healthy. What's the point of an early retirement, if one is in bade health? Or worse, expired early!
[17. http://lizardorealm.blogspot.sg/2014/07/investing-and-dieting-wealth-and-health.html]

Medical Insurance.
But we can never be certain of good health. So medical insurance is a must in my view. Without this, all the savings and investments can be easily wiped out in no time. Sometimes, we really have to spend money to save money.
[18. http://lizardorealm.blogspot.sg/2015/04/thank-goodness-we-had-medical-insurance.html]

Staying Healthy on Cruise.
One can still enjoy life, even while on a food binge on a cruise. It's not that difficulty to stay healthy, really.
[19. http://lizardorealm.blogspot.sg/2015/04/not-too-difficult-to-stay-healthy-on.html]

ANTHOLOGY OF DISASTERS

Con Jobs.
These are just plentiful and are happening everyday. Always worth repeating the mantra, "if it sounds too good to be true, it probably is too good to be true". Greed is our greatest enemy. And the enemy is that person in the mirror.
[20. http://lizardorealm.blogspot.sg/2015/05/rags-to-riches-riches-to-rags.html]
[21. http://lizardorealm.blogspot.sg/2015/02/the-allure-of-gold-treachery-of-glitter.html]

Job Loss.
This can really be painful and disastrous. A family unit that has multiple wage earner helps diversify the risk. But for the single-income family, there really isn't any room. Best to move on and deal with the realities.
[22. http://lizardorealm.blogspot.sg/2015/05/what-do-you-do-if-you-get-laid-off.html]

Extravagance.
A lifestyle of living beyond one's means is a sure road to disaster. Live within your means. What you can't save isn't yours.
[23. http://lizardorealm.blogspot.sg/2015/05/a-millionaire-and-yet-completely-broke.html]

Careless Decisions.
Sometimes, we will make bad decisions and lose money. Hopefully, this doesn't happen too often and too painfully.
[24. http://lizardorealm.blogspot.sg/2015/06/sumiko-tans-money-no-enough.html]

--
"Good health, great wealth!"
Or should it be, "Good wealth, great health!"

Medishield Life - Verification & Information

Seems like we need to verify the household data for Medishield Life at this
link. It's a simple check to confirm the members of the household, contact number and e-mail.

The website at the link also has comprehensive information and calculators related to Medishield Life. The calculator can be used to provide an illustration of the payments needed for the household members for the next 5 years.

Medishield Life replaces (upgrades) the existing Medishield hospitalisation insurance scheme under CPF. This is one type of must-have insurance for every person. 

Existing private integrated shield plans (e.g. IncomeShield from NTUC Income, PruShield from Prudential, etc) are built on top of this - i.e. the private insurers provide additional coverage on top of the underlying Medishield Life.

Even if there are pre-existing illnesses that such private integrated shield plans don't cover, the underlying Medishield Life will still cover those (there may be some loading from CPF).  But of course, that would be without whatever additional benefits the private plan would have provided.

Related:
Thank Goodness We Had Medical Insurance!

4 Financial Options in 4 Months

It's only been 4 months since the start of the year. But if one were to reflect back, it seems like a roaring year with lots of significant changes affecting our personal financial options.

Consider:

• Reduction of lot size for shares from 1000 to 100. So some of the high value shares become accessible.
• Changes to CPF. Interest rates to go up.
• Singapore Savings Bond. Comparatively risk-free bond for the conservative.
• Review of ETF (related: Navigating ETFs) so that more ETFs can be invested by entry level investors.

Seems progressive.

A Great Retirement Offer from CPF

This is possibly one of the most important change in recent decade that will affect our retirement planning and definitely worth reading: Recommendations by the CPF Advisory Panel.

I view with much excitement the proposed option for the Enhanced Payout. With an Enhanced Retirement Sum of $241,500 giving a monthly payout of $1,750 to $1,900. For a couple that maxed this out, that would mean $3,500 to $3,800 of monthly income post-retirement at age 65. That's a hefty sum to meet retirement needs. The recommendations also suggested that this sum can be voluntarily topped up. I hope these can become tax-deductible as well.

I did a quick estimate, if I were to take the same sum of $241,500 (age 55) and achieve an annual rate of return of 6.5% for 10 years (age 65), and withdraw thereafter at 4% per year, I would only achieve $1,511 per month. Of course the difference in my model is one with a perpetual capital retention but with more market risks, whereas CPF's is comparatively risk-free and involves a draw down.

