this is a C. N A podcast. So, Adam, in a few words, can you give us your thoughts about the following, investing through CPF,
make sure you know what you're doing
retirement age in Singapore.
I think it's fine,
we'll get there eventually. one thing you'd change about CPF if you could
higher interest rate, but you know, that would come with implications as well. How
about topping up your CPF?
Yeah, definitely. If you can do it, why not?
How about the fire movement? Financial Independence, retire early,
make sure you got your plans right.
The Central provident Fund or CBF has been a huge part of our lives, especially during major life decisions, like buying a house, paying for medical bills and securing funds for retirement. But CBF can be a complex beast, loved by some and hated by others. While there may be no escape to pay deductions, experts say we can make the most of the scheme in this episode. We work through the maths and unravel the myths surrounding CPF with the help of our guest, Adam.
Wong Adam is the editor in Chief of the fifth person, a financial literacy and investment website. So, Adam, let's just get straight to it.
Sure,
CPF is a fact of life here in Singapore and some are for it. Some are against it. But how should we approach CPF?
I think CPF is here to stay. I mean, whether you like it or not. I think a lot of controversy or surrounding CPF, you get the most headlines out of that. I think the majority of people in Singapore. I think they work with the C. P. F. As in it's a system that it's here to stay, it's been around for a long time and whether you have your complaints about it or not, it's something that you
have to work with. And I think there are benefits to the CPF that you can definitely make use of and use it as part of your financial planning.
Yeah. What are the benefits? And let's start with that.
I think the most obvious one is that its interest rate is pretty good. I mean if you go to the bank right now, fixed deposits in Singapore have been, the rates have not been great for the longest time. It's always been less than 1%. I think that's a great option for people out there. Even if you go into the stock market, the bond market, it's not easy to find a risk free instrument that's backed by the Singapore government for 4% interest per annum.
I think that's the main thing that we have as Singaporeans that we should make use of.
You mentioned that it is risk free. Can you explain to us like how it can be considered at risk for many of us, we won't be touching this money until like when we're in our sixties, that's decades away,
right? So when I say risk free, it comes from an investment perspective. So if you go invest money in the stock market, even with bonds of property, there's risk involved, right prices can come up, they can come down, you might lose money in your investment. So technically you shouldn't lose money in your CPF. The risk you have is that you have to trust that the government will continue to run things as well as they have done for the last many decades. Right? And the policy
doesn't change. So there's policy risk in that sense. But when it comes to investment risk, it's technically risk free. You don't risk losing your money in the CPF Yes, there are restrictions in the CPS system. You can't redraw everything at 55 but the money is still yours and it goes back to you through the form of a monthly payments when you retire. So it's risk free in that sense. Um
I guess trust that you said is important and you can also look at history, I guess and see how it has been quite consistent. But these deductions, of course, we can't opt out of them, right? It is required. And at the same time we don't actively manage our CPF money because someone else does it for us. But sometimes that also means that we don't really check it. Don't read about it, we don't care about the details because it's someone else's problem and we'll think about it
when they were older. So some might think that, you know, I put money in it, I'll get it, I'll check it when I'm older. So how do you think people can maximize CPF, even if they're decades away from getting their hands on that money?
I think that's the best time to maximize the use of CPF when you're much younger and you're such a long runway to grow. I mean if you're Near 55 and you don't have a lot of time to grow your money if you haven't been putting money in the CPF over the last, you know, many decades. So if you're young and you want to contribute to the CPF, I think it's an option. I would treat it like a bond actually, because bonds out there, they pay you a fixed interest rate is technically safe in
that sense. But bonds have their own risk as well. You have to understand the company's financial position and their bonds that have defaulted as well. So this is arguably a safer instrument that pays you a 4% interest rate and you can treat it as
part of your bond portfolio. I know of many Singaporeans who just decide not to invest in bonds and just invest in the CPF as their bond portfolio if you're young, that's the best time to maximize because you have a lot of time to grow and compound the money that you have and yes, of course the part of it has to stay inside when you turn 55 But then I think that is crucial anyway because we've heard so many horror stories of Singaporeans who once they turn 55 to withdraw a big sum from the CPF
and it just goes away in a few years. So I think the government is doing the best to protect as many people as they can by providing some level of income all the way to the end of your life to make sure that you're taken care of.
Yeah, I guess one side of it too is some people feel like they are not being trusted with their own funds because this restriction is enforced upon them when it comes to saving for their retirement.
