Asked on 25 Feb 2019
I graduated and started working overseas immediately and will be 28 end of this year and have zero investments. Although late, I started reading up more about investing recently. I have ZERO CPF savings. However, I would consider myself a very prudent saver. I am looking to return back to SG and start investing my savings. I wonder whether I should top up my CPF? If not, any best way to invst my savings? For anonymity sake, consider my savings/cash to be from 50k - 200k SGD
Thank you for input!
Why don't topup your CPF now? Topup your special account.
You will earned a guaranteed rate of 4%. For the first $60k in your CPF combined balance (with only up to $20k max from OA), the monies will earn an extra 1%. Since you are still young, u will not be near the limit yet. Thus it is worthwhile to topup to earn effective 5% return. Risk-free, regardless of market conditions.
In additional u will receive tax relief for the topped up amount (not for now since u are earning overseas, but will be useful in future when u return). Eg, your taxable income is $40k, for every dollar u earn above 40k is taxed at 7%. Therefore, if u topped up $1000 into your special account, u get $1000 tax relief, u saved 7% of $1000 = $70 tax money. Effectively have gotten 7% return on your money, in additional u will earn 4%-5% interest yearly guaranteed.
Consider CPF as a baseline retirement planning investment. Consider other investment after maximising the benefits u can get from CPF. Do add me on facebook if u would like to discuss further.
26 Feb 2019
Thank you very much for the detailed answer. Was thinking if it is worthwhile to top up 40k into SA if I can afford it, to fully utilize the potential of the 5% return rate at an early stage? Since time is of essence for compound interests. I understand that normally the CPF allocation if 6% for SA and this might take awhile to reach 40k to fully realize its potential. I will lose out on the tax relief of 7000 a year though.
26 Feb 2019
Yes it will be worthwhile to topup 40k+ into your SA. 5% riskfree rate cannot be found anywhere else in the market. Unless u have a better investment vehicle, otherwise the amount not topped up will be sitting around earning close to nothing return. Not just SA, money in the MA also gets the extra 1%, remember it is 60k combined balance of OA+SA+MA. You can always continue to top-up up to $7k a year once u start paying taxes back in SG. Continue to do so until u hit the limit (FRS). Thereafter, u can look at SRS (for retirement planning too), or other riskier investment with cash. As long u can accept that money in CPF will be locked up till official payout age, it is actually a very good baseline (risk-free) retirement plan.
A few quentions. Does your savings include your emergency funds? Do you expect to return to Singapore soon, or will you be overseas for a few more years? Which Country are you based in?
If you are based in developed countries, like europe or the states, You might not want to put all your savings into CPF and want to look into investing from those countries you are in, while you are still a resident. Do check with them what will happen to your investment if you leave the country. (Usually should be able to keep it to sell in future. Only can't do additional trades.)
Suggesting this as it is actually cheaper and and easier to buy stocks when you are in europe or US. If not, Probably just put your extra Savings (minus emergency) in CPF.