At the end of Chapter 2 of the report, there is a summary data from the household expenditure survey of retirees conducted in 2012/13 . Projected into the future, the per person expenditure works out to be $409.70, $669.70, $931.90, $1,364.90 and $3,170.10 for the respective quintile by 2026 (2% inflation assumed). Assuming at the top end, a retiree couple in 2026 would hence require $6,340. If $3,500 has been met via CPF retirement income, that leaves $2,840 to be met via other means. I figure that would mean an investment portfolio of $852,000 (i.e. $2,840 *12 months / 4%) generating 4% income per year.

Other options effectively retained the current Minimum Sum but renamed Full Retirement Sum at $161,000 with $1,200 to $1,300 monthly payout, and the Basic Retirement Sum at $80,500 (with property pledged) with $650 to $700 monthly payout. These provide options for those who are adverse to CPF holding the retirement savings and prefer to cash out.

CPF and the study team has done a great job in putting together the information packages that are reasonably easy to digest. It looks like MoM has accepted the recommendations. I look forward to the introduction of the Enhanced Retirement CPF package.

Related:
CPF - A Lifeline for Retirement

The Good News About Retirement - How much do we need to retire on?

Just how much do we need to retire on? Some rule of thumbs I've seen suggested 60-75% of last earned income as a reasonable estimate. Others I've seen have highlighted the need to provision more for medical expenses as one ages. In general, there is also the factor of inflation that has to be considered.

In some illustrations on investment returns, the term "real returns" is used. This refers to the return after deducting off inflation. Hence, a real return of 3% against a backdrop of 2% inflation would actually a mean an absolute return of 5%.

In a post on The Good News About Retirement by Darrow Kirkpatrick from US perspective, it was actually suggested that expenses are likely to decline with age, and highlighted health care support from ObamaCare, the enduring US Social Security system, availability of part-time work and bonus cushioning from inheritance. Darrow concluded that a prudent lifestyle and a reasonable effort to save would be pleasantly rewarded by the realities of retirement. Quite a significantly different point of view.

Taking our Singapore context, our equivalent would probably be our Medishield plans and Medisave for health care, pension contribution from CPF Life based on the CPF minimum sum contribution in CPF-RA/SA, and as a bonus, any inheritance comes tax free. We seem in pretty good shape.

Lower Expense Ratios for CPFIS Unit Trust Funds

From a Business Times report, it looks like CPF Investment Scheme (CPFIS) is going to see limits to the Expense Ratios of authorised unit trust funds being lowered. Money market funds for instance will be lowered form 0.65% to 0.35% while higher risk funds (typically equities) will be lowered from 1.95% to 1.75%.

Generally, it's a good idea for unit trust funds to have lower expense ratios as that means less leakage for investors. I guess less profits for fund houses. Some may well exit? My guess is that it will lead to less choices available for unit trust investors using CPFIS.

I wish there could be more fund houses that offer index funds for unit trust instead. The fund houses wouldn't need a large (and hence expensive!) investment team to do stock picking since they would only need to track the index. It would provide investors with a well diversified albeit 'lazy' approach in lieu of buying ETF from the stock exchange.

Currently, there are only the Infinity (US, Europe, Global) series of unit trust that are like that. Unfortunately, their expense ratios do not match up as well with ETFs as they are still comparatively high.

Money as You Grow - Financial Education Resources

Resources on Financial Education are just plentiful on the Internet. Here are several:

Many blogs on the subject of Personal Finance and Investment provide wonderful introductory explanations of these topics.  Investopedia is probably the most comprehensive, the ultimate Wiki for the investment peons.

Orcam Group Educational Resources does a decent job of extending the educational materials further.  You may want to give it a go.

For a kids friendly version, you may want to try the Secret Millionaires Club for a cartoon web series hosted by Warren Buffet.  Warren shares a piece of wisdom in each episode.  Guess he gave up on the adults and decided to start working on the kids instead!

Money as You Grow is a financial education package for children. It is for the US market, with different activities for children at different ages from 3 to 18+.

For Singaporeans, a very good source is the serious of talks organised by SIAS MyMoney series to educate Singaporean investors.

CPF has also been publishing periodically their In Touch magazine to better explain the CPF system and all its intricacies, as well as articles on health and financial education:

SGX is generating a suite of SGX E-Videos to educate the investment public at large. They appear to be in the midst of production, with more videos planned. The clips are actually published on YouTube.

Happy surfing!

Post National Day Rally 2014 - Education, CPF and Infrastructure

The National Day Rally 2014 has come and gone.