I totally hear that, I mean my mom used to complain about the CPF. So I grew up thinking that the CPF was a restriction that the government put on people and there are restrictions of course in any system. So I used to think for the longest time that
the CPF was just keeping our money from us. When I grew up, I realized that I can't change the system, it's here to stay and actually if you're self employed, you don't have to contribute CPF is not forced in that sense you do if your employee with a salary and all that you do still have to pay your money safe. So back to my anecdote, I remember when I was self employed income and I just had this mindset that I just didn't want to put any money in the CPF, I want full control of my money,
which is a good thing too. And then I realized that I ended up paying a lot in texas because I didn't put in the CPF there and the CPF helps you to reduce your taxable income as well. So between the choice of paying taxes or putting money in my CPF account which grows interest, I would put money in the CPF now that I know better when I was much younger as well. So yes, there are restrictions, but I will make the most use of it. And I think the benefits in the CPS system,
you mentioned taxes. Can you explain to us how CPF can help you in the tax front?
So basically when you make income, there's income tax rate you pay that every year to the I. R. S. The more you make, the more you pay in taxes. But then when it comes to calculating your taxable income, they also take into account the CPF contributions that you made throughout the year. So based on the CPF contributions that you've made, they deduct that portion from your taxable income and then what's left that's taxable becomes lower. So your taxes reduced as
a result. So I mean it depends on how much you make as an individual because there's a limit to how much you can reduce your taxes by. But it definitely helps. You can basically go to the CPF website and they tell you all the I. R. S. Website as well every single year when you make your submissions they will tell you exactly what your taxable income is. So the first thing that they do is that what is your income that you made? Does the headline figure? And then
you have your deductions? Right? So maybe you have your text relief because you're an N. S. Man because you're a parent or because you're a caregiver. So if you make donations to charities and all that stuff. So these are deductions that go into reducing your taxable income anyway. And CPF is part of that deduction as well. So it reduces your taxable income. So what's left over is the amount that can be taxed. So based on that amount then the ras will calculate what your taxes based on
that new taxable amount. So the CPF helps to reduce that when you contribute CPF amounts.
Is that for everyone or just if you top up
it's for everyone. So even your regular monthly CPF contributions go to that. And of course if you do the cash top up as well up to $8,000 every year, there's a tax relief on that as well and for most people it just makes sense to put money in your CPF rather than pay taxes. Right?
You mentioned your mom earlier has she had a change of heart?
She did take her money and her complaint was that at that point the time they called it, the minimum sum was $80,000 today. It's about $192,000 as of this year I think. So it's called the fr s not full retirement some so my mom's gripe was that that $80,000 was something that she could never touch. That was a complaint. Everything else she had above that she took out and she had no complaints about that. So she was complaining about that $80,000.
But I look at my mom today and she has this stream of income from the CPF every single month that supplements her income and it's been really useful for her in her retirement. I don't know if she agrees with it nowadays, but the way I look at it and the way she's managing her finances, the CPF income for her has been very very
useful and that's an issue to the raising of the minimum. Some that you mentioned because some people look at it and go, oh no, now I have to put even more money in in the CPF and it could be quite worrying for some because there are tweaks that are made along the way.
Yes, that's true. So yes, this raising of the minimum some of the full retirement, some is another common complaint. I mean I totally understand that it feels like if it's something that feels very far away and every few years or so they raise it, then you're gonna feel the goalpost keeps shifting and they have explained this before that it has to keep up with inflation
And the cost of living expenses. So just take my mother's example if they never raised it and your retirement, some today is $80,000 and that's all you need to put aside your CPF, let's say for me, I'm like probably like 15, 20 years away from my retirement, how much is $80,000 going to be worth in that time? So it doesn't make sense because then if you can return that amount, it's not going to be enough. So the government has to increasingly steadily shift up the frs
to keep in line with inflation. It's just a fact of money and investments in general.
So do you think we should solely rely on CPF, is it enough to focus on putting our money in CPF and not looking in other investment schemes, investment products?
My answer would be no, I think CPF alone is not enough. I mean, I think there are people who just rely on CPF alone. There has been a famous example of this gentleman that run this one m 65 movement where he advocates having one million in your CPF. And then from then on, once you've taken care of that base, you can kind of relax and then focus on your other investments because he knows that whatever happens to him, he always had that CPF amount to rely on, he's never gonna get
busted out. He's always has that you have to take care of him, that's his philosophy and it makes sense. Some people feel that CPF is not good enough. 4% is not good enough. I can make more money in the stock market 567 10%. And that's entirely possible as well. So I share that approach. I think the CPF forms one pillar of your financial portfolio. There's so many other options you can consider out there.
