Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Wednesday, 15 July 2020

Why You Should Max Your CPF Retirement Sum Early


Today, we are going to present to you a controversial idea.

That controversial idea will help you hit the CPF Retirement Sum faster, earlier, and easier.

That idea is, to top up your CPF Special Account (SA) to the prevailing year's CPF Retirement Sum ASAP, even if you are below 55.

Top Up My CPF SA?!

Before you go "you are crazy!", hear us out first.

So, CPF has revealed in advance the next few years' Retirement Sum.
Source: CPF

Based on the figures above, we can see that the Retirement Sum increases by about 3% per year.

Your CPF SA pays you an interest of 4%, +1% additional interest on the first $60,000 balance.

If the CPF Retirement Sum keeps increasing at the 3% rate while CPF keeps paying you a 4% interest rate, your CPF balance will grow faster than the rate the Retirement Sum is increasing.

That's like CPF is paying you to hit your Retirement Sum early.

That makes reaching your CPF Retirement Sum a lot easier.
We'll show you why.

Recommended Read: The 4% Shortfall In Your CPF Retirement Fund

Retirement Sum Estimator Example

Assuming that you are born in 1985, you will reach 55 years old in 2040.
The estimated CPF Retirement Sum for your cohort is $327,800.

That seems daunting, like a far and never reachable goal.
But it is a lot more manageable if you break it down.

Assuming you contribute $2,000 into your CPF SA every year till 55 years old, via work contribution + your own Retirement Sum Top Up (RSTU).


Suddenly, if you managed to save $121,439.54 in your CPF SA by 2020 year-end, you will be able to hit your cohort's Full Retirement Sum by the time you reach 55 years old.

$121439.54 + (20 years x $2,000) = $161,439.54.

By contributing a total of $161,439.54, you will be able to hit your cohort's retirement sum of $327,800.

If you top-up more money into your SA earlier, you will be able to hit your cohort's retirement sum even earlier.

Recommended Read: Is CPF A Scam?

Retirement Sum Estimator

Interested in finding out the CPF Retirement Sum for your cohort?

Interested in finding out how much you should have in CPF by what year to hit your CPF Retirement Sum?

We have actually made this calculator public.
You can find the calculator via the link below.

Click here to try the Retirement Sum Estimator

Try it out and let us know what you think of it.
It would be even better if you have any suggestions for us to improve the calculator.

Recommended Read: Answering the 2 Common CPF "Complaints"

Promos & Referrals
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Hey You!

If you have a money related story about you or your relatives' that you want to share, let us know in the comments below or email us at investmentstab@gmail.com.
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We hope you could help us fill in a short survey of 8 questions (4 of them are MCQs) so that we can help tailor our content to you.
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Thursday, 9 July 2020

The Hidden Taxes In Singapore


In the recent rally speech by Senior Minister Tharman Shanmugaratnam, he said that the median income Singaporeans paid 0% to 2% in income taxes.

There were sceptics who questioned how true that was on social media.
So we decided to run the numbers to check it.

Singaporean's Median Income

The median income for full-time Singaporeans in 2019 is $3,900.

That translate to about $50,700 annual salary (+13th month bonus).
Less 20% CPF contribution, the annual chargeable income is $40,560.

That translates to about $589.20 in chargeable income tax, which is about 1.2% of the total $50,700 salary.

The above chargeable income tax excludes other sources of tax relief like donations or parent or child relief, which would lower the tax bill even more.

So... I guess SM Tharman is not lying when he said that the median Singaporeans pays less than 2% in income tax? 🤷‍♂️🤷‍♀️

Cherry-Picking Tax Policies?
Of course, that's kind of like cherry-picking on the tax issue.
"Pick the one we scored best and show it to the public".

So at Investment Stab, we decided to dig deeper and find out what is the overall tax rate Singaporeans pay in Singapore.

Recommended Read: The Best CPF LIFE Plan Is...