Education

So we started with the subject of "education" and discovered the line that multiple pathways to success need not necessarily require a degree. Can't have a whole country of just managers and no doers isn't it? Skilled labour need to be respected in a balanced world. And for a first, we find Prime Minister interviewing a cohort from a wide spectrum. Keppel had a field day of free advertisement. We are re-educated.

Retirement

Then we have Prime Minister becoming a Financial Adviser. As he said, last year he was a Property Agent, but things haven't been looking up, so he has switched to become a Financial Adviser. I thought he did a fantastic job to link the logic behind why property is part of the CPF system, and the many options to monetise the property for retirement income.

I felt his advise for a retiree to continue to own a property, even if staying with their children, a particular insightful remark. He must surely have seen the many cases when the parents had fall-outs with their children, or worse, cheated by their children, and then having no roof over their head. Abandoned.

And so we have the declaration that the Minimum Sum for the CPF Special Account would be raised to $161,000 in 2015, and the statement that there would not be a further increase thereafter, subject to a review from time to time (ah, always leave the option open!). For me, this was a boo-hoo-hoo moment. I had so looked forward to continuing benefiting from the 4% return with a continually revised ceiling. Where else to get this kind of returns for a risk-free investment? Unfortunately that is not to be.

$161,000 it shall be. And no way am I going to pledge my property to cash out half the sum at age 55. I want my full return of $1,200 per month from age 62 onwards (I was previously under the impression that this sum would only be received from age 65).

Infrastructure

Finally, the great infrastructure development. Having discussed about the great airport move from Paya Lebar Airport/Airbase to the expanded Changi Airport over the next few decades along with the Jewel of the East last year, Prime Minister described with much graphical details the great Jewel of the West this year.

We already have Jem and Big Box, and the new but delayed General Hospital at Jurong East. But the elaborate plan looked like the creation of a New York Central Park in the form of the Jurong Lake Gardens. A new monumental go-to place in the form of a new Science Centre, and the possibility of a future Express Train terminal to Malaysia. Certainly a major transformation from the current drab and boring looking Chinese and Japanese Gardens, which for years have languished in a never changing state, seldom used, venues of zero excitement. Transformed, it shall be. "There is only do, or do not", as Yoda might say.

Concluding Remarks

As a foreign dignitary once said, each year he come by Singapore, he sees something new and exciting. The landscape is ever changing. This trend looks set to continue. Change is certainly a consistency.

Looks like the construction industry will continue to have positive prospects in the years ahead. Major infrastructure development will continue to place demand - numerous MRT lines criss-crossing our tiny island, highways realigned and expanded, monumental artistic buildings and gardens rebuilt, bigger and better. The list goes on.

I am inspired by the exciting future of our country with each passing year. Toast!

p/s: Tat Hong (cranes), Kingsmen Creatives (artwork), Pan-United (cement) could be potential beneficiaries?

Views on Youngsters Not Having Enough Savings

On the radio this morning, the DJ was talking about our youngsters not having much savings and invited callers to share their views. The comments that came in include:

• CPF is good enough.
• I'll save, if only my boss is prepared to pay me more!
• I love online shopping, how to save?

CPF is Good Enough

Oh dear, oh dear. CPF, where got enough? It's only enough for the lower income groups. They don't demand as much and so they can get by with the little income stream post retirement. Alternatively, you better have a lot of kids who are good to you. These youngsters might want to read (1) CPF as an asset that generates income (by SGYI), and (2) my past musings on CPF.

Ignorance.

I'll Save, if my Boss is Prepared to Pay Me More!

If he/she does pay you more, you think you'll save? The more you get, the more you spend. That's lifestyle inflation. It's the discipline to always set aside a sum for investment or savings that's going to make it work. Pay yourself first. Take a pay cut - i.e. slice a portion away from the monthly salary to park into savings or investments.

Lack of ownership.

I Love Online Shopping, How to Save?

I don't know how much online shopping one needs. Are those wants or needs? Beyond a certain point, it's just an addiction. Piles of junk and untouched items taking up space and collecting dust thereafter. The pack rat in a modern form.

Indulgence.

Concluding Remarks

It seems the young can't see the need to save and invest. Retirement needs is a future that is still far away.

It is really hard to ask the young to think so far ahead. Living by the day is pretty normal isn't it? Each eve to the next paycheck, the bank account tends towards zero.

We learn so much maths in school, but we never taught our kids to apply the same maths towards financial planning. Wouldn't it be so much more interesting?

Chapter 1 - Algebra, zzz.
Chapter 2 - Calculus, zzz.
Chapter 3 - Graphs, zzz.
:
Chapter 10 - Financial Planning - how it all comes together!?

Education.