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.

6 Myths About Personal Finance to Stop Believing

6 Myths of Personal Finance to Stop Believing

by with No Comment Money ManagementMoney MindsetPersonal FinanceRetirement
6 Myths About Personal Finance to Stop Believing
6 Myths About Personal Finance to Stop Believing

There are so many things that we can’t believe anymore. Even the age old “Put your money in the bank is safe” no longer stand through with the collapse of Silicon Valley Bank over the weekend.

Making the correct decisions when managing your wealth is essential. To do so, you may seek advice from trusted individuals like family and friends. Unfortunately, they may be making crucial mistakes with their personal finance decisions too, leading you astray.

Here are six personal finance myths that you would want to stay away from.

#1: Financial Planning is for the wealthy

“I don’t have money to plan for the future.”

The mindset that financial planning is only for wealthy individuals is a myth many people believe. Whether you are rich or poor, it is important to take control of your finances and budget planning. If you have income and expenses, creating a plan to handle them should leave you with more to spend. In the past, barriers such as high brokerage fees made it challenging to pursue a financial plan. However, transparency and technology have made it much easier to get started in the current age.

As a general rule, purchasing every product and service you desire will quickly get you into financial trouble. Following a budget is vital when you earn or have a specific amount of money. While some individuals think that having a budget doesn’t allow you to have fun, the opposite is true. You just need to make compromises. For example, if you want to buy a new car, you may have to cut out on extra wardrobe items and restaurant outings over a defined period of time.

#2: Using Credit Cards Is Best During an Emergency

“I have 6x monthly income limit on my credit card. I should be fine”

While covering an unexpected expense using a credit card may be handy, this action can be highly detrimental. Credit card interest rates are often high. Even if you have a small debt, the interest included with each payment can slowly eat away at your funds. Creating an emergency fund for troubling times is a much better option, allowing you to pay for costs you weren’t expecting.

#3: Investing Requires a Lot of Money

“Buying Apple Shares ($148 on 13Mar23) is expensive!!”. (Owned the latest iPhone 14 SGD $1311anyway)

Investing and making money in the stock market are often associated with wealthy individuals. This is a common myth seen from the portrayal of Jordan Belfort in The Wolf of Wall Street playing on fuboTV. This movie shows Belfort’s extravagance and lifestyle fueled by his success in the stock market. While having a lot of money certainly opens up multiple avenues for investment, a lot of instruments allow the average investor to enroll – in some cases, starting with as low as $10.

You can choose your preferred instrument – be it fixed deposits, bonds, mutual funds or stocks – based on the money that you have and the risk that you are willing to take.

#4: Getting Into Debt Is Bad

“Should I take a loan for my Balenciaga T-Shirt?”

While it’s important to approach debt with caution, it can be a good decision. Borrowing money can be a handy tool to reach financial goals, such as funding a startup business or purchasing a home. While you’ll be paying interest on the amount you borrow, using debt for a positive financial pursuit can be highly cost-effective. However, using debt to finance a lavish lifestyle could lead you down the wrong path, forcing you to pay high interest. Choosing the appropriate debt tools is critical when borrowing, and the timing is also essential.

Different sectors of the economy have cycles where the values of assets go up and down. In the housing sector, if you purchase a home when values are high, thinking you can save money by deducting mortgage interest on your taxes, it may not be best. Renting allows you to wait for lower home prices. Owning a home can be a dream for many individuals. However, purchasing at the top of a cycle can become a nightmare if you have to pay high installments for an extended period. Choosing the appropriate time to get into mortgage debt can be vital if you want to benefit.

#5: Paying Off High-Interest Debt First Is Best

“Which credit card debts should I pay off first?”

If you’re following mathematics, paying off debt with high-interest rates first will lower the amount of fees you pay quicker once you close out these types of debts. While this action is a good approach, it may take a significant amount of time, making you feel frustrated.

I have found that it is helpful and motivating to pay off accounts containing a small debt (anything less than $1000) first. Once you knock a few out, you’ll have fewer accounts to deal with and can focus on paying debts with the highest interest rates.

#6: Retirement Planning Can Be Done Later

“I will plan for retirement when I’m 65”.

Another common myth relating to personal finance is that retirement planning is usually completed later in life. While starting a retirement account may be the last thing on your mind if you’ve recently graduated from college and started a new job, it can be the best time to begin this pursuit. Saving for retirement early allows you to accumulate wealth over a larger number of years. Doing so can have a significant impact on the money you have to spend when you retire.

Final Thoughts

Don’t let these myths get into your way of financial success. Discern between the noise and what make sense to you.

March Forward!

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.

The Power of Adding Critical Illness Coverage

The Power of Adding Critical Illness Coverage

by with No Comment Critical IllnessInsuranceMoney ManagementMoney MindsetPersonal Finance
The Power of Adding Critical Illness Coverage
The Power of Adding Critical Illness Coverage

Insurance is an expense, until it is not. Here, I wish to address the power of adding critical illness coverage into your portfolios.

What Is Critical Illness Coverage?

Critical illness coverage is a type of insurance that provides financial protection in the event of a covered critical illness, such as cancer, heart attack, or stroke. Many people think that traditional health insurance is enough to cover all medical expenses, but this is not the case.

