Wednesday 11 January 2017

Understanding the "Spirit" of CPF

I think the pendulum has swung a little to the opposite direction this time...

CPF money can't see and touch

There was a time when people would "shun" CPF.

When got chance, quickly use our CPF to buy shares, properties, useless ILPs, integrated policies, and what not.

If don't use now, wait we'll never see our CPF money ever!

It seems we were in a race to deplete our CPF as fast as possible? Don't let big daddy get his hands on our money!

Of course this idea was planted by snake-oil salespersons, and successfully too! If not how to earn commissions and fees?

C'mon, be honest. You were sold to.

You didn't come up with it yourself, did you?

Come, take my money CPF

Now? With the low interest rate environment and the search for yields, all of sudden, there's renewed interest to voluntarily put money into CPF?

In big daddy we trust. Never mind the constant moving of the goal posts... Its OK lah! You say you have the memory of a gold fish?

Well, let's hope this time you came up with this idea yourself.

Time will tell

There's no wrong or right answers as each of us have our own individual situations that only we know best.

Who we are today is the sum of all the decisions we have and have not made in the past.

Using a track record of 30 or more years, some have discovered:

1) ILPs - It's just a dumb idea. Period. But great for the snake-oil that sold you!

2) Integrated policies - Some realise belatedly they can't afford to claim it when needed?

3) Shares - The majority wished they had never touched their CPF money...

4) Property - OK, this could be the saving grace. But asset rich; cash poor in retirement.

So those who voluntarily top-up money into their CPFs, well, we just have to wait patiently for the next 20-30 years to listen to their skin-in-the-game reviews.

What you planned and what you get in reality are two different things altogether. Like those who thought they can "invest" their CPF money to financial freedom 30 years ago...

The Spirit of CPF

Many have focused too much on the nuts and bolts of CPF.

Take a step back and see if you can understand the "spirit" of our CPF system.

Why it was introduced for starters. 

And how this original "spirit" has morphed and evolved into another entity quite different from the original architects had intended.

Who is it mainly designed for?

Why is it turning away money from the very rich by having caps on its CPF contributions and top-ups? (Something for Ponzi-scheme conspiracy theorists to think about)

And yet it is "encouraging" top-ups from some of us with tax reliefs and other incentives.


Have you ever thought about it?

As for the poor and those not doing too well, they will never top up their CPFs. Or?

Only if you understand the "spirit" of this CPF beast will you ever tame and domesticate it.

Whatever you do, just don't be on the menu!


  1. Is middle income folks feeling the squeeze of retirement adequacy and Big Daddy stepping in to help them to accumulate?

    1. CW,

      1) CPF is not for the rich.

      Another reason for turning away "free" money is to support our Wealth Management industry.

      Make a wild guess why CPF money was first liberalised for "investment" in the first place?

      For the best interest of the sheep or for the shepherds they were trying to entice away from HK and Switzerland?

      2) CPF used to be an individual responsibility thing. You take out what you've put in.

      But with the introduction of CPF Life, it has also incorporated an Collective Responsibility element where one CPF member may subsidise another CPF member - with big daddy making up the difference.

      As with all collective insurance schemes, the more people joining it, the more sustainable this scheme will be.

      3) The poor and not so well to do can't contribute more to CPF Life. You can't squeeze blood from stone.

      And since we are turning away the rich with their excess funds to the private wealth management shepherds, we are left with the middle-class.

      And that's where the brilliant part comes in!

      Top up CPF for your spouse, parents anyone? Got carrots as incentives too!

      Once they have $60K in their Retirement Accounts, they will be in for life!

      4) When I'm in my 90s and enjoying the "free" money, I'll be thankful to those who left before me who made it all possible.

      And if I'm the one who "left" early, well, I would like to think I've done my Robin Hood bit since I can't take my money with me anyway. Good Karma?

      5) But there's one fly in the ointment. CPF Life is not inflation protected.

      Laymen don't know can be excused. But if readers who are on their journeys to financial nirvana don't know...

      Even for the atas ERS - $2K per month for 30 years from age 65 to 95.

