CPF SA time and income lost due to peer pressure.

Definition of "peer pressure":

A feeling that one must do the same things as other people of one's age and social group in order to be liked or respected by them.

(Source: Merriam Webster Dictionary)






Reader says...
In my 20s, I already had the intention of transferring the monies from my OA to SA.

I also intended to make voluntary contribution to my CPF accounts at that point of time.

I told my friends about my intention and they criticised my plan and called it a "stupid" idea.

As a result, I did not execute my plan.

I finally took action when was 38 years old two years ago. 

I transferred the maximum allowed from OA to hit FRS in SA without telling anyone then.






Of course, my OA was significantly reduced after the transfer.

Going forward two years, my OA balance surpassed my SA once again due to mandatory contribution from my active employment.

I have no regrets doing the OA to SA transfer.

I only regret succumbing to peer pressure and not doing this in my 20s.






AK says...
Yes, doing OA to SA transfer in our 20s would make the government work a lot harder in building our CPF savings to meet the FRS much faster.

People sometimes say that 4% interest in the SA is only 1.5% more than 2.5% in the OA.

I always tell them that it is not 1.5% but 60% more!

Add the magic of compounding, it becomes much, much more. ;)






Peer pressure can be a terrible thing.

Some things we should never do despite what our peers tell us.

Some things we should go ahead and do despite what our peers tell us.

If our facts are right and if our reasoning is sound, stick to our plan and ignore the noise.





AK anyhow talking to himself only lah.

I am not peering at you.

I am not giving you pressure.

No peering and no pressure hor.

Related post:
1. Bigger retirement fund with CPF-SA.
2. Much money in SA from the government.
3. Hit FRS in SA by age 32!
4. FRS in CPF SA at age 30?

What is behind hitting the FRS and what is our plan?

In the last few days, I have been sharing stories of young readers hitting the FRS in their CPF-SAs.

Although it is meant to be encouraging, it has also caused some readers anxiety.

I guess it is just like getting mixed response from readers after sharing my own CPF numbers over the years.

"One type of rice feeds hundred types of people."

Direct translation of a Chinese saying.






How we respond to something depends on our own beliefs and situation.

However, there is no doubt that all of us need to be financially secure in our retirement.

It is a basic requirement for a worry free retirement.

So, take inspiration from what others have achieved but we must have our own plan which means doing what we are capable of doing.

There is no point in emulating or trying to emulate what others have done if it is going to cause us distress.

If others are faster in achieving a common goal, congratulate them and we simply soldier on.






I am very pleased to share this message from a reader:

Reader says...
2 years ago, in my early 30s, after reading your wonderful blog, i decided to just pump in 10k into my CPF SA, never mind there is tax relief for the first 7k only.

I do it because i have a bit of spare cash, and to enjoy more interest that ah gong will be giving me.

Never mind about the tax relief (because i dont earn a lot so i dont need to pay much tax in the first place).

Heartfelt thanks to you, AK.

You deserve the praises and appreciations that we readers are giving! 🙂

Keep up the good work AK.

So rare to find someone like you, so rich in love for all of us strangers by sharing your "secrets". Kudos!






The aim is always to become financially stronger over time.

The aim is not to be the fastest in our cohort to become financially stronger.

The important thing is to make personal progress.

Trying to hit the FRS in our CPF-SA is basically trying to save money for our retirement.

That is the purpose of the CPF-SA.





Like depositing coins in a piggy bank when we were kids, every contribution to our CPF-SA, big or small, adds up.

It will take time for us to hit the FRS.

Some of us will need more time than others.

Financial freedom is not a race and neither is meeting the FRS.







Related post:
FRS in CPF-SA at age 30?

FRS in CPF-SA at age 30? Sharing in detail.

For the benefit of younger readers, the reader who hit the FRS in his CPF-SA at age 30 has decided to share his thoughts in great detail.

Reader says...

