Key Impact of 2024 CPF Changes on Retirement Planning

Key Impact of 2024 CPF Changes on Retirement Planning

by with No Comment CPF AccumulationMoney ManagementPersonal FinanceRetirement

The Central Provident Fund (CPF) changes made in 2024 will likely to have key impacts on your retirement planning. On 16 February 2024, there was a huge outcry arising some of the changes.

There are 7 key highlights to the CPF changes but of which 2 of them have a key impact on your retirement planning.

Here are the 7 key highlights. Skip to the bottom to understand how this will impact your retirement planning.

Key Impact of 2024 CPF Changes on Retirement Planning
Key Impact of 2024 CPF Changes on Retirement Planning
  1. Enhanced Retirement Sum (ERS) Increase:
    • The Enhanced Retirement Sum (ERS), the maximum amount members can put in their CPF Retirement Account for interest accrual and payouts, will be pegged to four times the Basic Retirement Sum (BRS) from January 1, 2025, up from three times.
    • The new ERS in 2025 will be $426,000, providing more flexibility for members aged 55 and above to commit their CPF savings for higher monthly payouts.
  2. Matched Retirement Sum Scheme (MRSS) Expansion:
    • The MRSS, which matches voluntary CPF top-ups for Singaporeans aged 55 to 70 if they don’t meet their BRS, will be extended to those above 70.
    • The cap on the matched amount will increase to $2,000 annually, up from $600, benefiting more Singaporeans.
  3. Tax Relief for Retirement Account Top-ups:
    • Singaporeans aged 55 and above will receive tax relief on cash top-ups to their Retirement Account (RA), with the limit increased to $8,000.
  4. Silver Support Scheme Changes:
    • The per capita household income threshold for the Silver Support Scheme will rise from $1,800 to $2,300, expanding the scheme’s coverage.
    • Increased support under the tiered scheme will require a higher income threshold, raised from $1,300 to $1,500.
    • Quarterly payments under the scheme will see a 20% increase across all tiers to keep pace with inflation, benefiting around 290,000 Singaporeans aged 65 and above.
  5. Streamlining of CPF System:
    • The Special Account (SA) of members aged 55 and above will be closed starting from early 2025, streamlining the CPF system.
    • All CPF members will have three CPF accounts, with the RA or SA as the sole account holding savings for retirement payouts, depending on the member’s age.
    • SA savings will be transferred to the RA up to the Full Retirement Sum, and the remaining SA savings will be transferred to the Ordinary Account (OA).
  6. CPF Contribution Rate Increase for Senior Workers:
    • Senior workers aged above 55, up to 65, will see CPF contribution rates for their contributions and those from their employers increase by a total of 1.5 percentage points from Jan 1, 2025.
  7. Extension of CPF Transition Offset:
    • The CPF Transition Offset for employers will be provided for another year, covering half of the increase in employer contributions for 2025 to ease the impact on business costs.

This is the summary of the highlights of the message. Please continue reading the key impacts of the CPF changes in 2024.

Key Impact #1: Closure of CPF-SA

The more savvy CPF members have already deployed a key strategy called CPF Shielding. You can read more on the redundant strategy above.

In a nutshell, you will not be able to store money in your CPF-SA to get 4% interest. You will only be able to get a 2.5% interest in your CPF-OA. This has made many people unhappy as there is one less instrument to get a predictable 4% interest.

In my opinion, I believe that it was a matter of time before the CPF shield will be scraped. One of the key intention of the CPF to provide a steady stream of lifelong retirement income. It is certainly NOT and NEVER meant to be a bank account that gives a higher interest with the right shielding.

While I can imagine why people might not be happy, this not the end of the world for you. You always have a choice on where you can put your money. (Read More: 10 SRS investments that you can consider if you are 40 and above).

Key Impact #2: Enhanced Retirement Sum to be increased.

Enhanced Retirement Sum will now be pegged to 4 times the Basic Retirement Sum. As mentioned in key impact #1, the CPF key intention is to provide a steady stream of lifelong retirement income.

With this increase, CPF members can choose to contribute up to the limit of the Enhanced Retirement Sum.

Key Impact of 2024 CPF Changes on Retirement Planning
Key Impact of 2024 CPF Changes on Retirement Planning

CPF-Life remains one of the best (premium vs retirement payout) instrument due to the lack of liquidity. Using a sum of annual payout of $39,960 ($3300/month) vs the premium of $426,000, this works out to be a payout of 9.38%!!! Using very simple mathematics logic, this means you will “breakeven” after taking for roughly 10.6 years by drawing your own money.

