Take back control over your CPF

CPF, the supporting pillar for our retirement in Singaporean, a forced savings plan and the key to secure a roof over our heads. Throughout the years, CPF policies has changed in response to changing needs for each and every Singaporean.

The good-O-times…
1. CPF used not to have any income cap, meaning, even if a person was getting a gross salary of $10,000 per month, and if the contribution rate was 20%, the person was contributing $1667 and the employer was contributing $1208 each month.

This comes up to $2875 each month thus CPF accumulation rate would have been significantly higher, which could account for the previous generation’s higher CPF balances. (This does not take into account CPF investments that have generated profits).

2. HDB units were much cheaper then, a 5 room executive massionette costed $150,000 (my dad bought it more than 20 years ago)

Now..
1. CPF contribution rates are capped at $4,500 income for private sector employees. Thus the current generation would have lesser CPF balance. In 2007, only 1/3 of those who have turned 55 could meet the minimum sum scheme. They were only able to draw out 50% of their CPF. It is expected that the NOW generation of working adults may not be able to meet the minimum sum by 55 years old. Furthermore, by 2013, remaining CPF balance cannot be withdrawn compared to 50% in 2007.

2. HDB unit; 3 room in bukit batok would cost at least $250,000. A 5 room in Toa Payoh central would cost $400,000. Such rising costs will quickly erode the CPF balance and sets the accumulation cycle back to square one.

Situation and Opportunity
Looking at the both examples of rising housing costs versus lowered CPF accumulation rates, the NOW generation would have to find other means to enhance their CPF in order to serve a primary housing loan issue as well as a supporting pillar for retirement.

The primary objective is to meet increasing housing loans which is a certain event.

The secondary objective is to meet the minimum sum scheme and withdraw the remaining CPF as cash upon reaching the statutory age specified by CPF.

Solution
The GOAL is to accumulate enough  CPF to reach the minimum sum at a certain age to withdraw the remaining CPF as cash when reaching a certain age.

CPF can be set aside into an investment within the 1st to 2nd working years, either into fixed income instruments or variable returns instruments. This is to grow the money at higher returns for the payment of the initial HDB or housing deposit. Spouses can work together to accumulate the savings thru the use of CPF approved CPFIS.

Upon meeting the initial deposit, purchasing a home will consume less of their existing CPF balance, in fact purchasing a home may be advised at the age of nearing 30 and not after 30 years old. A home loan repayment problem may be created if a home is purchased after the age of 30.

The remaining CPF balance can then be fully concentrated on reaching the minimum sum scheme thru investment top ups.

At the certain statutory age, the CPF is consolidated into a single account and to cut the story short, if the person meets the minimum sum scheme, CPF in investment accounts or policies will be converted into cash policies. Thus upon maturing, these can be surrendered as cash.