The "Social Security" Portion
In most countries, social security is their CPF.
And in this scenario, we are only calculating employee's contribution.

You can think of social security as a retirement tax.
"I contribute a portion of my pay to the Government. In return, when I am old and retired, the Government will pay me a monthly payout until I pass away."

In Singapore, well that's 20% of our salary although we would consider it to be 0%.

20% is the actual figure most Singaporeans contribute every month when they are young.

The problem is as Singaporeans, we tend to max out or use up that 20% for housing.
Whereas in other countries, they actually cannot use their social security money for housing - they have to pay cash.

So, if you are using all 20% of your CPF contribution for housing, technically you paid 0% in retirement tax.

If you use anything less than the full 20% for housing, then your retirement tax will be whatever that you did not use.

If you did not buy a house or did not pay for your house with your CPF, then your retirement tax can be considered as 20%.

So one would have paid between 0% to 20% in "retirement tax".

Source: Wikimedia

The GST Portion
Monthly Income:                    $3,900
     Less CPF Contribution:     $(780)
Monthly Take-Home Pay:      $3,120

Assuming you spent every cent of your take-home pay, you would have paid $218.40 (7% GST) or $280.8 (9% GST).

Since GST have not increased yet, we will just assume one pays 7% in GST.

$218.40 / $3,900 = 5.6%.

Bonus calculation: $280.8 / $3,900 = 7.2%

So a median income Singaporean would pay about 5.6% per year in GST.

Recommended Read: SM Tharman on Personal Finance

The Property Tax Portion
We assumed that with a spouse that earns the same median income, both would get a 5-room HDB flat.

Based on 2019 4th quarter data:

Highest 5-room flat property tax area: Bukit Merah
Rental: $2,800 per month.
Estimated Annual Value: $33,600
Estimated Property Tax: $1,024

Lowest 5-room flat property tax area: Woodlands.
Rental: $1,800 per month
Estimated Annual Value: $21,600
Estimated Property Tax: $544

If the taxes are split evenly between the couples, each couple is liable for $272 to $512 in property taxes.

$272 / $50,700 = 0.5%
$512 / $50,700 = 1.0%

That translates to about 0.5% to 1% in property taxes paid by each spouse respectively.

So there are no additional taxes payable by Singaporeans on these items.

Taxes We Don't Have
We don't have capital gains tax, dividend tax, estate (aka inheritance) tax.

So there are no additional taxes payable by Singaporeans on these items.

Source: Flickr

Total Tax Rate
If we sum up the total taxes the median income Singaporean earner pays, it works out to be...

Income Tax:               1.2%
GST:                           5.6%
Retirement Tax:  0% - 20%
Property Tax:  0.5% - 1.0% 

Total Tax Rate: 7.3% to 27.8%

Based on an annual income of $50,700, the median income earner would pay between $3,701.10 to $14,094.60 in taxes annually.

We expect the number to be nearer to the lower end as most Singaporeans would use their CPF contribution for housing, which would greatly reduce the "retirement tax contribution" part.

Of course, we did not include property tax, stamp duty, COE & road tax (if you own a car), and a bunch of other taxes.
These taxes are either harder to calculate, may or may not apply to everyone, or are generally a one-time tax.

But what we have listed are the general taxes most countries' citizens pay.

Is the tax rate for the median income Singaporean earner within the range you find acceptable?
Let us know in the comments below 😉✌

Let us know if we miss any other big taxes that you think should be included in the list of taxes we pay in general.

Recommended Read: Answering the 2 Common CPF "Complaints"

Promos & Referrals
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Friday, 3 July 2020

SM Tharman on Personal Finance


With GE2020 around the corner, we thought it would be nice to jot people's memory on a rally speech Senior Minister Tharman Shanmugaratnam once gave on budgeting.

In GE2015, Senior Minister Tharman gave a rally speech about how important prudent budgeting is for the country.

