I came across a Straits Times article titled “How retiree in Singapore saved over $1.6m in her CPF” written by invest editor Mr Tan Ooi Boon. In this video, I’ll explain why I disagree with the tips in this article.
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0:00 – Intro
1:36 – Purpose of this video
The reason for making this video is not to attack Mr Tan or Janet or anything. Because relying on CPF for retirement is a good idea for some people, like people who wish to work till retirement in their 60s or people who don’t invest their money. Different plans will suit different groups of people.
2:13 – Retain some money in CPF
Mr Tan suggests keeping $50k in your OA. This is just in case if you suddenly have no income, you can still pay for your loan for 2 years. And if nothing bad happens, that $50k will allow you to earn $1250 interest. I disagree.
I feel that a better place to keep your emergency savings is your bank account, instead of your CPF. This is because if you keep it in your CPF, you can only use the money to pay your loan. But if you keep it in your bank account, you can also use the money to pay for food and bills. Besides that, there’s a lot of ways to handle your loan if you have no income, eg rent out room, contact bank or HBD to defer loan, work a part time job.
5:00 – Use more cash gradually
Mr Tan suggests increasing the amount of cash to pay for the loan, because it doesn’t make sense to use money that earns 2.5% to pay off the loan. It’s a good idea, only if you don’t know how to invest your money. If you know how to invest, you will know that it’s super easy to get more than 2.5% return over the long term.
The S&P500 delivered 10% annualized return over 90 years, STI ETF gives 3.14% annualized return, dividend stocks gives about 4% yield.
6:48 – Cut loan tenure
Mr Tan suggests making a lump sum repayment periodically to reduce the loan tenure. I disagree.
There are good debts and bad debts. Home loan are good debts because the interest is low, and you can invest the extra cash to generate more returns. If you invest your money instead of rushing to pay off your home loan, you will end up with more money in the end.
8:39 – Refund home loan to CPF
Mr Tan suggests topping up the CPF to refund the CPF money that you have borrowed,. I disagree. This assumes you want to retire in your 60s. But if I want to achieve financial independence and retire early, I won’t be able to access the money early.
Janet mentioned it’s not easy to make money in the stock market, and it’s better to leave your money in the CPF, and treat it as insurance policy, I disagree. It’s easy to make money in the stock market. Over 20 years, the S&P500 has never once delivered a negative return.