Retirement Planning: CPF Projection with Your Current Situation

This Blog Post will focus on CPF Projection by age 55 years old from a person current age.



This is to help get some idea on the amount that a person could draw out in lump sum

or

Keep in CPF account less Retirement Amount (RA) compares to drawing out and just leaving in the bank with lower interest rate.

No other alternative for better ROI will be mention in this article.





In this post, we will ignore the Medisave Account (MA) account in the total computation or overflow in interest.

The total amount a person can withdraw at age 55 does not include MA
but Ordinary Account (OA) + Special Account (SA) less Retirement Account (RA).

Taking myself as an example,

Account Balances (as at 10 Aug 2018)
Ordinary Account (OA) $62,588.07
Special Account (SA) $180,739.00

and knowing that

CPF interest rate is
1. calculated monthly
2. credited Anually
3. compounded Anually
4. interest earned eat into the CPF Annual Limit (AL) for that year.
(AL include the employment contribution you get monthly)

We can use a compounding calculator to project how much we will have by age 55.

We will ignore the Future Full Retirement Sum for now for simplicity since everyone might reach age 55 in different years.

For my case,

1. If I never increase in income,
2. Interest rate remain the same,
3. Annual Limit (AL) remain the same which is  $37,740/-,
4. Ignoring MA interest overflow, if any.

by age 55 my total OA+SA (without hitting AL) = $714 382
by age 55 my total OA+SA (with AL utilised) = $1 249 242

One thing to note is, AL usually means you contribute to yourself without tax rebate incentives.

How do I calculate on my own?

We can start by
a. logging into your own CPF account for the current balance.
b. Add on the remaining to end of December using the monthly contribution from your Statement Record.

Now comes the decision to Simplify or Conditioning the Result.

To Simplify the Result,
we can calculate by per annum instead of per month contribution in each account.
eg $100 contribution x12month= $1200 for OA,

i) Use a compounding calculator if you do not have an excel formula sheet.
ii) Compound to "n" years from your current age to age 55
iii) $20k from OA at 3.5% with 0 addition per annum in a compounding table or calculator
iv) $40k from SA at 5% with 0 addition per annum in another compounding table or calculator
v) balance OA + "annual" addition from pt (b) at 2.5% in another compounding table or calculator
vi) balance SA + "annual" addition from pt (b) at 4% in another compounding table or calculator

Please refer to the image in using a compounding calculator.
You will need 4 tables or Calculator to Adds Up the Final Value.




This is the link for the compounding calculator so you can do it on the Smart Phone anytime.
https://financialmentor.com/calculator/compound-interest-calculator

The projection with AL will require a break down of the AL amount $37,740/-, therefore you need the allocation calculator.

https://www.cpf.gov.sg/eSvc/Web/Miscellaneous/ContributionAllocation/ContributionAllocationCalculator

After the above, just focus on changing the figures for point (v) and point (vi).

Lastly,

The calculation will not be accurate because the future is unpredictable but is good to get an idea of the end sum for pre - retirement planning.

The money in your CPF is safe from creditor and/or bankruptcy situation.

Hope this article will motivate those who have plans to use CPF Funds for Retirement if Possible.

Another Good Deed Done!

Estate planning: Importance of CPF Nomination and how it can Link to a WILL

This post is triggered by a Discussion with a Fellow Status Friend who have planned to Top Up his CPF Retirement Account (RA) to Enhanced Retirement Sum by Age 55.

I will not go into Details for the above Plans.

Rather, something more important which ANYONE could be caught by surprise if they

1. failed to make a CPF Nomination or the Nominee also passed on

2. choose to Nominate to a MINOR without a Trustee.



What would happen if the deceased did not make a CPF Nomination?

Short Answer: 
The CPF Board will send the CPF money to the Ministry of Law: Public Trustee's Office, as required by law.

Long Anwer:The Next of Kin (NOK) or whom is eligible for the above,
a) have to go through ApplicationS
b) meeting the ConditionS
c) "Wasting Money" to get hold of money belonging to the Family

The below link will provide full answer/the procedures for an Individual to be distributed to him/her, or Click on Point 2 for that link.

https://www.mlaw.gov.sg/content/pto/en/deceased-cpf-estate-monies/information-for-next-of-kin-cpf-monies.html  

The focus on this article is to highlight the COSTLY cost of not making a CPF Nomination.

Referring back to the ABOVE link,



The Highlighted paragraph is saying the CPF Money will become part of the Nominee Estate!

With a WILL all will be fine but if the same Nominee does not have a WILL the below charges will applies!