      Yes, CPF Life is geared towards the poor.

      6) If we do not have to depend on CPF Life, our lives in retirement can be quite comfortable.

      If you HAVE to depend on CPF Life, well, so much for your financial freedom goals and plans all these years...

  2. Aiyoo SMOL, when you can generate multi bagger, who cares about 2.5% or 4%? But not everybody is blessed with such talent hor. 2.5% still better than fixed deposit.

    1. Yaruzi,


      CPF top-up is great for those who have so much excess funds that it makes a great "bond" alternative.

      Bonds will lose money with the rise in interest rates. CPF will not lose money - hence its attractiveness to high net-worth individuals. These are the same people CPF is trying to limit and shoo away to private bankers.

      But for those who are still climbing the mountain, not cash rich, and their wings have not fully formed yet...

      If one would to lose their jobs, have a family emergency, met an investment opportunity of a lifetime, or need capital to start their own businesses, well, this "greed" for that 2.5 to 4% may be too high a price to pay!!!

      There's a reason why business owners value liquidity highly.

      Bonds may suffer capital losses; but we can exchange them for cash anytime.

      Some CPF transfers and top-ups are irreversible...

      Readers of financial blogs I assume would want to "invest" to beat inflation. If not we can just leave our money in the banks. Money rotting in the bank remember?

      But when it comes to CPF Life pay-outs, money rotting in CPF after 65 don't matter anymore?

      The irony... We invest in an income producing asset that pays less and less each year in real purchasing terms.

      Would any dividend investor buy such a stock? Dividends no increase for the next 30 years?

      Again, laymen bei kambing I understand. But...

    2. Yes you're right on liquidity part. That's why things like emergency fund etc is really important.

      Ehm ... now you might have figured out why I prefer to beat the 4% in my portfolio rather than opting for top up ;-). As you said, lose money I may, but liquidity is there. I didn't say much about emergency fund in my blog, but I'm also "topping" it up.

    3. Yaruzi,

      We are investors and traders.

      Liquidity is our life blood!

      Its fun to have intellectually stimulating discussions with you all ;)

      CPF top-up can be a good alternative to those who don't like the downside risks associated with low cost Passive Indexing.

      Both are "savings" strategy.

      One won't lose in nominal terms; but will lose in real terms unless there's 30 years of deflation like in Japan after we hit age 65.

      The other will yo-yo a lot and whether we'll be profitable at the end game will be a coin toss as its driving using the rear view mirror...

    4. Why not embrace both?!

    5. Kevin,

      As if we have a choice ;)

      By big daddy's will, its default we need to incorporate CPF and CPF Life into our investment and savings mix.

      Your "embrace both" could be CPF and Passive Indexing.

      To some, it could be CPF with DIY stock investing.

      While others may prefer CPF with properties.

      And then there are those who are more sophisticated who will "embrace" several asset classes at one go ;)

    6. I suppose I've always been the pessimistic kind of person. Must consider the worst case scenario first: boh bian, MUST use CPF.

      So now, how can I make best use of CPF that fits my "style"?

      You are right in the sense that increasingly I'm considering many different asset classes or options that ultimately provided some form cash-flow. Decisions, decisions. Always so much to learn about.

    7. Kevin,

      Its what makes this journey so much fun!

      Just when we thought we have things "figured out", we soon find out the hard way there are still lots of things we thought we knew that just ain't so!

      My views are constantly evolving and I have the battle scars to show it!


  3. Who are those listening to Rich Piper calling the Tune?

    Are they really cash rich to listen to Rich Piper's Call?

    1. CW,

      What the bleeding heart does is right for his circumstances.

      Just like my stance is suitable for me since my track record tells me I'll be an idiot to do CPF top-ups when I can get better returns outside of CPF.

      There are those who love CPIS - we want to grow our nest eggs bigger and faster as investors or traders.

      There are also those who do the reverse by topping-up their CPF. They are savers.

      Like I've said before, we don't have to invest to be financially free.

      Savers can be financially free too!

      Just thought its weird for savers to read financial blogs, attend workshops, pay for seminars; etc...

