Saturday, 14 January 2017

Alternative to CPF Top-ups

Psst. Try this.

If CPF is paying 2.5% interests, while banks are paying less than 1% for savings accounts, why don't you pay up your housing loans using cash?

This way, you don't touch your CPF and you can enjoy the magic of compounding with higher interest rates?

Also, by not touching CPF for housing, you won't be "asset rich; cash poor" when you reach age 55 or 65.


Isn't this less cumbersome than using cash to top-up CPF and then use CPF to pay-off your housing loan?

A bit LPPL right? (No, I'm not going to translate what is LPPL)


You may scream at me.

You don't have an Emergency fund (that by definition means liquid asset nearby, not far away fire hydrant water kind) that can last you 2 years of unemployment...

Ask your uncles or older cousins who got retrenched during Asian Financial Crisis of 97 if you think 2 years too extreme.

And you haven't build up your Opportunity fund of size yet...

To double your investment portfolio from $100K to $200K is one thing. To do the same with $10K is another concept altogether, even though in percentages they are the "same".


I see your point now...

If I want to do CPF top-ups, I shouldn't be using CPF for housing or education or whatever reasons right?

Especially if I like the 2.5% and 4% CPF "risk free" interests so much?


Now my conviction is shaken... Should not have talked to you!

Why am I investing using CPIS when I am toping-up cash to CPF???


  1. We are alternate view among mainstream loud voices of cpf top up and SRS.

    1. CW,

      On this matter, we are the MAINSTREAM view if we are investors and/or traders - its the EARN MORE process.

      SRS and CPF top-ups, I would classify them as under the SAVE MORE process.

      Again, if we are earning a high income and able to keep to a frugal lifestyle, we don't need to invest.

      Knowing HOW to save is good enough ;)

      So you won't see me telling my family or friends we need to invest or else...

      The truth to investing is that the MAJORITY must lose for the MINORITY to win.

      If everybody wins, its like striking $5 million in Toto only to find out the first prize is shared by 5 million other winners :(

  2. Maybe we never reach the top up salary wage earner class.

    We earn pittance compare to them.

    1. Golden Rabbit,

      No, do not short-change ourselves.

      There's a season for everything :)

      When climbing up the mountain, do the climbing up the mountain stuffs.

      When climbing down the mountain, do the climbing down the mountain stuffs.

      I am a cheerleader.

      Just not the anyone and everyone can do it kind ;)

      If we are all "wealthy", who will do the work?

      In Shanghai, there's a saying, "站着说话不腰疼."

  3. Haha!

    Hmmmm. Did anyone ever tell you that you *might* make a good financial adviser? (Disclaimer : I am referring to those fee-based, independent FAs.) You're the kind of guy I'd hire if I have millions!

    1. Kevin,


      It does feel good when customers, who are salespersons themselves, make an effort to give the sales order to me.

      From one snake-oil to another, they appreciate my consultative style of selling. And they want to make sure I get the sales commissions ;)

      Of course they didn't know I work on a hourly rate and zero commissions... LOL!

      On the flip-side, those herd following customers who asked me which brand sells the best? Which model would I recommend?

      They were disappointed when I asked them more questions in return to help them discover their lifestyle needs on their own.

      The more self aware ones after talking to me, may discover they don't need to buy that home appliance in the first place!


  4. Those of your readers who have not sprung into action after reading this might be still suffering from the relative-dollar-bias.

    I read somewhere that due to our trusted brain’s preference to detect changes and differences but not absolute dimensions, we—human beings—don’t think in absolute dollars; instead, we think in relative dollars.

    In absolute dollars what you propose makes absolute sense. It did not make sense 10 years back. But times have changed, interest rates have changed (long time ago already) and we all have to adapt to it by questioning prior correct behavior.

    Are we adaptable enough for change?

    1. Andy,

      There's a delusion by not-too-bright "investors" who say things like, "If this local bank fails, Singapore will collapse too! So no problem, just buy!"