This is not about me per se. It is also about helping the next young person who is thinking of topping up his CPF. 🙂

Everyone has different backgrounds, incomes, obligations but sharing some reasons for me to hit the FRS early and to fully maximise our CPF systems.



1) The yearly increase in FRS should be covered by the interest of 4% each year.

This means you are likely to meet the FRS when you hit the retirement age.

I estimate the FRS to be approx $346,815 in 25 years assuming 3% increases but my SA would be a lot higher since it is compounded at 4% and my contributions to SA from work is not added in yet as well as the flow over of interest from MA.








2) Hitting the FRS at 30 means that I can allow for the FRS to compound for at least 25 years till the milestone age of 55.

25 years isn’t a very long time away in my opinion but the compounding can be substantial.

It would be about 2.67x the current amount and likely I would be able to withdraw if I need or aim to hit the ERS.








3) If CPF LIFE is still around by my retirement, it will likely be able to provide me with a decent cash flow when I am not working.

In fact, I don’t look to retire early.

I look to still be gainfully employed till as old as I want to.

The key is to allow me to have a choice in doing what I want at that time and this changes with age!









Some tips of what I used to hit the FRS:

1) Do OA-SA transfers when below 30. I fully transferred my OA to SA at one point in time.

2) Do CPF SA top ups yearly since I started work (taking advantage of $7k tax relief at the same time) and in some years I topped up beyond the $7k if I received good bonuses.

3) VC to your OA/SA/MA and thereafter transferring the OA amount to SA.

4) Used my CPF OA to buy stocks before HDB wiped out the full sum for deposit and thereafter sold the stock and transferred it back to my CPF OA, follow by step 1 again.

5) Using full cash to finance your property and leave the CPF accounts untouched.







I also do not advocate paying off HDB early because I treat them as good debt.

The compounded interest in my CPF (at 2.5%/4%) is substantially higher than the interest saved (2.6%) over 30 years.

This point is difficult for most to see because they compare 2.6% minus 2.5% and they think they are saving on the interest.








Separately, I am obligated to get HPS when taking HDB loan so if I pass on, at least the insurer helps me to pay more.

Ultimately you need to manage your property purchase which I feel is the main expense of a typical Singaporean apart from food and there is honestly no need for a car (I have 2 kids).

My BTO cost less than my 3x annual income. (Live within means like what our PM says)








My background:
Went to Poly, NS, 2 years of Private University after that.

Have 2 young kids and my wife stays home to look after them.

I am just a normal salaried worker with starting salary was $3k like most fresh grads but my annual compensation is a low 6 figures now after 6 years. Good luck!








Related post:
1. FRS in CPF-SA at age 30? Yes!
2. How to grow our CPF savings?
3. 4 ways to boost our CPF savings.

FRS in CPF-SA at age 30? Yes, with ability and will!

Reader says...
It’s been a while since I dropped you a note.

The impact you have on my financial planning and share investments have been instrumental.

I managed to hit my FRS before I turn 31 this Oct!

In searching for financial guides, it always lead me back to your website.

Please don’t ever remove it even if you stop writing!

Enjoy your retirement! 🌈




AK says...
I am very happy to read this. 😀

This cornerstone in retirement funding will be a significant one for you because you have reinforced it so early in life. 🙂

Stories like yours make me feel that sharing my CPF story and even numbers in recent years has been worthwhile. 🙂






Reader says...
Yes it helps for sure!

Thank u so much!

Keep doing what you are doing.

I am sure many have benefited a whole lot.




This young reader together with a few others who have written to me have achieved something that I did not at their age.

Although I suspect their monthly salaries are higher than mine was which allowed them to hit the FRS at a younger age than I did, without the will, having the ability is useless.

Their determination to make the CPF work for them is equally if not more important.

Don't earn as much money as them?

Don't be discouraged.

Even if our earning capacity is lower, just by giving our CPF-SA a push now and then, we would be making the government work harder to help us meet the FRS.