We felt that his points were not only suitable for managing the country's finance, but also for everyone's personal finance!

As such, we will be elaborating how it can be used for our personal benefits.

Video Link:



Start from 27
:27 if you aren't interested in the whole 37 minutes speech.

First 4 Minutes of video: Prudent Budgeting & Asset Management.
Next 3 Minutes of video: Explaining CPF returns.

We will be talking about the first 4 minutes in this post

Video's First 4 Minutes

In the video, Senior Minister Tharman mentioned that in Singapore.

1) We've had more than 30 years of the budget surplus being saved away in reserves.

2) We sold the land for money and kept the money also in reserves.

3) The reserves are then invested, which allows us to draw continuously on the reserves every year by using the income on reserves.

4) Half the returns generated from the investments are used to spend for many different purposes (education, infrastructure, medical etc).

5) The other half is kept away in reserves, re-invested to create future cash in-flows.

Recommended Read: You Should Not Choose the CPF LIFE Basic Plan

Translating to Individual Personal Finance

Translating this to a personal level.

1) When we are working, we should always save away a portion of our income (a budget surplus).

2) If we have additional income (ang baos, bonus, etc), try to save most of it also.

3) Your savings should be invested. 
Only then, will it be able to generate income every year, allowing you to draw on it continuously.

4) You can choose to spend half of your annual returns from investment on things you need or want (an overseas trip, a new laptop, renovating your house etc).

5) The other half of your annual returns should be saved and re-invested to generate even more income in the future

Our View:

1) We think that if you are young, if and when possible, try to re-invest as much of your annual investment returns back and draw it only when you are older/retired. 
Grow your future income while you still have a stable monthly income. 
Although this is rarely possible (it is always tempting to spend, I totally agree!), try to save and invest as much as you can.

2) Singapore saved vast reserves and invested them, thus have huge annual investment incomes that can be spent for many different purposes. 
You too can do that for your future. 
Save and Invest Continuously! 
IF you end up spending only your annual investment returns for retirement, you can pass your "vast reserves" to your kids. 
If they too follow this prudent budgeting, they can add their savings to your "reserves", benefiting them and their future generations even more!

Recommended Read: Answering the 2 Common CPF "Complaints"

Promos & Referrals
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Monday, 29 June 2020

7 Advice to Graduates from Apple's SVP of Software Engineering


Craig Federighi is the Senior Vice President of Software Engineering at Apple.
He oversees the development of iOS and macOS.

He's the guy that's been doing quite a fair bit of presentation and demo during Apple's various events.

He was invited to the University of California (UC), Berkeley, to share with the students on how to become 'him'.

1. Do What You Love

Focus on the journey, not the destination.

If you do what you love, things you do during your spare time becomes things "that help you develop in your career".

"If I have a moment on the weekend, I'm gonna be reading things about programming, I'm gonna be reading things about software or artificial intelligence, because that's what I love!"

2. Work With People Whose Work you Admire

Seek to work with people who creates/develops products or services that you love.

Craig was drawn to NeXT because of the company's products mesmerised him and he wanted to learn from and work with the people who developed these products.

NeXT was founded by Apple co-founder, Steve Jobs, and was eventually acquired by Apple.

Recommended Read: Answering 2 Common CPF “Complaints”

3. Pay Attention

Pay attention in class, in things going on in your life.

"During life..., you are, through your working life, through your school life, you are surrounded with all of these opportunities to learn. And not just in your field, not just in the thing that you think you're studying, but all those things peripheral to the field you are studying."

Craig actually carries a notebook and pencil to note down all the interesting things he sees.

4. Never Stop Acting Like The New One On The Team

It is ok if you don't know everything.
It is ok to ask for help or ask your team members to explain something to you, even if you are a senior member.

"It turns out, some of those questions are questions the team probably should have been asking themselves and wasn't. And so if you're asking, you might get some answers that everybody needs to hear."

