In this article, I’d like to put my very own spin into the CPF and show that there is definitely room to get more improvement. Firstly, people need to understand that the CPF program would catch the attention of more negativity than positivity always. Any program which forces a citizen to set aside money for retirement and housing won’t be welcome by the people who believe they have the right to spend their own hard-earned money.
Secondly, the CPF program will not really know very well what is it’s true mission should be. Similarly, it is meant to be a retirement fund. On the other hand, it is money set aside for casing and medical expenditures as well. These two objectives are often at cross-purposes with each other. For instance, HDB loan mandates that the borrower exhaust his entire OA account in order to minimize its size.
I don’t believe that the CPF is established for pension planning or home ownership. Protection money meant to protect the greater responsible people from the less accountable ones. Too little clarity as to the CPF’s role stops financial bloggers from being able to agree with each on how to manage CPF funds and to what degree should it be used for buying casing.
So instead of prescribing what’s the proper way to take care of your CPF, I’ll reveal a beliefs which for me, would be a better guiding rule on retirement planning. I call this the “Eat the Federal government” school of thought. When you decide to “Eat the Government”, your objective is not to maximize your energy as it pertains to social security but to extract the largest amount of funds from the Federal government without regard for your personal effects.
Trying to get the most money out of the CPF when you reach 55 years of age. Transfer as much of your OA to your SA as you can. Getting 4% risk-free is quite amazing. Personally, I believe it’s better than getting 8% from equity if your horizon is longer than 20 years. The nationwide government pays 2.5% for the CPF-OA risk-free. Transferring the money to CPF-SA gives you 4% but limits your flexibility as funds can’t be used for housing. If you “Eat the Government”, then you should maximize your transfer to SA so as to extract 4% from the Federal government as much as possible.
I was able to max out my CPF-SA before I strike 32 years. 8, every year since my early thirties 000 into my SA. That is less intuitive. When you make investments 35% your CPF-OA, the nationwide government is not providing you interest on that money you pump into the stock-markets so, on first inspection, it will go against the thought of “Eat the Federal government”.
But investing your cash into REITs and high yielding counters can yield over 6%, which in turn flows back into the OA account allowing it to develop at a faster clip. In my own case, I have maxed out my CPF-SA already, so I put in the remaining 35% of the CPF-OA into a profile which comes back about 5-6% dividends.
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It allows me to grow the CPF faster and “Eat the Federal government” by moving this money out of reach of their investment managers and directly into investments of my choice. One choice school of thought is to carefully keep the funds in OA and make investments 35% of it into the marketplaces rather than move it to SA.
Choose the essential Plan instead of the Standard Plan for CPF Life. If you know that you will perish early, always choose the Basic plan. If you shall live to the ripe old age of 120, the typical plan would be more worth it then. But, unfortunately, we do not have a concept how long we will live. If you are single and have no kids, the Standard Plan works because you shall have no need for your cash after you die.