Is 1M65 really that desirable? I would rather have $1M cash than have the government give $5k~ monthly payouts till I die (in which I may not even receive the full sum). What are your thoughts? - Seedly
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CPF

AMA 1M65

Savings

Brandon Chew

Asked 3w ago

Is 1M65 really that desirable? I would rather have $1M cash than have the government give $5k~ monthly payouts till I die (in which I may not even receive the full sum). What are your thoughts?

I try to keep as much money out of CPF as possible for the following reasons

  1. It's basically not liquid

You can't touch any of the money with the exception of OA. Even if you touch the money in OA to e.g finance HDB payment, you'll still be paying back the principal + accrued interest. This effectively means the second reason.

  1. It's basically not your money

Ultimately it belongs to the government until you die and give it to someone.

Is there anything I'm missing out here?

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No doubt, attaining wealth in the form of cash is the most satisfying as it is as real , as cold, as hard as money gets. If you're comparing $1M in cash vs $1M in CPF then for sure, one would rather go with the $1M cash option. One should not think of 1M65 as the sole retirement strategy but rather, a sure-win safety net for retirement. Here are some points to note about CPF:

  1. The repayment of accrued interest when selling your property financed with your CPF OA is so that you are still on schedule to saving for your retirement through CPF. This accrued interest that you top up back to CPF still belongs to you.

  2. Not everyone has the financial prudence to save and plan for retirement with cash. Some squander it away on gambling, others splurge the moment they get hold of a sizeable sum of money. CPF is supposed to make it stupid simple for anyone to have a decent retirement plan based on their financial standing (BRS, FRS or ERS).

  3. Topping up to your own or loved ones CPF SA up to a max of $7k is tax-deductible. This could be a proposition for some to save on some income tax yet ensuring their loved ones hit a comfortable retirement goal.

  4. Amount in excess of BRS can be withdrawn from 55 onwards. It is not as illiquid as you imagine. CPF is designed to make sure you are on track to a decently comfortable retirement where restrictions on withdrawals are there to ensure you do not overdraw on your retirement savings and deplete it before you leave this world.

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Brandon Chew
Brandon Chew

2w ago

1. Agree on the point that it helps people to schedule saving for their retirement. I think the point I'm making here is that the CPF money doesn't belong to you 100% in the first place. It would belong 100% to you & your CPF nominee upon death. But for the individual, the actual CPF amount that actually belongs to them would be monthly payouts + surplus from FRS etc. 2. Agree on this point. Perhaps we could empower people with the tools & habits to manage their money better. I guess that's what Seedly is here for. 3. Agree on this. Ultimately still the same thing that this topped up money doesn't belong 100% to the individual. But it does belong 100% to the individual + the CPF nominee. 4. Similar to what I've mentioned below in one of the answers. I'd rather have the BRS in cash so that I can reinvest it with higher YOY returns than have the government hold on to it and give me monthly payouts. Thanks for your perspective. You're right to say that different people would treat CPF differently but just glad that the government has given such an option available.

Hi Brandon,

You are right that $1M cash and $1M in CPF is very different, and I would like to share my thoughts here. Any CPF guru please feel free to point out any mistakes :)

How CPF works

The first point is on how CPF works. At age 55, if you have met the Full Retirement Sum (FRS) criteria, you will be able to withdraw the balances above and beyond FRS. In that sense, this money that you withdraw will become cash and is liquid.

On top of that, you will also start receiving the FRS monthly payout stated by CPF at that time from age 65.

How 1M65 works

Next, we look at Mr Loo's 1M65. The main reason for using CPF to accumulate wealth is to leverage on the compounding interest of 4% in SA. There are many ways to accumulate $1M at age 65, and each has its own pros and cons. 1M65 is just one of the ways, with safety being its greatest advantage.

With the compounding interest available in CPF, you basically only need a fraction of $1M and let time do the rest of the work.

Choice

You are right that putting money in CPF makes it a lot less liquid. And everyone should prefer $1M cash to $1M in CPF — you can always put that $1M cash into CPF if you like.

The important question we should ask ourselves is this: How am I going to accumulate $1M at age 65?