      Well, I believe Deutsche bank in Germany is several times bigger than our local banks.

      Although I don't think if Deutsche bank fails, Germany will collapse, the Iceland example shows life for the ordinary citizen won't be pleasant...

      The more attuned savers in Germany would have withdrew their savings from Deutsche bank and park them in Switzerland, New York, and even Singapore!

      Try doing that with their euros "locked-up" in Germany's social security pension plans...

      All our adaptability for change won't mean much here!

      The bird in hand is worth two in the bush ;)

    2. Why do you have to drag my dear Deutsche Bank into this? Ha ha.

      Well, "locked-up" is actually a too positive of a term in that context.

      My fellow employees back home are forced to pay into those comprehensive social security schemes without knowing how much they would get out of it when it is their turn for retirement.

      It is a "solidarity based system". People with active income pay, the money stays in the pension plan statistically for about 1 to 2 months, and then is getting paid out to the current retirees.

      1 to 2 months only, that's how "slim" that nest egg is/has become. No time at all to earn interest.

      The current generation is forecast to get out much less in pensions than they paid into the system during their active working years. All thanks to demographics.

      A good example to bear in mind for everyone before commencing a "I-don't-like-the-CPF-system-attack" here in Singapore. Everything is relative and the CPF-system as a whole is certainly among one of the better ones in the world.

    3. Andy,

      How can I miss the opportunity to pass myself off as the International Man of Leisure?


      I like our old CPF's tough love individualist approach. We pay our own way.

      How much we get back we can know up to precise 2 decimal places.

      With CPF Life, it has copied some elements of your European pension schemes...

      Now we only know in precision how much we have contributed IN. But when it comes to receiving back OUT to us, we have drifted into 50 shades of grey...

      How much we will get back?

      Well, it depends on how fast you leave us to the next realm...

      Does anyone have a goal or plan when you would leave?

      Oh the irony! Planning all our lives only to have no plans on our eventual departure ;)

  5. Hmm... Smol,

    Cash is painful to part with. But some calibrated move from OA TO SA make sense. The compounding is really quite scary ...

    I think I am those weird people with bigger SA than OA.

    1. Sillyinvestor,

      It makes "sense" to you and that's perfectly OK.

      Your investment track record ties in perfectly with your thinking.

      If you are returning 14 to 16% annual returns from your portfolio in cash, you wouldn't be here singing the praise of 4% annual compounding...

      Tip: You may want to take a trip to Indonesia and ask the locals there whether they feel their "high" bank saving rate's compounding is "scary".

      They would probably tell you the pace of inflation and currency depreciation there is more "scary"!

      Every thing is relative :)

  6. Hi Smol

    I still think that the scheme is more advantageous to the rich, but that saying, the rich always have resources, therefore more choices.

    Business owners/ richies could also use this to top up in their cpf in case when their business goes "kaput" and they declared " bankrupt ". Debtors and banks can't really do anything to them, as their "assets" are locked in the scheme, if not wrong. That is another "beauty".

    1. Small Tine Investor,

      You have highlighted another advantage where topping one's CPF may make sense - protection from creditors ;)

      Look, if CPF is less than 10% of our networth, it really doesn't matter what we did or didn't do.

      But if CPF is more than 50% of our networth, then a poor decision here may do a lot of damage to our lifestyles when we hit age 65...

  7. Hi SMOL,

    I'm a bit blur reading this, likely because the cpf for self employed works a little different. I have more money outside cpf than inside, so I think my balance would be to get in, rather than get out.

    For me, I pay my hdb mortgage using cash. And then I use cash to top up cpf (VC) to have tax rebates and also to satisfy my compulsory MA contribution, and then use cpf-oa to further do a early capital repayment for the mortgage. At least for now. I reserve the right to change when my circumstances change! lol

    My CPF structure is very weird, I've a little bit more of OA, very little SA but my MA already hit minimum sum.I'll continue to build up my OA as a emergency buffer of buffer, but I won't keep too much of it. The bulk I'll put it over to SA. It's done automatically anyway, since my MA hit minimum sum already.