Most importantly, asking these questions allows you the opportunity to keep learning and broaden yourself.

You don't want to make a fool of yourself during an important moment because you didn't clarify with your team members previously before the moment.

5. Team > Self

If you engross yourself into the team and what the team does, you will find that there are many ways you can help.

"When I join projects, I've decided that whatever the team's mission is, whatever we're trying to accomplish, I want to be part of making that happen. And I want to do everything that can be done to make that happen."

Craig once joined a team that was tasked with solely fixing software issues, which didn't sound like a cool thing he wanted to do.
But he ended up learning a lot from the experience because he adopted the mission of the team/project.

Focusing solely on what one will get out of the task will cause one to lose out on a lot of learning experience.

6. Commit, Focus, Reassess

Set a fixed number of years and commit yourself completely to performing that task.
Don't question yourself with "Should I go elsewhere?", "Should I transfer to another department?", "Am I doing the right thing?".

Imagine "if you got married, and every day you woke up and you say, 'am I married to the right person?'. Like that would not be a good relationship."

Instead, just commit yourself to what you have, give yourself an opportunity to experience it.
Set a deadline for yourself, like a year or four, before you step back and reassess what you want to do next.

Recommended Read: You Should Not Choose the CPF LIFE Basic Plan

7. Follow Your Heart

Trust your gut and listen to yourself.

"When I went to NeXT, I took a big pay cut to join a failing company. It didn't seem like too smart a move... But when I thought of making the decision on that (logical) side of the thing, I just got a feeling in my gut like, 'No! I want to be there!' ".

Bonus 8 Advice: Be Very, Very Lucky

At the end of the day, Craig recognises that this is just 1 person's experience, his experience specifically.
It worked for him, but it might not work for everyone.

He could just be lucky.
So, luck plays a very big part too!

The 50-Minute Video

If you have the time, here's the video on the 50-minute presentation he gave to students at the UC Berkeley.

You can jump to the 23-minute mark for the Q&A.
Before that is just the 7 points we listed above.


Recommended Read: The Best CPF LIFE Plan Is...

Promos & Referrals
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Click here to view the full list of Promos and Referrals we have. 

Hey You!

If you have a money related story about you or your relatives' that you want to share, let us know in the comments below or email us at investmentstab@gmail.com.
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As we progress towards the next phase of our journey, we would like to find out what would make you like us even more.
We hope you could help us fill in a short survey of 8 questions (4 of them are MCQs) so that we can help tailor our content to you.
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Sunday, 28 June 2020

The Best CPF LIFE Plan Is...


Previously we published an article on why You Should Not Choose the CPF LIFE Basic Plan.

Then we got readers coming back to us asking which is the best CPF LIFE plan.
So we decided to write about it to let our readers know. 😉

Numbers Behind the 3 CPF LIFE Plans

We used the CPF calculator to calculate the payouts and bequest one would get.

We used a male profile born in 1966 with 186k in his RA when he is 55 years old in 2021.

Fig.1. Source: CPF

Fig.2. Source: CPF

Basic Plan? 

From a yield perspective, the Basic plan is definitely a good plan because more of the money is kept in the members' own RA, earning interest that goes back into their own RA.

But we don't think this is a good plan because what an average retiree should want is to have more in their monthly payouts, not more for their dependents.

If one's retirement plan is to ensure one has sufficient/maximised monthly income to sustain his/her lifestyle, then the Basic plan would not make sense.

The bequest for the Basic plan last longer than the other 2 CPF LIFE Plans (Fig. 2).
In exchange, the retiree gets a lower monthly payout forever.
So the higher yield plan benefits the dependents slightly more than the retiree.


You can read more about it on why You Should Not Choose the CPF LIFE Basic Plan.

Recommended Read: Is CPF A Scam?

Standard or Escalating Plan?

Now that we hope we got you to ignore the whole 'bequest' thing, let's focus on how to get more money for retirement from CPF LIFE.