I can safely say that I was not a high flyer as a working adult.

If I did not do OA to SA transfer when I was in my 20s, my CPF-SA would probably still be some way from the FRS today.

Because I gave my SA savings a leg up early on, compound interest had more time to work its magic.

If we do whatever we can, it is better than not doing anything at all.






Most messages I have received from readers in response to my blogs on the CPF have been very positive.

I am glad that sharing my own CPF experience has been enlightening and inspiring.

I am even happier when that inspiration translates into informed action for many readers.

For more on what I have to say on this matter, please read the related post at the end of this blog.





From my Facebook wall later the same day:

Jack James said...

Hitting FRS before age 30 is a high achiever . 😱😱😱😱

Assuming you studied JC, 4 years of university, 2 years of NS, by the time you work for 7 years, you can hit FRS, that’s like age 30 to be exact!

Assumptions:

(1) Fresh graduate start up pay S$6,000 (max CPF contribution).

(2) You didn’t use a single cents in OA/SA for HDB or stocks.

(3) Assuming company gives you at least 2 months of bonus consistently.

(4) The quick figures above do not include the fat up to 5% interest in SA and 3.5% in OA and their compounded interest effect, that’s why the 7th year can hit FRS.

(5) Other ways to accelerate to FRS:

(A) SA S$7K TOP UP since year 1.
(B) Do VC contribution each year to the max.
(C) Company gives you tons of bonus like 8 months.

Then you can beat the 7 years timeline.

Good luck! Cheong ar!!

If AK can do it, so can you?

NO!

If AK can do it, you can do better!







Related post:
Hit the FRS in CPF-SA by age 31!

Hit the FRS in CPF-SA by age 32! Stunned like vegetable?

Reader, Spotlessmind, says...

Discovered your blog a couple of months ago and found it both inspiring and educational.

Having read varied opinions on the topic of CPF, I felt compelled to share my thoughts.





Since I started working after graduation, I have been transferring all my money in the OA account into my SA account on the advice of my mother, who despite having only pre-university education, knows the power of compounding interest.

Many of my friends (regardless of whether they are single/attached/married) worry that they will not be able to afford a flat in the future if the money in the OA is transferred to SA. 

There is always a big "what-if" hanging over their heads.





On the other hand, I thought that I would remain single forever and thus would not need to buy a flat.

I will cross the bridge when I get to it.

So, I simply kept transferring.

I met my significant other just before I turned 30.

At 32, CPF stopped allowing me to transfer anymore money from my OA to SA :).





I am lucky that my job pays reasonably well, so I have been able to accumulate a significant sum in my OA for flat.

I think many young people have always thought that money in OA = Flat.

Many fear that if they cannot afford a flat, they cannot get married and risk losing their significant other.

Others who are single want to have the option of being able to use the money in OA when they want to.





My approach is considered very risky by my friends.

In my 20s, I was laughed at for being silly.

It is bad enough that we cannot withdraw the money in OA, but at least we can use it to buy a flat.

Why so silly to lock it deeper into SA when we won't see it until we reach retirement and have a minimum sum?





None of my friends took up my suggestion.

I can understand the rationale of those who need to buy a flat.

But I cannot understand the rationale of the rest.

After all, if we are single, we can only buy a flat when we reach 35.

Or maybe some intend to purchase private property.





In short, while a certain degree of skepticism in life is healthy, too much of it is a hindrance to progress.

We waste time when we hesitate, and as you have mentioned it, compound interest is magic that takes time.

I cannot agree more with you.





AK says...
If readers thought that my story is amazing, yours should rock them off their seats!

I am in awe!

...




Hit the FRS in the SA by age 32?

Stunned like vegetable?

It is possible and without using any out of pocket money either.

I am not saying that we should all do this.

After all, not everyone has the ability to do this.

Even for those who have the ability to do so, they should always carefully consider their own circumstances and priorities first.