    1. LP,

      Self-employed and business owners have one big advantage over salaried serfs - you have a CHOICE! (Well, sort of)

      1) Would you have preferred there's no cap on MA? This way, if there's a medical emergency, you have the flexibility to tap it ;)

      Can you use SA to pay for your medical bills?

      2) Your OA as an emergency buffer has a very "narrow" definition to it. You were probably thinking of housing loan backup in case of barren patches in your business.

      If your business drops by 80%, can CPF OA pay your income and road taxes? Can it pay your utility bills and put food on the table?

      3) Here's the "acid" test. You are now investing for your parents. Why didn't you suggest to them the risk free returns of 4% if they just top-up their CPF RAs?

      They'll probably give you an earful! They have lived through all the moving of goal posts! LOL!

      4) You reserve the "right" to change when your circumstances change? I must get some of the weed you're smoking ;)

      You put cash into CPF OA. Can you reverse CPF OA to cash? Show me?

      At least OA you can use to pay mortgage or if you all of sudden wants to upgrade and re-take your Doctorate locally.

      And MA can be used for medical bills.

      But the moment your funds went into SA... They sneaky right?

      OK, try your reversal spell now ;)

      5) Cash, fixed deposits, money market funds, stock bonds, properties, etc; they all can be pledged as collateral to the banks if you need to raise capital quickly to fund an opportunity of a lifetime ;)

      Now try raising capital with your CPF funds...

      6) CPF not interested in money from rich (must support the wealth management sector), but need more funds to help the poor. How to entice the middle-class to willingly play their Robin Hood part?

      C'mon, without the tax reduction carrot dangling in front of you, would you have voluntarily contributed to CPF above your legal requirement?

      Their Jedi mind trick strong. But it won't work on cats.


    2. Wah, thanks for shooting such a long comment :) Let's play:

      1) Actually yes. I emailed them asking for the compulsory MA contribution, can it be really be transferred to MA instead of SA because I've hit the minimum amt. They said no :(

      2) Haha, that's why I have a bigger part of my money outside of CPF :) My reserves outside is meant for everything else (including mortgage) but my cpf oa is only for housing. First backup is my cash outside of cpf. Second backup is my investment portfolio generating income for expenses. Third backup is i'm reducing the mortgage amt by paying lump sum every year on top of mortgage monthly. Fourth backup is ME! I will do anything to at least cover my household expenses LOL! The emergency back up of back up from cpf oa is really for situation where i'm not dead and i can't work (more about insurance part already).

      3) At their age, money at hand is more useful than more returns. Cash at hand can use to buy food, but money from cpf have to wait. Since their cash has more immediate use, putting into cpf is not very helpful. They also not for the idea of putting more into cpf (a bit weird for pple of their generation).

      4) Haha, every year I'll assess my situation. If I need more cash at hand, I won't put in more money into cpf, so that's what I meant. I can't reverse what I've put in, but I can change the amt I will put into cpf. I'm generally not into the idea of putting cash into cpf-sa, and frankly if all is in OA or MA that's even better for me. But I'll be forced to do that actually, since my MA hits the minimum already :(

      5) Actually I would still put in without the tax, just lesser :) I'm not sure if my investment will turn out well, so I need to lock up some of the money for retirement in case it didn't. My ideal ratio is about 70% money outside, and 30% inside. Now it's 60% outside and 40% inside. I suspect after the delivery of the baby, would be reduced to just about right :)

      I think there's a little more room to play around rather than having the bulk of money inside cpf. That's dangerous because we don't know what kind of policy that will change by the time i retire, so I will 'participate' and but get too 'involved', lol


    3. LP,

      "My ideal ratio is about 70% money outside, and 30% inside. Now it's 60% outside and 40% inside. I suspect after the delivery of the baby, would be reduced to just about right :)"

      With this statement, we are on the SAME page!

