FOMO on CPF update
1st day of the year is when the government gives interest on CPF account. For non-Singaporean friends who are not familiar with CPF, it is Singapore’s pension system.
The social media has several bloggers posting on CPF interest they received from 2020. I went to check the interest that was credited to both my wife and my account.
Why did I start to be interested in CPF? It started after attending a talk by Mr. Loo organized by my friend Alvin. You can read about it here. You can read here about the pros and cons of keeping your money in CPF Special Account.
December 2020 CPF Portfolio
In December 2020, the following are our CPF accounts:
CPF OA – NIL
CPF SA – S$111,185
CPF MA – S$59,900
CPF OA – NIL
CPF SA – S$ 106,147
CPF MA – S$ 26,811
January 2021 CPF Portfolio
First day January 2021, the following are our CPF accounts:
CPF OA – NIL
CPF SA – S$118,183
CPF MA – S$60,000
CPA OA – NIL
CPF SA – S$ 110,392
CPF MA – S$27,830
CPF SA is giving 4% interest whereas CPF MA is giving 3.8% interest. The CPF MA cap for FY2020 is S$60,000 so once you hit the maximum for the year, the interest earned will spill over to your CPF SA.
I have not been employed in Singapore since September 2019. I was self-employed from September 2019 to March 2020 and during the period, I only contributed as a self-employed member. Since March 2020, I was earning Malaysia Ringgit and did not get to enjoy any employer’s CPF contribution. I am still enjoying earning Ringgit. My greatest concern for Malaysia is the oil and gas sector which contributes 20% of the GDP. In the long run, this will be adversely affected and will drag down the economy. It is important to replace this sector’s revenue with others.
I sidetracked. The point is I miss CPF contribution as an employee. I love to be an employee haha.
The government gave us S$12,362 in CPF monies. I think it is very good as I have experienced many companies had to cut the dividend in 2020 due to COVID-19.
CPF interest is passive and the effect of compounding comes in during later part of our lives. I am very tempted to utilize OA to invest through Endowus which can invest in funds that track S&P 500 Index and MSCI World Index. If that is the direction, we will stop the practice of transferring OA to SA.
Assume my wife stops work by 45
I am just doing a simple forecast, without considering the effect of BHS or CPF Life. I am assuming that she works till 45 years old, the interest rates remain status quo and let her CPF compound by itself.
Assume I stopped contributing to my CPF
If I do not contribute any further to my CPF accounts and let them compound by themselves. I will achieve a maximum of S$600,000 only compared to my wife’s S$1,100,828 at the age of 70. This is the effect of 6 years difference in terms of contributing to CPF. Why? I assume I stop contributing at age 39 (FY 2021) and she stops contributing when she reaches age 45 (FY 2026).
I hope this explains to you the power of compounding.
It follows the formula F=P( 1 +R/N)^T
F = future amount
P = Principal / starting amount
R = Rate of interest
N = Number of times in a year interest is compounded
T = Number of years
Time is the most important element, the longer you can compound without disturbing it prematurely, the larger future amount it will become.
In conclusion, I am inspired to become a house-husband, taking care of the children on a full-time basis. I don’t have career aspirations but I only have financial aspirations. My ideal life is to bring my children to the playground on a daily basis and spend time with my family. We are utilizing our CPF as one of the key tools for our retirement planning.