However, the caveat is the lack of liquidity and also the reduced ability to use the monies in CPF-Life as part of estate planning.

Despite the limitations, I believe this might be a welcome move by the affluent as they can set aside roughly around another $100K for an excellent premium vs payout instrument.

 

Final Thoughts By Wealthdojo

Changes is always the only constant. Many people are in a denial that the government’s programs should cater only to them. It has always been clear that the government programs are meant to impact the majority of Singaporeans and their objectives are well documented.

This is not the first time that there is a policy change. The recent Plus Prime Model has also changed the way you should invest in properties in Singapore. I believe this is the way to continue with sustainable growth for the nation.

What are your thoughts to this? Let me know!

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

Singapore Property Investing after Plus Prime Model

Singapore Property Investing after Plus Prime Model

by with No Comment Investment AccumulationProperty Investment

On 20 August 2023, the Plus model was announced during the National Day Rally. This will bring a shift in mindset when it comes to Property Investing in Singapore. Due to popular demand, I have wrote down some of my thoughts on the property investing scene in Singapore and the direction you can consider to take.

Singapore Property Investing after Plus Prime Model
Singapore Property Investing after Plus Prime Model

Disclaimer: These are my own personal thoughts and it should not be used as your buy/sell/hold decision. Please check in with your property consultant (which I’m not) for your analysis.

Public housing to be affordable…

The government and HDB has time and again stress the importance of HDB being affordable. That being said, in the last decade, we have seen the “lottery effect” as places such as Duxton, Queenstown, Toa Payoh and so on (view the complete list here). If you look at the data, most $1 million HDB tend to be in the central regions of Singapore. They also tend to be the bigger units (5-Rooms).

This means that majority of the HDBs are still affordable given that our median household income (roughly around $10,000 as per 2022) has risen over the years. With the prices of 4 Room BTO between the ranges of $400K to $600K in the May 2023 batch, this means the median property price ratio to median annual income ratio is around 3.3 to 5. This is an extremely healthy range considering the ratios in London (13.9), Hongkong (41.6) and Japan (115).

I expect Singapore’s public housing prices to remain affordable if the government continue its’ stance on affordable housing. Our BTO prices will increase in line with our median household income. As long as our median household income increase, we will see an increase in the public housing prices.

… and accessible

The “lottery effect” had unintended effects of making the rich richer. This is because BTO prices in the central tends to be higher when it is launched. This in turn lead to the more affluent couples BTO in that area. As they then sell their BTO, this gave them a “lottery effect” which made them richer.

This will NOT be possible in the years to come. 

The government has stepped in to introduce 2 schemes namely the Plus and Prime model. In both models, there will be subsidies to help young couples in their BTO. This means that couples who have lower income will have access to these BTO and able to stay closer to the city.

At the same time, there will be restrictions and tighter conditions to sell. For those couple who have lower income, I expect that they will continue to stay in those flats as there might not be other better options available to them. For those who have higher income and intend to “flip”, the longer Minimum Occupation Period (MOP) of 10 years and other restrictions will slow transactions in those flats.

Hence, eliminating the “lottery effect” and also create an more fair system to have home ownership (clearly trying to discourage any investment). This is brilliantly thought out.

I believe the ONLY way you can benefit from the BTO system as investment is if you fulfill the following criteria.

  1. Marry very young (probably age 25 or less)
  2. Buy the standard BTO flats (these flats tend to be “below” market rate)
  3. Sell after 5 years and move on

Since BTO is “blocked”, how about resale HDBs?

If you look at the resale HDB prices on Q2, 2023. These are what you can find.

Resale HDB 4BR price range: $490,000 to $850,000. Average: $670,000

Resale HDB 5BR price range: $588,000 to $880,000. Average: $734,000

The price range is wide because of the location of the property. However, they are still affordable with median property price ratio to median annual income ratio for resale 4BR to be 5.5 and resale 5BR to be 6.11.

Using this data, you will make money if you BTO and sell your flat.