      Everything else is just splitting hairs ;)

      I am closer to your parent's generation so I can empathise better how they feel.

      Imagine your whole adult working lives you were promised a lump sum at age 55 only to see the goal posts keep getting moved further and further from you.

      Once trust is broken, it can't be easily be mended...

      The retirement age will be extended to age 67.

      There will be subtle encouragements and incentives to start CPF Life payouts at age 70 before its changed to mandatory.

      When you reach age 55, I won't be surprised this age 55 watermark will be moved to age 60. Its logical isn't it? Especially when we are "expected" to live beyond our 80s ;)

      Your generation can't act "surprised"!

      Your parents will just smile and say, "Complain what? I told you so!"


  8. Thanks for this post! :)

    I'm planning to clear a chunk of my mortgage in 18months time with cash. At the same time doing the cpf top ups and weaning myself slowly off using CPF OA for my mortgage pmts. :)

    1. pf,

      You're welcomed!

      Do whatever you like!

      Hungry eat; thirsty drink :)

      There was a time where it made sense NOT to pay down your mortgage if your housing loan is 1% while our CPF OA is 2.5%...

      We know our own situation best ;)

    2. Hahaha... I'm not basing my decisions on your post. Coz when I calculate the absolute dollars saved from paying off my loan.... I don't think I can make so much money from my investments. Hahaha

    3. pf,

      LOL in deed!

      Self awareness is an underrated virtue ;)

      In our testosterone filled community of investors and traders, not many will admit their saving more process is beating their earning more process!

  9. Hi SMOL,

    I'm an investor for income and my experience is that sufficent cash is important to manage one psychology esp during down cycle.

    I do top up own cpf, parent cpf retirement sum scheme and SRS at much later stage of my life when i have some visibility to the mountain top meaning i know the amt of long term debts i want to commit, CPF and house asset <35% of total net asset and emergency funds that support >3-5 years expense.

    Parent cpf mthly payout via retirement sum scheme has good transparency as unpaid amt will eventually return to us.

    SRS for investment and if no earned income i can withdraw 20k annually @ 5% penalty without income tax. Hence break even if one can save >5% tax. This is one of my safety net.

    1. AT-AT,

      I am guessing you are a Singaporean Chinese - you appreciate the concept of "Far water cannot help near fire" ;)

      1. Making CPF top-ups in our late 40s or early 50s is a totally ball game than doing it in our 20s or 30s!

      2. The old CPF Retirement Sum Scheme is black and white precision in 2 decimal places. The new CPF Life is all about shades of grey - unless you tell me you know exactly when you would expire your time on Earth ;)

      3) SRS is much more flexible than CPF top-ups. The back door is once again leaning towards the more well-off amongst us. Shh... We shouldn't complain. As always, it sucks for the borderline cases who just managed to slip into the SRS scheme...

      What a wonderful fun-filled weekend!

      Now that's what I call an Intellectually Stimulating Orgy!


      I know I know... I have issues...

    2. Yes, experience shaped behavior. Better depend on ownself and one bird in hand better than 2 birds in bush. Same like paper profits better take some from table :-)

      Opportunities cost very high for 20s and 30s to put into cpf top up. Many are in lifestyle inflation but unaware like a frog in the slow cooker.
      This is the period when one may get married and have kids and one finances will be challenged.

    3. AT-AT,

      I see you've eaten your fair share of rice and walked a fair bit of journey yourself ;)

      On the surface, your topping up of your parents' and your own CPF accounts may appear to run counter to my strategy to get as much of my CPF out wherever legally possible...

      But to those who can read beyond the headlines, our philosophies are really not so different ;)

      I wish you happy holidays.

      After CNY, I'll be organising a few kopi sessions.

      Hope to have the pleasure of your company.

      Friend, kopi still on you OK?

      I man-whore.


Related Posts Plugin for WordPress, Blogger...