My parents are not financially literate and are not prepared for retirement (but they are retired). Should I be topping up their CPF MA/RA or starting my investment journey (I can only afford one)?

Hi Anon,

I suspect many people in our generation who grew up in middle to lower income households face a similar dilemma: wanting to grow our incomes whilst giving our parents the best retirement they deserve.

But we need not see the two as competing needs or a zero sum game. In fact, topping up our parents' CPF RA, from which they can later draw monthly payouts under the CPF LIFE annuity scheme, gives you assurance that their basic needs are met (or partially met) until they pass on. In other words, the top up can be seen as a form of insurance that relieves your future financial contributions to them, allowing you to take on more aggressive investment risks.

With a limited pool of money, there are inevitably trade-offs. I recommend putting some but not all of your investable money into your parents' RA, which will earn a healthy 4% guaranteed interest, or 5-6% if their accounts are less than $60k. On top of that, you get tax reliefs up to $7000 per annum, which can be anywhere between $140 to $1540 of taxes saved year depending on your tax bracket. The taxes saved, along with your remaining investable money, can be placed in more risky, higher-yielding assets for your own needs since you have a far longer investment horizon than your parents.

Once your parents start drawing their RA as CPF LIFE monthly payouts, the rates of return are frankly not too shabby given that it is an annuity - i.e. payments for life. See Dr. Wealth's article below for more info. Use CPF LIFE's estimator to find out how much they can receive per month.

https://www.drwealth.com/cpf-life/

https://www.cpf.gov.sg/eSvc/Web/Schemes/LifeEst...

Hope this helps!​​​

Invest if you have the confidence and expertise to grow more than 4%. Will recommend you to diversify and look for less risky forms of investments for your parents.