      You need to be "taught" how to save?

    2. Hi Smol

      I think "remind" would be a better word haha.. just like people are "reminded" their kpis in the workplace. It seems people track the kpis better in workplace rather than their own expenses and savings.

    3. Small Time Investor,

      "Remind" means we know it already - we are on the same page.

      You are much kinder.


      We are our own worst enemy - our emotions.

      When at work, its the owner's business/money - hence our professional detachment.

      But when it comes to our own lives and money, we sometimes act like headless chickens...


  4. Hi SMOL,
    Yah ! You are right , may those Ponzi scheme should put a cap in the so call investment,,," $2 Mil " may be ,,, LOL ! There are things can be taught and things can't ,,,investment is the one ,,, is more on " self-realization " ??? A little bit "zen" ,,, :-)


    1. STE,

      Zen teachers and sutras can only do so much...

      And how the hell do we describe the taste of durian to others who have never tasted it?

      Somethings we have to figure out for ourselves.

      After trying, some would love durians!

      And some will swear its the nastiest food they've ever tasted!


  5. CPF is like a "safety net" for the bottom or the fallen so that they will not be a burden to others or the new generation. It can be viewed in another way as as part of residence responsibility to be able to take care of yourself at the minimum level. Ofcourse some people enriched them over and above with it !

    1. Cory,

      I think its a great gesture for big daddy to contribute this extra 1% for the first $60K in our CPF.

      At it shows again with CPF Life - those who are on BRS will get "more" $ per month as a % of their contribution as compared to those who are on FRS or ERS - where the more you contribute to the pool, the less $ you get per month as a % contributed.

      The Robin Hood ideal is alive and well ;)

  6. temperament,

    Yes, I have ;)

    A small correction to what you've said: private annuities are not guaranteed too.

    If any insurance companies go bankrupt, there goes your insurance policies...

    Most of the youths of today have no clue that we had very worried AIA policy holders during the Lehman crisis of 2008 wondering what will happen to their "long term buy-and-hold" policies...

    The young have a harder time visualising beyond the "promised" words and numbers. You and I can infer from our experiences:

    $1,000 per month in the 80s for a new graduate is quite comfortable. Imagine after 30 years, that middle-aged graduate is still drawing the same $1,000 per month today?

    My math no good; but I know what $1,000 can buy during the 80s and now ;)

    Experience you can't buy!

    Of course there's another element that's non-financial in nature.

    What is the meaning of financial freedom with "terms and conditions" attached?

    A man knows he is tied down to the ground when his heart wishes to vote one way, but his brain says cannot as his cash is held "in trust".

    Financial freedom does not mean much if we live in a gilded cage...

    Man of leisure does not like strings attached to his ankle ;)

  7. temperament,

    Ah so!

    Yes, CPF Life payouts are like the non-guaranteed part of insurance "promised" payouts:

    In good years can go up; and in bad years, can go down :(

    Those of us who have wholelife policies bought 20 years ago know this all too well!

    CPF Life will be "similar" to the pension schemes of other countries.

    Take Greece, before the "blow-up", pensioners as young as age 50 have it good with the generous pension payouts.

    But once Greece's big daddy went bankrupt and has to ask Germany and other European kakis for money, the pension age went up and pension payouts got reduced quite dramatically...

    Those who just turned age 50 got screwed!

    So much for politician promises!

    The trick is to get in front of the queue whenever there's a new change to the moving goal posts.

    If immigration slows to a crawl and we have not produced our own new generation, those who have collected 20 or more years of CPF Life will be less affected when they reduced the payouts ;)

    That's the downside of collective responsibility :(

    You think why I prefer money in my pocket?

  8. Hi SMOL

    Actually, i wanted to do a post for the longest time to prove why CPF life is really lousy. But I worried I will get into trouble from big brother. So I never....haha.

    1. Frugal Daddy,

      Sex, religion, and politics - you'll find it here at this watering-hole :)

      We are adults here.

      Just be responsible for what we say, and use a bit of common sense, we should be OK.

      The ability to say things without getting us into trouble is also a sign of our mental dexterity ;)


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