Remember, the CPF is but one piece of the jigsaw puzzle called "retirement adequacy".









Related post:
Sensible to do OA to SA transfer?

CPF-SA is not a free lunch but it is not a myth.

Reader says...

As you were showing your SA amount i was wondering how come it can b higher than the FRS?

I tot SA amount should be capped at FRS.

How did u accumulate $200K+ in your SA?






AK says...

Once our CPF-SA has hit the FRS, no Top Up is allowed.

No OA to SA transfer is allowed either.

However, mandatory contribution and voluntary contribution are still allowed up to the annual contribution cap (i.e. contribution that goes into all 3 accounts) every year.

CPF-SA will also continue to grow from interest earned year after year even after it hits the FRS.






The former Minimum Sum (MS) and, now, the Full Retirement Sum (FRS) are not monsters we should fear.

The FRS has to increase year after year as cost of living increases year after year.

If we push more money into the SA earlier on in life and continue to be gainfully (and legally) employed till we are 55, even after we stop contributing to our CPF, the interest earned in the SA will likely keep pace with the increase in FRS year after year.








Could the interest earned, in fact, be higher than the increase in FRS?

Definitely, it could or, at least, that has been my experience.

The CPF-SA can actually continue to grow without additional effort on our part!

So, is the CPF-SA like the mythical perpetual motion machine?

No.

The perpetual motion machine is a myth.

The CPF-SA is not.






You cannot get something for nothing.

There is no free lunch in this world.

If someone is getting something for free, someone else is paying for it.

The CPF is about helping members to help themselves.

Put nothing in and we get nothing in return.

Put something in and we get something in return.






Feel as if you cannot beat the system?

You are only beaten if you think you are beaten.

Bad AK! Bad AK!

Remember.

If AK can have more than the FRS in his CPF-SA, so can you!






Relates posts:
1. AK showing off his CPF-SA again?
2. 4 ways to boost our CPF savings.

CPF-SA savings 10 years from now.

The biggest downside of not being gainfully employed is the lack of mandatory CPF contributions.

To ensure that my CPF savings will become a more significant bond component of my investment portfolio in my golden years, I have been making voluntary contributions.




Checking on my CPF account last night, I wondered how much would I have in my CPF-SA by the time I am 55? 

55 years old. That is also when money from my CPF-SA will be moved into my newly created CPF-RA to fund the annuity called CPF Life.





My CPF-SA savings in January 2017:

$215,862

Assuming that CPF annual contribution limit (now $37,740) remains unchanged in the next 10 years and applying the following allocation rates:

Click to enlarge. Source: CPF Board.

Doing voluntary contributions to the annual limit each year, for the next 5 years, about $8,159 each year will go to my CPF-SA. 

Ratio of contribution to the SA being 0.2162.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

At age 50, I would have $308,588 in my CPF-SA.




For the 5 years following that, about $11,699 each year goes to my CPF-SA. 

Ratio of contribution to the SA being 0.3108.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

At age 55, I would have $441,344 in my CPF-SA.





Of course, all else being equal, the number is likely to be bigger 10 years later as the calculations do not take into consideration the additional 1% interest payable on the first $40,000 in the CPF-SA.

Although it is not $1 million, $441,344 is nothing to scoff at either.





This is why I have told some rather worried readers who are pretty risk averse and who are not investment savvy to seriously consider using the CPF-SA as their primary tool to achieve greater financial security in their old age.

As simple as ABC? 

As simple as CPF.

Related posts:
1. AK showing off his CPF-SA.
2. Average HDB household and $1M.

60% higher interest income from age 55?

Reader:
Would you leave your money in CPF-OA (beyond 55)? 

I can understand CPF-SA @ 4%. 

Wouldnt it be better to move into CPF Life for better returns? 

Noted that leaving it in CPF-OA will provide more flexibility. Thanks.