Source: https://www.mlaw.gov.sg/content/pto/en/deceased-cpf-estate-monies/information-for-next-of-kin-estate-monies.html

The above image will covers the wastage that cannot be avoided for point 1.

Now for point 2, if the Nominee is a Minor.



Source: https://www.mlaw.gov.sg/content/pto/en/deceased-cpf-estate-monies/information-for-next-of-kin-cpf-monies.html

By Nominating to a Minor, the Public Trustee Office will charge the above fees for "Holding" and "Investing".

If that is what the deceased wanted, then we should respect that but IF the deceased did not wanted the above, is always good to make sure the right decision is made for the nominee.

This blog post is not flaming any party or parties but helping to keep the public informed of the legit cost for not making a cpf nomination or/and a will.

Another Good Deed Done!

Retirement Planning: Should you try Getting a "Passive Income" by Equity Loan

This post is triggered from a discussion of Equity Loan which Property Guru will Teach you to Own Another Property without using the Cash in Your Bank.

Is this too good to be True or there is more but not revealed?




What is Home- Equity Loan?

The article below will shed more light about what is Home-Equity Loan.

https://propertynet.sg/cashing-out-property-home-equity-loan/



Banks will still look at factors like borrower's age and income to give the loan.

The home equity loan itself will depend highly on the valuation of the fully paid ppty or (term loan for not fully paid ppty) aka lesser cash amount.

Usually, people take this loan to buy a smaller property that can be PAID UP FULLY with the LOAN TAKEN.

Even with all the above, the desire property must still be able to be rented out as an income generating asset.

When the TWO property are private property, the monthly management fee and the annual property tax is what the couple must factor in.

It could be rosy only if at least one property is in demand and could call for high rental yield because when management wanted to raise fee, you can't avoid giving in.

All in all, is still for people who have high stable income and not for people who are just started up especially when it comes to a TERM LOAN.

The reason why the rich get richer is because they take risk within their means. (Good to be rich)

The reason why the poor get poorer is because they wanna to use the same above method to become rich taking higher risk from average or unstable income.

The above Is not impossible for the general public but is really about risk management.

I will still advocate a (if possible BTO) HDB fully paid after 5 years Minimum Occupation Period (MOP) and then get a Private Property.

Yes. Total Debt Servicing Ratio (TDSR) to get the loan and Additional Buyer Stamp Duty (ABSD) are in play but the private property price could appreciate.

AND if it doesn't, your risk are still lowered from poor rental yield if ur HDB commands a good rental yield.

In terms of rental yield, due to lower expenses, HDB will command a better rate.
Of course if the private property is highly popular amount wealthy expat or company, the scenario will be different.

This blog is just my personal opinion.

Not arguing that the Home Equity Loan or Term Equity is wrong but Life is about risk management and there is a safer route most of the time even if it means we pay more initially. 



IF Equity Loan is your decision, is GOOD to know

TDSR is lifted only for home equity loans with a Loan-to-Value (LTV) ratio of 50%.

I am sure the reading is interesting but every loan you take will expose you to more risk.

Please do your math wisely and don't follow blindly.

Another Good Deed Done!

Wealth Preservation: Do you believe every $10k Counts in preserving your wealth?

This blog post is trigger by Questions like should I invest in ETF and fight inflation with my savings.



To begin with, our objective must be very clear before we are able to reach our goals.

In the science of investment, every investment should have a significant returns that made a differences in our life.


I am not saying investing in any ETF by using Dollar Cost Averaging (DCA) is wrong.

We just need to know what is the goal for using the Art of DCA and will it make a differences in our life by then?

To be realistic, having a saving of $10k is achievable if we know what we are doing in our life.

In fact, many have $10k in their bank saving account now.


We should look at micro managing of our money and starting with $10k is a good amount that can make a significant differences  in our life.

Basically, the idea is to make $10k work harder for you and at the same time you can grow your wealth by career or business.

So how do we micro manage the $10k to our benefit?

Let's use our daily necessities like our mobile phone charges. 

If the mobile bill is $50 per month.
That means the Annual bill is $50x12month = $600/-.
If a person have $10k saving and buy a 6% reits or safer products which is "sustainable" and "bought at the right value".
$10k x 6% = $600/-

The annual distribution per unit will help pay the phone bill which is one of the essential expense in life.

With the above example, when one manage to cover their essential expenses with $10k block, they will be able to achieve more in life without making huge mistake or risks that requires big purchase that could trap the money or cause heavy losses.


Always keep your money management simple and you will see good result.

Making it complex can brew good result too but the complexity might be taxing for an individual when the macro market turns against you.