This property, there's stocks, that dividend stocks and stuff like that reads as well and they all form a basket of investments that you can consider and how much you want CPF, how much you want, your stocks, depends on your risk profile, your financial goals, your investment goals. So the CPF is just one tool that you can use it like a lever of how much you want to put in CPF and
the rest of it is really up to you. So it's not a black or white thing is like zero CPF or all in CPF, it's just one thing you can use
Hi, my name is steve Lie and I'm Teresa Tang and we are the hosts of the new podcast, CNN correspondent from new york to Bangkok, join us as we kick back and chat with our colleagues across the globe about the latest news developments. Look out for our weekly episodes wherever you get your podcasts. How about those who are in the gig economy, who are freelancers where they don't have employee contributions, they're not required to keep a part of their income in CPF.
Do you recommend or suggest that they put money into CPF or should they go to equities or other investment streams?
Yeah. This really depends on the individual. So I do think I can make recommendations for anyone because it really depends on what their goals are, how financially, literally they are because investing in the stock market, yes, you can earn potentially higher returns, but you have risks and if you don't know what you're doing, you can end up losing money wherever you are, whether you're self employed and employed, all these things have to be balanced out, taking into
account what makes most sense for you. So if you're self employed and you feel that you understand what investing in the stock market or the crypto market is like and you take care of your risks then Yeah, sure. Go ahead. And then you still can consider contributing to your CPF because that helps with your taxes as well if you don't want that, I would treat it as a potential bond as an option that
you can use if you want to. I'm just totally agnostic about these things and just make use of what makes more sense for you.
What about those who are nearing their retirement age? Because it's one thing when you're decades away and you still have time to recover from any financial losses. Those who are a few years away from retirement and maybe they haven't really put a whole lot of attention into trying to see if they have enough money once they hit retirement. What do you think they should do at this point to make sure that they are on the right track
when you're near retirement and then if you don't have enough money, I think the reality is you just have to continue working.
Yeah,
that's true, right? But if you've saved up enough or maybe if you're lucky enough, one of your Children are so rich, they can take care of you. You know, that could happen. And hopefully you have a good relationship with that kid In any case, if you're older, then your margin for error is going to be a lot smaller. You can take risks because if one thing wipes you out at 5560, it's gonna be really tough. You don't have the energy or the opportunities as someone who was 30 years younger
is different. So you gotta be really careful with that and it doesn't just apply to CPF applies to every investment that you have out there, you can't be taking unnecessary risks. So you want to invest in things that are very stable, predictable, that suit your risk profile. Maybe something that pays you a very stable dividend doesn't give you a very high return, but it gives you certainty. So CPF is something like that.
In fact, I actually have a friend's father who actually put more money in the CPF. So when he retired, he decided to put more money because he just didn't want to take the risk of that sum of money that he had to put it in the stock market or something. He's not familiar with that. But the CPF is something that he understands, it's basically 4% 5% up to 56% as well, you know, for some of the balances in your CPF account, especially once you cross
55 as well. So he decided to just put more money there because it's something that he understands and he trusts and is risk free, like I said, and he gets an increased payment out of it every single month. So rather than risking his money somewhere, he doesn't understand, he decided to just put more money in the CPF.
That's an interesting point there adam. But what do you think are the things that are misunderstood when it comes to Cp f
I think what people think about, when it comes to being misunderstood about the system is that when you have something that's mandatory, people are gonna complain about it. What comes most first is that people understand about financial literacy about money in general, because I think if you don't understand how investments work, how financial planning works and all you care about is I want my money back then yes, I think you're going to complain about things
because it's what you see and what you understand. But once you become a financial literacy and you understand the risk of the markets out there, how can you actually make money? And then you start to realize that actually 4% from the CPF is just another option to you, then you can take that into account and go, yeah, alright, I think this is pretty reasonable, you can't find that anywhere in the world and it's something that's available to Singaporeans. Yeah.
Then from that perspective, because you have a lot more information about financial planning and stuff like that, then you would have a different perspective when it comes to CP F as an instrument,
it sounds like what you're saying is even if we have CPF and there is that option for us that, as you mentioned earlier, pretty risk free, we still have to study how investments work and we still have to be financially literate, despite having kind of something to fall back on.
I think that's always useful, I think because money is a part of our life, Money isn't everything, but it really is a part of a life and it's one of the life skills that It's important to pick up. You don't have to be like the best investor in the world or someone who makes billions of dollars in that sense. But knowing basic things like budgeting, how do I spend my money when I park my money? If I have $10,000 today, what
do I do with it? Those are things that everyone through the adult life will go through and they need to know what to do with it, because if you don't then you could really put your money in places that they shouldn't be put into and you have scams very dubious investment schemes and you hear all these stories of people losing money every day and you don't want that to happen to you. So this is stuff that everyone should learn.