AK:
We have the option of moving more funds into the CPF-RA up to the prevailing ERS (1.5x the prevailing FRS) at age 55. Is it better? 

If what you want is a higher payout from CPF Life, yes.

However, do note that you will be required to move funds from your CPF-SA first and not from your CPF-OA. 

Only when the CPF-SA has insufficient funds, then, the CPF-OA is tapped.





So, let us say we have quite a bit of money remaining in our CPF-SA after our CPF-RA is created and FRS requirement met at age 55, it is not all that more beneficial for us to move more funds into the CPF-RA because we are not getting a higher interest. 

It is the same 4%, assuming things were to remain unchanged.

However, for someone whose CPF-SA is depleted after the creation of his CPF-RA, if he wants to have the ERS in his RA, he would be moving funds from his CPF-OA and the funds would then be receiving 4% instead of 2.5% interest. 

That is 60% more in interest income!





Like you said, flexibility is sacrificed but, in my opinion, the loss is well compensated.

Sweet but not available for everyone.

I have the happy problem of having much more in my CPF-SA than the prevailing FRS. 




So, will I move more money into my CPF-RA at age 55 to meet ERS? 

I will decide when I turn 55.





To anyone who just dropped in, another blog on the CPF was published earlier today. 

See:
CPF Life Escalating Plan.

Want to withdraw $500,000 from CPF at 55?

Reader says...

A quick intro about myself.

I am 34 this year, staying in a bto hdb flat and have existing housing loan of $20k outstanding (serviced by my wife and myself).

Checking with you on my strategy for CPF.

I have around $5k in ordinary account, and $145k in special account.






Already met my min sum for medisave. Am hoping to hit my S.A. min sum when I reach 35yo.

My thinking is that once my min sum (FRS of $166k) for S.A. is met, all employment contribution will flow into my ordinary account(~$2k a mth), and I would be able to hit around $500k when I reach 55 ( $24k x 20yrs - not including contribution from bonuses) and withdraw this amount.

Am I missing out on anything here? Thanks!








AK says...

Once you have hit the FRS, you will still be making mandatory contributions to your SA. 

So, monthly CPF contribution goes to OA and SA but nothing to your MA if it has maxed out.

When you hit 55, the prevailing FRS goes to the newly created RA and you can withdraw whatever is left in your OA and SA, if you like.







If we do the right things, we could withdraw a more meaningful sum of money from our CPF account at age 55 instead of a token $5,000. 

Do you like that? 

I know I do.







Related posts:
1. Changes to the CPF and SRS.
2. My CPF-SA (Jan 2016).

Go hit CPF MS or FRS by age 40!

Reader says...

I am currently 37 years old. 

I am working towards the target of hitting my CPF mininum sum by the age of 40.

The current balance in my SA is about 80k. 

My OA account balance is zero as I have transferred all my OA to my SA account. 

I have already hit the max limit for my MA of 52k. 

After reading your blog, I top up at the start of the year to receive free $88 ang pow. :)

I have fully repay my 4 room HDB loan and me and my wife have more then 6 months of emergency funds. 

Me and my wife has no other loans or liabilities.

I am thinking of contributing a lump sum cash contribution of 30k into my CPF SA so that the base amount is bigger and compounding at 4% a year means I can probably reach the minimum sum of 181k when I am 40. 

After that I just let time be my friend and let it do the compounding magic.

I am currently still working as well so I will have CPF contribution as well.

Do you think this is a good idea? 

I do understand that only up to 7k of cash contribution is entitled to tax relief.

Thanks for your help and looking to hear from you.

AK says...

It would depend on whether that tax relief from doing Minimum Sum Top Up (MSTU) is important to you. 

If it is, limit yourself to a MSTU of $7K a year. 

This is especially pertinent if you happen to be a high income earner. ;)







Related posts:
1. VC to MA and get a $88 ang bao.
2. $1.2 million in CPF by age 65?