Women Are Better Prepared for Retirement

Image Source: https://www.cnbc.com

I was randomly scrolling through the CPF website yesterday and found something very interesting. They have recently performed a Trend Analysis of CPF members’ Balances based on Gender, and they did a comparison between the CPF balances of males and females and how the workforce has changed since 2006 till 2016.

If you look at modern society right now, it is not uncommon to find a dual-income household. Gone were the days of stereotypes when the man is assumed to be the sole breadwinner of the family and the woman has to cook and clean.

Investing your CPF money, really?

There was a period of time earlier this year that I contemplated on using my CPF money to invest. I sought some advice from my financial adviser back then on how the process is like and what options were available. The idea of using money that has to be locked away for a long, long time and not having to consider much “risk” with using cash on hand was a tantalizing thought indeed.

But the idea didn’t last long with me.

Are interest rates of the CPF accounts sustainable? – Reader’s input

I haven’t been doing a blog entry about the CPF system for some time and thought that it would be a good time to add one now. I have received a comment previously from a reader who invoked an inspiration for this blog entry (thanks Wabi, whoever you are!). He has asked a question on whether the interest rates for the individual accounts for OA, MA and SA would be sustainable.

Hmm, sustainable… Maybe the first question we can ask ourselves would be how sustainability can be defined for the CPF system. For the sake of this article, I assume that the CPF system would be considered sustainable if we can obtain full financial reliance on it while serving its purpose, e.g. at retirement.

Let’s go back to the purpose of CPF according to the CPF website:

1. Retirement savings to meet your basic living expenses in old age
2. A property that is fully paid-up when you retire
3. Sufficient savings for future medical expenses as you grow older

Should I move my money from OA to SA?

Featured image source: http://www.straitstimes.com/business/invest/1m-in-cpf-by-age-65

I can’t emphasize any further how easy the answer to this question is.

You don’t even have to stay for the entire blog post to know the answer. I’m going to tell you right now.

The answer is “YES”. And I’ll tell you why. I’ll be convincing enough so that you don’t have to hesitate any longer. I’ll show you the numbers if you need them to prove that I’m right.

I’ll start off with two main differences between the OA and the SA.

Medisave Account is also a Special Account

In the CPF, there are three accounts, namely the Ordinary Account (OA), Medisave Account (MA) and the Special Account (SA). Annual interest rates of the OA, MA and SA are 2.5%, 4% and 4% respectively. Today’s post would be focused on the Medisave Account.

Don’t get misled by the title. There really are three accounts, and the Medisave Account isn’t going to be combined with the Special Account anytime soon.

However, I would like to highlight a feature of the Medisave Account which makes it special. In fact, more special than the Special Account if you have not hit your FRS (Full Retirement Sum).

Did you know that the Medisave Account has a ceiling of $52,000 as of today? Ah ha! I bet you didn’t! It is the only account out of the three that has a ceiling. This ceiling is known as the Basic Healthcare Sum (BHS). It increases annually due to inflation and rising healthcare costs. BHS is useful for us to create wealth using the CPF.

Hear this – Once your MA has reached the BHS, the magic happens.

Understanding the CPF (complicated) system

BF and I were having a Whatsapp conversation one day.

Me: BB, I read that got people transfer their funds from OA to SA, maybe we should do it leh! Got higher returns.

BF: Huh is it? Never hear before leh. Then transfer already can transfer back anot?

Me: Er, don’t think so leh.

BF: Then next time want to buy house how?

Me: Er….

BF: Better check first. Then decide what we want to do.

Me: Okok, I read more…

We continued discussing even further and eventually we decided that there was too much to discuss. After gathering all the information I have found online, I have arrived at a few conclusions.

1) The CPF website is super chapalang (disorganized).

In order to get a specific piece of information, I needed to click a few links before reaching my destination. Sometimes even go one big round and then end up at the place where I started. It is like weaving through a maze. Haiyo.

2) Once you master the CPF system, it is hard to forget it.

In fact, it would seem like everything would fall into place. You will automatically know what you need to do in order to use the CPF to your advantage.

3) Do not just limit your knowledge to the CPF website. 

Information about CPF is boundless. Knowledge is power, but applying your knowledge is a different thing entirely. Do your research and see what people are doing with their CPF accounts. And adopt the approach that would work best for you.

That being said, on the same weekend, BF and I sat down in front of the PC to analyze the CPF system. Funny how other couples go for movie dates but ours is to study the CPF. Lol.

I’ve opened a new category in my blog named as “The CPF system”. Subsequent blog posts about the CPF will be placed in this category. So if you want to know more about the CPF and how I utilized this to control my finances, please click here. I hope that it would be able to give you some insight and you’ll be able to find what you need.

Thanks for reading!

Miss Niao xoxo