Remember this, no one can control the market, we can only progress with it or bite the bullet with it.

Do you believe me?

Another Good Deed Done!

Retirement Planning: Is getting a Second HDB flat a Good Investment (by divorcing)?

This post is triggered from Ms Leianne Tan post on
"Married couple in S’pore agree to divorce to buy another HDB flat to rent out"
This post will not be a fair comparison but it will give an idea whether a second hdb flat is sound for the above scenario.

There will be no in depth calculation and some fees are not included in this post for simplicity.

Mr 54 years old (54yo), cannot withdraw his CPF money by next year because it does not meet the Minimum Sum, or Retirement Sum.

Ms wife, lets said 4 years younger, at 50yrs old (50y0), could not withdraw any CPF money in a few years’ time, since she also does not meet the minimum sum. We have to assume she is a housewife with no income for simplicity.

The divorced party, Mr 54yo, who has the child living with him, will be able to retain the 5 room flat.

If the loan taken is 25years and paid fully, we can assume the 5rm flat is purchased at 29yrs old.

The article mentioned Mr 54yo paid more then $800k with full or partial of his CPF  (that is why the article seems like a click bait then a real case), he would have bought a resale flat instead of a BTO flat at round $650K and paid a total of $850k for all fees and interest included (estimated with a 80% loan with HDB interest rate of 2.6%).

In this case, we give the 5rm flat the benefit of the doubt that it was sold after 5yrs minimum occupation period (MOP)  so by now, the lease of the HDB left is around 99yr-5yrMOP,-25yrs(loan) =  69yrs.

Question 1:
Is it better for Mr 54yo to sell the HDB flat instead or renting it out?

Let's be logical here.

a)Would Mr 54yo wanna to sell at a loss or a value below $850k and use the proceed to buy a downgraded HDB flat?

b) Would any buyers wanna to buy a 69yrs old flat for $850k which lead to a estimated total amount of $930k paid within 25yrs and with a HDB loan of 2.6%. 
If not paid in full by the buyers.

My humble opinion is Mr 54yo really have no choice but to live with a 3.5% rental yield according to the monthly rental of $2500 (in the article) until the greater fools theory happens to him.

Question 2:
Won't getting a second HDB flat means starting over with new debt and might lead to more losses?

The answer is Yes and No depending on what price of the HDB flat is purchased.

According to the past non mature estate for 3rm flat (assuming there is a child from above)

http://esales.hdb.gov.sg/hdbvsf/eampu12p.nsf/0/17NOVSBF_page_1918/$file/about0.html

The price with grants can go as low as $76k for Sembawang 3rm flat.

The downside and upside is no loan is eligible for this lower amount. Cash is still King in some ways.

Assuming, Ms wife does have $90K in her CPF for all payment above, Mr 54yo annual rental income of $30k would break even the Sembwang flat cost in 3 years time.

After 3 years, they would have the rental yield as an extra/passive income for their retirement.

I drank a bit of wine so I will stop here.

Hope this post can clear some air and there is really no right or wrong answer to this.

As long as the decision made, does not do bad to anyone, then all is good.

Another Good Deed Done!

Career Discussion: Should I be An Insurance Agent?

This post is triggered from the Question on "Should I be An Insurance Agent?"




Before we go into this discussion I like to share how I know about Insurance and how it link to the above inspirational quote. 

My best friend from Poly got his first job as an insurance agent and he introduce insurance policy to me as a protection to my parents and myself if I get into an accident or CI or goes heaven.

I do not have any insurance policy and I got my first, second and then third policy from him.

Are all the policies the cheapest and most down to earth policies?

The answer is no.

Is my best friend still an insurance agent?

The answer is no.

Is he still my best friend?

The answer is yes and we are still in contact. We even have an annual classmate gathering getting eating dinner and sing KTV.

Why didn't I blame my best friend and disown him for the money wasted on the policies?

The reasons are simple

a) All the policies I purchased are not cheap but they did serve as a protection to me.
b) When he sells me the policies, he sold me with the best knowledge he had as a fresh poly graduate.
c) He helps me to claims when I met with an uncertain situation and never mia from any phone call or smses.
d) After he left insurance, i realised i have to pick up more in financial products and be independent.

After I took effort to learn about financial products, I manage to reconstruct my insurance policies that serve me better in my retirements plan. 

All this links back to the Inspirational quote above.

"If you light a lamp for someone else, it will also brighten your path."

If I choose not to buy any policies at all and the uncertain situation hits me, I will be badly damage.

By buying at least the essential policies, to help my best friend and myself, I am protected in some ways.