This depends on how long one expects oneself to live.
There's no single straightforward simple answer to that actually.
Fig. 3. Source: CPF

This is the cumulative total payout a retiree will get over time.

As you can see, the Standard plan will give a cumulative higher monthly payout UNTIL the retiree is almost 90,  in which case the Escalating plan will have a higher cumulative payout.

If you look back at Fig. 1, you can see that if the retiree chose the Escalating Plan instead of the Standard Plan, he would get more in monthly payouts at close to 78 years old.

Basically, 
1. If you have a history of family members living really long lives (beyond the average life expectancy of their cohort).
2. If you think/believe you can live beyond 90 years old.
3. You are fine with a lower starting monthly payout.
Then choose the Escalating Plan.

Otherwise, choose the Standard Plan

To Each Their Own
Of course, everyone's circumstances are different.
Some might be better with the Standard Plan, others the Escalating or Basic Plan might suit them better.

There's no one-size-fits-all policy.

But if you are like a normal person, think about your own retirement, not what you want to leave for your children.

It'll be better if you have more in monthly payments so that your children can save their money for their own retirement instead of giving you money to support you.

Avoid making your children the next sandwich generation.

Your kids are not your retirement plan.

Recommended Read: Answering 2 Common CPF “Complaints”

Promos & Referrals
We are starting to build a list of Promos and Referrals for our readers.
Click here to view the full list of Promos and Referrals we have. 

Hey You!

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We hope you could help us fill in a short survey of 8 questions (4 of them are MCQs) so that we can help tailor our content to you.
Survey

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Thursday, 25 June 2020

You Should Not Choose the CPF LIFE Basic Plan


What's CPF at old age for?
It is to support you in your retirement.
If it's not able to do that well, maybe it's not suitable for you?

What is CPF LIFE Basic Plan?

Basically, you are taking lower monthly payouts so that your dependents will get more of the money when you passed on.

If what you want is a comfortable retirement, why you leaving bulk of your money for your dependents who should be in charge of their own life/retirement?

Why I Think CPF LIFE Basic Plan is a Bad Plan

Lower Monthly Payouts
It is as simple as that.

The Standard plan provides higher monthly payout.
The Escalating plan provides growing monthly payout.

Why do you not want to have a higher monthly payout for yourself?
Especially if you don't think you're having a lot of money every month for retirement already. 🤷‍♂️

"Because I want to leave more for my children."


Leaving More $ For My Children
It's a nice thing to have something to leave behind for your kids.
Not so much if they have to financially support you just so you could leave them something behind when you passed on.

Firstly, the bequest is not guaranteed to have one.
If you draw finished all savings in your CPF, then your children won't have any money to inherit as a bequest.
It's how the plan was designed.

If you have $100,000 in your CPF Retirement Account (RA) at 65, and you picked the Basic Plan, the following happens.

  1. $10,000 is put into the CPF Lifelong Income Fund.
  2. The rest is kept in your RA, and your monthly payout will be paid out from your RA.
  3. So from 65 to 90, you are drawing your monthly payout from your RA. 
  4. If you passed on anytime before 90, $100,000 from the Lifelong Income Fund + all $ still in your CPF Accounts, will be given to your dependents as a bequest.
  5. By the time you are 90, your RA would have $0 inside. 
  6. From then on, you will draw your monthly payout from the Lifelong Income Fund until you passed on.
  7. If you passed on after 90, what's left of that $100,000 not paid outall $ still in your CPF Accounts, will be given to your dependents as a bequest.
If you live a long life (95+) and have withdrawn all of the money in your CPF, then your dependents are probably not going to have any bequest.


Recommended Read: What Happens After I Join A CPF LIFE Plan?

Higher Yields from Basic Plan
One common response I get from people who say the Basic Plan is better is because it has higher yields compared to the other 2 CPF LIFE plans.
How?