That being said, prices of resale HDB will not be able to increase drastically because of the Mortgage Servicing Ratio (MSR) rule. Unless Singaporeans are comfortable with the putting more downpayment (which defeats the point of investment anyway). I believe that HDB will continue to remain affordable and you will get a small windfall effect twice if you qualify for it (since we can BTO twice in our lives).

But Private Properties are expensive

Since the door to public housing “investment” is blocked, we should then turn to private properties. Private properties are relatively more expensive because we are so used to the affordability of HDB flats.

The average private property price in Singapore is $1,200,000 in 2022. There are tons of articles in the market that says that Singapore private property market is in a bubble. Looking at it based on data, we can see that the median property price ratio to median annual income ratio for private property is roughly at 10 (if we use the example of $10K as monthly household income). Considering other worthwhile comparison (like London, Hongkong and Japan), we are still relatively cheaper.

It is to my belief that there is still room to grow (and stretch) for private properties. In the table below, you can see that there are more people earning $10K/month (currently 44% of households in Singapore). These people tend to aim for private properties as they are the ones that can afford them. With private properties being around 27% of the properties in Singapore, I believe there is currently more demand than supply. This will somewhat push existing prices up until an equilibrium.

Singapore Property Investing after Plus Prime Model
Singapore Property Investing after Plus Prime Model

Final Thoughts By Wealthdojo

I believe the government will continue to give priority to making sure that HDB remains affordable and for more inclusion into the central regions of Singapore. I believe that HDB prices will continue to appreciate based simply on income effect of household. I believe that HDB will take the income of household to be one of the proxy for pricing BTO. HDB will continue to be used (and priced) for homestay and it will be not easy to use it for investment purposes.

This leaves private properties to be the only viable option for property investing. This is a game that can be played when your income crosses a certain level. I believe there is somewhat cautious demand for private properties based on a few factors such as more people are earning higher and the limited supply of private properties. I believe Singapore private properties are still priced fairly comparing to worthwhile comparisons among other nations.

What are your thoughts to this? Let me know!

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

 

 

Why aren't we talking about the cancer drug list CDL

Why aren’t we talking about the cancer drug list?

by with No Comment Critical IllnessInsurance

In August 2021, MOH first talk about financing cancer treatments in Singapore. The cancer drug list was then announced to be take into effect in April 2023.  I believe this is going to affect healthcare cost in Singapore. However, I don’t see many people being aware of this. In this article, I will talk about what cancer drug list is and the potential impacts on your healthcare costs in the years to come.

Why aren't we talking about the cancer drug list CDL
Why aren’t we talking about the cancer drug list CDL

Why cancer?

We are lucky that not all critical illness have a drug list now. In my knowledge, cancer drug list was created to finance future cancer treatments in Singapore. By statistics, cancer is the number 1 causes of death in Singapore. As you can see in the table below, cancer is number 1 followed very closely by ischaemic heart diseases.

Singapore’s healthcare cost will definitely be impacted if more and more people suffers from cancer. At the same time, if treatment cost were to increase, the cost may spiral out of control. Why aren't we talking about the cancer drug list

Why aren’t we talking about the cancer drug list

What is the cancer drug list then?

The cancer drug list is is a list of clinically proven and more cost-effective cancer treatments. Through the cancer drug list, MOH can negotiate better prices and extend subsidies for more cancer drugs. These changes will keep cancer treatments and insurance premiums affordable in the longer term.

Why aren't we talking about cancer drug list 2
Why aren’t we talking about cancer drug list 2

As you can see that there will now be a limit on how much medishield life can claim per month for each drug. If this is insufficient, the patient will have to pay cash for it.

I have a shield plan. Will I be affected?

Insurance companies selling the integrated shield plan will have to follow MOH guidelines to change their plans accordingly for claims on cancer treatments. I believe that each insurance will give a different limit to their coverage. Let’s take NTUC enhanced incomeshield to illustrate an example.

Cancer Drug List Example NTUC
Cancer Drug List Example NTUC

You can see that under point 6, depending on the plan type that you are on, the multiple of your limits will be different.  For example, if I’m holding on to the Enhanced Advantage, I will be having a 4X MSHL (Medishield Life Limited).

You then have to go to the cancer drug list to find the drug that you need to have find the limit. If the MSHL is $2000, your claim limit under NTUC Enhanced Advantage will be $8000 (4X of $2000) per month. This is before any co-insurance and deductible or co-payment.

Please do get a professional financial advisor to clarify the type of coverage that you have as I have no intension to go deeper into the calculations of the claims.