I am not saying we should anyhow buy any policies but rather we need to get protected by the essential policies like private integrated shield policies.

If you ask me whether I prefer to pay more or less for the best protection, of cos I wanna the best deal but sometimes we have to learn the hard way.

Blaming will not change the situation, rather is the willingness to learn and progress that will reverse the situation for the better and I get to keep my best friend!

There is really no regret on my side but I hope no one have to go through any bad insurance experiences
because we trusted our friends.





Back to the main post on : Should I be An Insurance Agent?

I always advocate on learning at least a skill when I speak to people.

If we take away discussion about the best insurance products or bad ethics.

Being an insurance agent allows the individual to gain knowledge on

1. what are the best products for their family members or ourselves

2. Sales technique hopefully not abused.

3. How to claim hopefully without complications. (Some really try to fight the claims for their clients)

4. Financial planning if the individual find passion in this.

5. Spark out a retirement plan which the school does not teach.

The world just need to be a little kinder to see the goodness in every trade.

**Lastly, always compare and confirm with black and white before you commit to any product you can afford to fulfill the full term.**

Another Good Deed Done!

Retirement Planning: When Supplementary Retirement Scheme (SRS) becomes a downside

This post is triggered from SRS being a better fund for "Guarantee Return" Endowment Plan GE270 rather then cash on hand.

I will only focus on what are the possible downside and not the regular upside you can find online.

Now, why use SRS fund for a low risk low return with certainty (eg. GE270) rather then high risk high return equity?

Before we start discussing the downside of SRS, you can refer to the link below for an overview of SRS and the latest enhancement plus new contribution rate.

https://www.mof.gov.sg/MOF-For/Individuals/Supplementary-Retirement-Scheme-SRS



In retirement planning, we need some certainty or at least a target figure for x number of years to support our lifestyle if we choose not to work or our age does not allow us to work.

In the case of SRS, we need to know the amount stated in MOF that allow us to pay the least tax or no tax for the amount (currently at $400k), we can withdraw (currently within 10 years) when we reach the statutory retirement age (currently 62 years old).

From the above statement we can start listing down what are the possible down side of SRS Account.

1. The tax exemption amount (currently at $400k) might not increase with inflation rate.

That means if you manage to accumulate for example $1 million due to good investment returns you "might" just pay back the tax you saved for years from the tax you paid for each SRS withdrawal.

This is also why GE270 seems like a good deal as a low risk low return with certainty compare to 0.05% interest rate from the bank if the tax exemption amount does not increase.

The tax exemption rate is really the "KEY" for incentives from SRS fund.

You can go to the link below to check out the tax bracket and do your own calculation to avoid "paying more tax back" from the tax you saved.

https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/

2. If a party hit the maximum SRS contribution cap for the year and the investment have an opportunity to average down at a good price from the company rights issue, the party could not subscribe to the rights entitlement if

a) the money in the SRS account is all used up
b) the investment/stock is only purchased with SRS funds.

Again, the certainty from product like GE270 or in the future Singapore Saving Bonds (SSB) seems like a less complicated way to grow the money in SRS and controlled in growth not to pay back more tax then what was saved.


3. (edited) Your SRS funds is also part of your estate upon death. There will be a 50% of the withdrawal subject to income tax. If a party could not withdraw out in 10 years time or for an example passed away when the party managed to accumulated $800k,

First $400k exempted from Tax
Next $400k x 50% = $200k

With no other income,  the tax payable is $21,150.

You can refer to the link below for Tax on SRS withdrawal
https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Special-tax-schemes/Supplementary-Retirement-Scheme--SRS-/Tax-on-SRS-withdrawal/

4. The last point I wanna to touch on might not happen unless

a) the retirement age increased
b) tax increased from a higher salary package for "full time employee" (currently is $1200 from 1 Jul 2018 which is still insignificant)

The withdrawal amount plus your full employee income get you taxed more then you saved in your younger days.



The solution is Retirement Planning!

SRS Account should be "ONE OF THE" retirement vehicle that help you in the long run.
Learn to catch up with the rules & regulations and allows it to help you save instead of pay.

SRS is not necessary for Everyone unless your high income earning is definite.

A Dollar Saved is A Dollar Earned but don't do it blindly and become pound foolish penny wise.

I did not touch on Early Withdrawal because the moment you start your SRS journey you must already planned to keep the money untouched unless special circumstances occur.

This blog post is not to deter anyone to open an SRS account, rather is to provide information on the possible downside to avoid so the SRS account brings in a win win situation and not a someone sure win situation.

Another Good Deed Done!