Do you think we are maximizing this option for us, the CPF and all the different types of accounts that it comes with, I think
that really depends on the individual. So people like Mr liu like of the one M 65 movement, he does his best to maximize his use of the CPF. Some people don't, they feel that it's just not a consideration for them maybe because they've made so much money elsewhere and they have their money and property or something like that, It really depends on the individual as well.
What about those who feel like it's too late for them to care about their retirement funds and investing, What do you think they should do now?
I don't think it's too late. I mean even if you're 60, the life expectancy in Singapore is about 80-20 more years to go. It's a long time Wherever you are now. You still have to make the best use of the time you have with the resources you have and you want to make the best decisions for you in the amount of time that you have left. So even if you're not in the best position right now, it still makes sense to make the right decisions moving forward.
So five years from now, you're better off than where you are today. 10 years from now, you're even better off than we are today. So this is Chinese proverb. The best time to plant a tree was 10 years ago. The next best time is today.
You know, there are different accounts for CPF. How do you think young people should use those different accounts and maximize them.
So there are three accounts so that ordinary account special-account medicine. So many safe. Let's put that aside for your medical expenses when anything happens to you. You can use part of that. The two main accounts that most people look at will be their ordinary account and special account. So the special account is meant for your retirement. So this account earns 4% up to 5% interest. So you have nothing else to do. The best place of course is to put it in a special account
at 4% interest into the highest interest. But of course you have other considerations to think about. So your ordinary account that money put there can be used for your housing. So housing is going to be a key purchase consideration for almost everyone in Singapore. So if you're going to plan about buying a home sometime soon and you plan to use your CPF ordinary account money there to fund part of that then of course you need to plan your finances in a way that your CPF can take
care of that portion. But if you're really about your home, you don't plan on moving anytime soon. You've got like your finances planned out and you feel that yes I can put more money into the CPF special account then obviously you want to put it there because you're in a higher interest rate. Of course as always the restriction is you can only Take out your money at 55 and of course there's
the frs at that point in time. Whatever the prevailing rate is, that's what has to be kept inside for your annuity till the end of your life.
Do you think it's wise to use your CPF monies to invest in stocks in E. T. F. S and all that because that is an option to write,
it is an option and like with any investment it's good to know what you're doing. So if you go to like the SGX website, there's a list of CPF approved stocks, so that means these are stocks or E T F s that you can use your CPF monies to go by.
But CPF approved doesn't mean it's a good stock to buy, It's just approved for CPF use so you still have to understand what you're buying what you're investing in if you make the wrong decisions or you're just trying to get lucky, you're not going to make money if you don't know what you're doing, just put it in the CPF leave it there, you know, you're going to make that guarantee 2.5% or 4%. But if you do know what you're doing and you understand your investments and you feel that you can earn
a higher return with a little bit more risk. I would take excessive risk with my CPF money because this is for my retirement, but a little bit more risk and I invest in something that's very stable in the market is available out there? Yeah, I would consider doing that as well.
Now if you have extra money adam, do you think you should park it in the CPF transfer to your SRS or medicine, save
extra money again. It really depends on what your goals are. So it doesn't mean by default, I'm going to put in my CV F if you know what to do with that money, please go ahead and do something that you think it makes most sense for you. If not, yeah, if it's my investment goal financial goal to have a 4% instrument that earns me that interest, then yeah, you consider CPF as an option for yourself.
Many save, it's a supplement. You should have insurance as well to take care of certain things as beyond medicine safe. But yes, you should have something medicine as
well. So it really depends on your investment, really
depends on who you risk
profile. Right?
That's true. Yes.
Before I let you go, there are different opinions about CPF, but how would you compare CPF to other pension systems in different parts of the world?
I wouldn't say I'm qualified to compare because I understand CPF more than other pension systems, but what I can share, for example, like the four oh one K in the U. S. Is linked to the stock market. So if the stock market isn't doing well and the year you're retiring, everything comes to a crash, that's going to be really, really painful and something you don't see happening as well. So I wouldn't know about any other pension systems in the world, but for Singapore.
I think it's something that we can make use of and might not make the most use out of it.
That's a good point about how CPF is here to stay and we should include it in our financial planning and we should also maximize its benefits. Thanks so much for your insights adam.
Thank you for having me,
Thanks to my guest adam and thanks to all of you for tuning in. We hope you enjoyed this episode. Do you remember to like this podcast? So you know when a new episode drops, you can find Ciena's business and financial coverage online at sienna dot asia. The team behind this podcast is Audrey one, Danieli, Jacqueline chan and Christina robert. I'm sarah called E.