Hope this is helpful to you :)

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Chujun Hong
Chujun Hong

2w ago

Research has shown lottery winners are more likely to declare bankruptcy within three to five years than the average American. This clearly illustrated that most people tend to overestimate their ability and discipline to handle a big lump sum of money. Each strategy has its pros and cons. Ultimately which is a better approach is very much dependent on your own personal attributes. You may have to ask yourself whether you are able to generate higher returns from the lump sum and control your yearly withdrawal rate as compared to getting a fixed payout from CPF.
CH
CH
Level 7. Grand Master
Answered 3w ago

Agree with illiquid. which is why personally i do not do top ups. but i do still have my own retirement planning outside of cpf system. just have to be comfortable with what you want to achieve. 1M65 to me is a just tag line, something to catch your attention.

i think a lot of people thinks cpf money is not our own becuase of the long time line (20yo-55) there is no parallel product with such a long maturity date. but i do know of people who found the cpf scheme useful to pay for their children's education, a downpayment for a home, medical bills.

maybe let's see it this way, if you think it is the government's money, then just buy a house and don't ever sell it. then you don't have to pay back the accured interests. which is in a way good too. if everyone don't specutale / flip property, then prices will be stable and your children and grandchildren will still be able to afford to have their own homes in the future.

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Brandon Chew
Brandon Chew

3w ago

Thanks @CH for the response. I guess I'm wrong to say that 100% of CPF money isn't ours. Like you mentioned, it can be used for house (if don't ever sell it), children's education, medical bills etc. I guess the comparison I would make it $1M cash at 65 compared to monthly payouts which I may not even receive fully if I pass away early. I think it would be more accurate to say that 100% of CPF money belongs to me & my CPF nominee (where the money goes to when I die)
CH
CH

3w ago

Of course $1mil on hand is much better. there will be more opportunities. set up a business, help children set up business, children's overseas education, get the dream honeymoon....... but i guess it is also a motivation to live longer, so that i can squeeze as much money from CPF life as possible. lol.
Yok Ng
Yok Ng
Level 2. Rookie
Answered 2w ago

The answer is super simple. If you are able to consistently produce higher % returns than what CPF is giving you, then 1M in hand is better.

However, do note that the common man on the street will find it hard to beat 4% a year growth in stocks/property.

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Yok Ng
Yok Ng

2w ago

From past experience, i'd say broker only wants to earn your commission. Never believe their recommendations. Robo... I've never tried before. but if they are good, i think everyone would have dumped $$ into them already. I would too so i dont have to look at the screen for 2 hours a day to monitor the markets. It's a good skill to learn though. Like my parents, I took about 5 years to master it and finally become profitable. From then on, I retired and became full time trader free from irritating bosses and the likes. Trade anywhere you go. Travel free. But if you don't have time to learn, I think Broad based ETF or CPF top ups will be your only way to go. For comparison sake, I average about 10% on a bad year. 20-50% on a good year. but 50% is rare. Some of my friends can do 100-150% but I dare not take that much risk.
Brandon Chew
Brandon Chew

2w ago

Agree with you on this. 15% of my current investment portfolio is in REITs via Syfe which has a 100% REITs option. Dividends from these will be reinvested. This is the only diversification I have cos everything else is done with US equities which has the same performance as the figures you've mentioned. Let me know if you'd be interested in trying Syfe out for their attractive REITs option. I have a referral code for that :P
Chee Seng Marcus Chew
Chee Seng Marcus Chew
Level 4. Prodigy
Updated 2w ago

I would begin by saying that the comparison is fundamentally flawed.

Even lottery winners in countries like USA are given the choice of smaller lump sum or regular payment over time albeit, a bigger lump sum in totality.

A $1M cash now with tax versus a $1.5M tax-free CPF might be a better fit. I would choose the latter.

For clarity:

  1. Principal (same even with bank) + Al (not paying but refund own $ back to its rightful place). Acrrued need not be refunded if you never sell your property or if it's transacted at market value (even at a loss).

  2. It can be withdrawn once RA meets the statutory retirement requirements and it is still your $ end of the day.

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Tay WenHao
Tay WenHao
Top Contributor

Top Contributor (Jun)

Level 7. Grand Master
Answered 2w ago

For the 1st point, you can withdraw the amount in your CPF above FRS.

E.g. 1mil - FRS 181K, you can withdraw 800+k at age 55. But most people choose to leave it inside to compound further at an interest of 4% p.a. with SA Shielding.

2nd point, if you dont sell the house, you will never need to 'pay back' the money. Even if you sell the house and upgrade, when you buy the new house, the amount you returned can be used again for the new house. Thats the whole point of CPF scheme to ensure you have a roof over your head.

But yes, I agree with you on the illiquid part as you cant toucg the money till age 55. Even if you get retrench now due to COVID pandemic, you cant withdraw the money for basic needs. Thus the importance of holding cash for emergency is still preferred.

I would say that if you have excess cash after investing and savings, can consider topping up and treat it as an endowment/retirement plan till age 55.