What should I do then?

We have to ask ourselves at this stage is our coverage for cancer sufficient. The insurance policies that some of us will have are coverage for critical illness. These policies tend to pay off in one lump sum to replace the income that we are supposed to have while resting.

We have to ask whether we have enough savings to “afford” the second critical illness or cancer especially during relapse.

This is something that you will have to discuss with your professional financial advisor.

Final Thoughts By Wealthdojo

I believe that there will be more of such healthcare treatment cost changes in Singapores in the years to come. While having coverage it important, it is also important to build an asset that will be able to sustain and maintain such coverages in the years to come.

Wishing you good health!

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

Seed Of Prosperity

Seed of Prosperity: Money Values for Children

by with No Comment ChildrenMoney MindsetPersonal Finance

I have a confession to make. In the last few weeks, I was creating a new website called Seed of Prosperity to talk about money values for children. As a result, there has been a lack of update on wealthdojo.

Seed Of Prosperity
Seed Of Prosperity

Why Children?

In wealthdojo, I have focused on the techniques and the navigation of personal finances in Singapore. In my conversation with many people this year, I realised that we aren’t doing as much as we can to have this conversation with our next generation. Consider the following:

  1. When was the last time you had a conversation about financial planning with your parents? (the conversation that you don’t have money / general complaining that things are getting expensive doesn’t count)
  2. When was the first time you actually seriously start to think about money?
  3. Was savings the only conversation with your parents that you had regarding money?

In our culture, it may be unnatural to have a conversation on financial planning with our parents (just consider if you ever discussed delayed gratification with them before). As a result, most of us start to seriously think about money only when we started working.

There is a late start for financial education in Singapore and I aim to change that in the years following with my new project Seed of Prosperity.

Why Money Values?

Why money values? While wealthdojo focuses on techniques, it dawn to me that there is something more powerful than techniques. Our beliefs and our mindset drives decision and without having a strong foundation in money values, it is very hard to achieve the result that you want.

Hence, the focus on Seed of Prosperity will be money values that parents can communicate effectively with their children. It will be activities that parents can do along with their children to equip their children with vital money values and habits. I believe that with such a foundation, these children will be able to achieve their financial freedom faster than us.

What will happen to Wealthdojo?

Wealthdojo will continue to write about personal finances in Singapore. The focus will still be on topics like CPF, SRS, insurance and investment that people can do to achieve their financial goals.

Final Thoughts By Wealthdojo

We hope you will be able to support Seed Of Prosperity as much as wealthdojo. We will be launching the first ever bilingual children book that focuses on money values. Please look out for it and support this new project if you can.

Wishing you all the best in the year ahead!

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

Individual Income Tax Season 2023 Singapore

Individual Income Tax Season 2023 Singapore

by with No Comment Personal FinanceTaxes

Individual Income Tax Season 2023 is here. The period that you can file your income tax will be from 1 March 2023 to 18 April 2023. There will be some changes this year which will only be affecting the top 1% of Singapore which I will be sharing below.

Individual Income Tax Season 2023 Singapore
Individual Income Tax Season 2023 Singapore

Introduction to Income Taxes

We pay a certain amount of income taxes to Singapore every year as contribution. They are used to fund public services, pay government obligations, and provide goods (think about the roads and traffic lights or even our military force) for citizens.

We are taxed on our income and it is a progressive tax nature. This means that as you earn more, you will taxed at a higher rate. This doesn’t mean you should relax and earn less. I would rather you earn more and get taxed more. It is a happy problem. (Would you like to earn $30,000 and be taxed $200 or earn $1,000,000 and be taxed $199,150? I will take the latter at any time)

Income Tax Rates 2023

Singapore Budget 2022 Effective Income Taxes
Singapore Budget 2022 Effective Income Taxes

As communicated in the Budget 2022, there will be a new income tax brackets after $320,000. Fortunately, it will probably only affect the top 1% of the population.

If you feel that you are paying for high taxes, you would like to know that there are certain contributions to SRS that can help to reduce your income taxes. If you haven’t done so, you might want to consider doing it for this year.

You might be on the No-Filing Services (NFS) and Auto-inclusion Schemes. This will make your life even more simpler.

Final Thoughts By Wealthdojo

Thank you for your contribution to nation building. Please always refer to the IRAS website for information related to tax issues.

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.