Let's say you have $100,000 in your RA.

In Standard & Escalating Plan, all $100,000 in your RA is put into the Lifelong Income Fund.
All interest (4%+1%+1%) goes back into the Lifelong Income Fund, not your RA.
The $100,000 in your Lifelong Income Fund will not grow.
And as you draw your monthly payouts, that $100,000 will decrease.
The yield improves as you live longer because you will then be drawing more than you have contributed.

In the Basic Plan, $90,000 stays in your RA while $10,000 goes into the Lifelong Income Fund.
The interest your $90,000 earns goes back into your RA while the interest the $10,000 goes back into the Lifelong Income Fund.
Because the interest goes back into your RA, it makes the yield higher.

But, does the yield matter to you? 
Nope, cause you don't get to withdraw any of that yield anyway.
You're still going to get that lower monthly payout even though the yield is higher.
If anything, it's better for your dependents than you.


To Each Their Own
Of course, everyone's circumstances are different.
Maybe Basic Plan is more suitable for them.

Ya, sure, that argument makes sense.
There's no one-size-fits-all policy.

But if you are like a normal person, think about your own retirement, not what you want to leave for your children.

It'll be better if you have more in monthly payments so that your children can save their money for their own retirement instead of giving you money to support you.

Avoid making your children the next sandwich generation.
Your kids are not your retirement plan.


Recommended Read: Answering 2 Common CPF “Complaints”

Promos & Referrals
We are starting to build a list of Promos and Referrals for our readers.
Click here to view the full list of Promos and Referrals we have. 

Hey You!

If you have a money related story about you or your relatives' that you want to share, let us know in the comments below or email us at investmentstab@gmail.com.
Alternative, you could fill in the form below for us to contact you.
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Dear Reader!
As we progress towards the next phase of our journey, we would like to find out what would make you like us even more.
We hope you could help us fill in a short survey of 8 questions (4 of them are MCQs) so that we can help tailor our content to you.
Survey

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?
Have feedback? Tell us now!

Follow us on Facebook and Instagram for more timely updates about finance-related articles and memes! 😁
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Monday, 22 June 2020

Kevin O'Leary: How Much Savings To Have By 33 Years Old

Source: Flickr

The famous Shark Tank investor Kevin O'Leary, aka Mr Wonderful, advises on how much people should have saved up by the time they are 33 years old.

"By the time you hit 33 years old, you should have $100,000 saved somewhere."

He said that should be the goal people should aim for and even provided a tip on how to do it.


"You save 20% of your paycheck, and you let the market grow it 5% to 7% a year. You can get to $100,000."

He says if you can't do it at 33, 35 works too - extra 24 months to reach that goal. 😉

The $100,000 is the "milestone" to hit if you want to hit at least $500,000 by the time you are 60 years old. 

If you want to hit $500,000 by the time you are 60 years old, it is important to hit that $100,000 milestone when you are 33 years old.

Recommended Read: Save in CPF or Invest in SATS?

Is it possible to reach that goal?

Assuming you start saving from $0 at 23 years old.
We ran the numbers to check how much you need to be earning every month in order to reach that $100,000 goal by 33 years old.

On the bright side, since the milestone it is probably for our retirement, we probably can include our CPF savings as part of the $100,000

We are including only money in our Special Account since most of us probably maxed out our Ordinary Account for housing.

After factoring CPF SA savings into the mix, the percentage we need to save drops by almost half, making it more achievable to achieve that $100,000 goal.


If you could invest 10% to 12% of your after CPF salary every month, combine with your CPF SA savings, you can definitely hit the $100,000 goal. 😉

Recommended Read: Answering 2 Common CPF “Complaints”

Promos & Referrals
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Click here to view the full list of Promos and Referrals we have. 

Hey You!

If you have a money related story about you or your relatives' that you want to share, let us know in the comments below or email us at investmentstab@gmail.com.
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