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Brandon Chew
Brandon Chew

2w ago

1. Understood on that. Personally, if I were in that scenario, I would still withdraw it and reinvest it something that generates higher YOY return. But yes you are right that it is a handy option to withdraw the amount above the FRS albeit 181K being illiquid in CPF. 2. Thanks for that perspective. Totally agree that it ensures that people have the ability to own a house. One a side note, I don't think many people know about accrued interest so they might have that perspective which I had of "losing" money because I'd have to pay back the amount.
Tay WenHao
Tay WenHao

2w ago

Yup. Many people thought that they need to pay back and return the money to CPF. Also the part on accrued interest. Many people thoight that they mist 'pay' interest to CPF but its actually just paying back the interest to YOURSELF. None of accrued interest go to CPF, all will remain in your OA.

It is part of your financial plan. It should not be the core. At 65, you should have multiple streams of income from various sources to diversify your risk.

The liquidity risk is somewhat justifiable from the predictable interest rates. OA aside, the SA 4% is hard to beat in a strong currency domiciled country. Other first-class nations can only dream of achieving 4% without running into deficit.

OA at 2.5-2.6% is justifiable to keep property inflation under control and in line with the general inflation rate in Singapore. You can always opt to refinance under local banks if you feel the interest rate is too high, at the risk of a floating rate.

Additionally, the protection from creditors you get for monies in CPF is a benefit that is hard and costly to replicate from other investments.

All plans have advantages and disadvantages, use them to your benefit.​​​

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Patrick Wee B.Sc. CCMFP
Patrick Wee B.Sc. CCMFP

1w ago

Actually 4% is not so difficult. Caveat: like in any investment. There could be losses. However, if history is anything to go by: https://www.google.com/amp/s/sg.finance.yahoo.com/amphtml/news/much-condo-prices-changed-last-101800563.html Putting in 25% cash (or CPF up to limits) and leveraging it with OPM (bank repaid with cash or or CPF) you could own a $1M property and if you bought it 10yrs ago. It would be worth $1.86M. Your equity (net worth) would have grown by $860K ($1.86M-1M assuming you only paid interest, for ease of calculation) and your ROI would have been $860/250= 24.4% or 13.13% compounded. This does not include the 2-3% rental yield which could bump your ROI to 16%+ In fact your +ve cash flow would be neat since your installment can be paid from your CPF OA which the rents go into your bank. But the above over simplistic calculations omits property tax, income tax, BSD, agt fees etc and it’s not everybody’s cup of tea However, having said all the above, investing in properties is also a forced saving as all your rental / earned income must 1st be used to pay the bank 1st
Aaron Leow, CFA, ChFC®/S
Aaron Leow, CFA, ChFC®/S

1w ago

What if you have purchased property elsewhere that does not generate the 13.3% return? To take 1 million as your core investment portfolio and depending on it solely for wealth creation is a risky proposition. Taking prices from 2008 is not a good indication due to the climate back then where prices were depressed due to the economic crisis. The 13.3% ROI is dependent on you: 1. Not paying any interest rate fees, if you put aside 25% cash down. 2. Omits the taxes and agent fees as you mentioned. Renovation and fitting costs? 3. The depressed prices during 08 which has not been replicated today. There is an element of market timing that CPF does not require. 4. 750k cash borrowing without paying out of pocket cash? How did you get this number? A loan from a bank of 750k at 1%, 25 years requires monthly payments of $2,826.54. The max you can contribute to your CPF-OA every month is capped at $1,380 with the $6,000 income ceiling. 5. Getting the location where the price appreciation is reflected using the highest appreciation instead of using an average. I'm not disputing that property investments are viable vehicles, but I believe quoting an investment vehicle at 13.3% where the data is cherry-picked to succeed is a fallacy and misleading.
Patrick Wee B.Sc. CCMFP
Patrick Wee B.Sc. CCMFP
Level 2. Rookie
Updated 1w ago

Like u I avoid putting $ into CPF due to it’s illiquidity. Except for the min amount into MA.

BUT the accrued interest (AI) is still your money... so even if you use your CPF to buy a property, it’s fine when the incoming funds from the sale covers the outstanding loan and AI ie +ve sale

It goes into your OA and can be reused to purchase your new property.

Only sucks when you don’t have enough to buy the replacement property due to inflation or price increases.

Or sell 1 buy 2 (2nd being an investment which gives you a passive income) or live in one and pass the 2nd to your child(ren) when the time comes and if you have 2 kids.

Each can inherited 1 as it would get harder for them to buy their own if not for your help

and yeah, you can’t touch it otherwise, maybe except children’s education etc​​​

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