5 Reason Why You Need Critical Illness Coverage

  1. High Cost of Critical Illnesses: The cost of treating critical illnesses can be astronomical, even with health insurance. Between co-payments, deductibles, and uncovered expenses, it is common for patients to incur significant out-of-pocket costs when diagnosed with a critical illness. In addition, many people are unable to work during treatment, leading to loss of income and additional financial strain. Critical illness coverage can provide a lump sum payment to help cover these costs, giving your clients peace of mind and financial security.
  2. Limitations of Traditional Health Insurance: Traditional health insurance policies typically have limits on the amount of coverage they provide. If your client requires an extended stay in the hospital or an expensive medical procedure, they may quickly reach their coverage limits, leaving them responsible for the remaining expenses. Critical illness coverage, on the other hand, provides a lump sum payment that can be used to pay for any expenses, including those not covered by traditional health insurance.
  3. Maintaining Quality of Life: A critical illness can have a profound impact on a person’s quality of life. Not only do they have to cope with the physical and emotional toll of the illness, but they also face the financial burden of medical expenses. Critical illness coverage can provide the financial resources necessary to maintain your client’s quality of life, allowing them to focus on recovery instead of worrying about finances.
  4. Protecting Savings and Investments: When a critical illness strikes, the financial impact can be devastating. In addition to medical expenses, there may also be loss of income, which can quickly deplete savings and investments. Critical illness coverage can help protect your client’s financial future by providing a lump sum payment that can be used to cover expenses and maintain their standard of living.
  5. Peace of Mind: Perhaps the most important benefit of critical illness coverage is the peace of mind it provides. Knowing that they are protected against the financial impact of a critical illness can allow your clients to focus on their recovery and not worry about how they will pay for their medical expenses. This peace of mind is invaluable and can greatly improve their overall well-being during a difficult time.

Final Thoughts

In conclusion, critical illness coverage is an essential part of any financial portfolio. The high cost of treating critical illnesses, the limitations of traditional health insurance, and the potential loss of savings and investments can all be mitigated with critical illness coverage.

By providing a lump sum payment to cover expenses and protect your client’s financial future, critical illness coverage can give them the peace of mind they need to focus on their recovery. As a world-class financial planner, it is important to educate your clients on the benefits of critical illness coverage and help them determine the right coverage for their specific needs.

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.

11 Classic Movies That Investors Should Watch

11 Classic Movies That Investors Should Watch

by with No Comment Money ManagementMoney MindsetPersonal Finance

Chinese New Year is coming along the corner. This means it is perfect time to catch up on some movies that you always have been wanting to watch. Here are 11 movies that investors should watch that will keep you occupied during the Chinese New Year.

11 Classic Movies That Investors Should Watch
11 Classic Movies That Investors Should Watch

Trading Places (Rated R)

Trading Places is a hit 1983 comedy, directed by John Landis, featuring Eddie Murphy and Dan Aykroyd. Aykroyd is an investment broker while Murphy hustles to make money on the streets. They end up switching places on a bet. In the end, they team up to use their brain power to make a bundle in investments. It’s an enjoyable escape for any movie viewer that might plant seeds of inspiration.

Stream it on Prime Video, Redbox, Apple TV, and more.

The Wolf of Wall Street (Rated R)

If you’re looking for a true story that is also a cautionary tale, catch The Wolf of Wall Street. Leonardo DiCaprio plays real-life stockbroker Jordan Belfort in this 2013 film directed by Martin Scorsese. It follows his triumphs on Wall Street before his fall into corruption. Beware of where greed can take you when watching this movie that is.

**This is a wealthdojo’s favorite.

11 Classic Movies That Investors Should Watch Wolf Of Wall Street
11 Classic Movies That Investors Should Watch Wolf Of Wall Street

Stream The Wolf of Wall Street on Amazon Prime, DIRECTV STREAM, Showtime, and more.

American Psycho (Rated R)

Christian Bale is best known for his portrayal of the superhero, Batman. However, go back to the year 2000 to catch him in American Psycho, directed by Mary Harron. In this film, Bale is an investment banker by day. At night, he’s secretly a serial killer wreaking havoc on the city. The movie gives viewers a peek at what life is like for people who wheel and deal in investments where the stakes are high.

Stream it on DIRECTV STREAM, HBO Max, and more.

Rogue Trader (Rated R)

Rogue Trader, directed by James Dearden, follows Ewan McGregor on a journey as he portrays Singapore trader, Nick Leeson. He balanced on a tight wire of risk management. In the end, he caused the collapse of Barings Bank, a stellar merchant bank that ranked at the top on a global level.

Watch this 1999 film on Amazon Prime.

Wall Street (Rated R)

When you think about the stock market, you can’t help but relate it to Wall Street in New York City. This has been the heart of the financial district for the United States. The stock exchange dates back to 1792. The 1987 movie Wall Street focuses on the ambitious stockbroker played by Charlie Sheen. Directed by Oliver Stone, it’s educational for anyone who wants an inside look at analysts, brokers, and traders.

Check it out on Hulu + Live TV, Apple TV, Amazon Prime, and more.

The Wizard of Lies (Rated TV-MA)

The Wizard of Lies stars Robert DeNiro as the infamous Bernie Madoff, a businessman who turned out to be a fraud. Director Barry Levinson exposes Madoff for his criminal activity on Wall Street as he took money from investors to increase his own wealth. He ended up going to prison.

Catch this 2017 film on HBO Max, Amazon Prime, Vudu, and more.

Margin Call (Rated R)

If you’re wondering what happens behind the scenes in investment banks on Wall Street, watch Margin Call. Directed by J.C. Chandor and starring Zachary Quinto, it will give you a chance to watch 24 hours on the edge of your seat as a bank approaches the disaster of the financial crisis that struck in 2008.

Stream Margin Call on Netflix, Prime Video, and more.

The Big Short (Rated R)

The Big Short, directed by Adam McKay and starring Ryan Gosling follows a group of investors in the middle of the 2000s who wagered on the housing market before it was ready to crash.

**This is another wealthdojo’s favorite.

11 Classic Movies That Investors Should Watch The Big Short
11 Classic Movies That Investors Should Watch The Big Short

Watch it on Amazon Prime, Disney Plus, and more.

Quicksilver (Rated PG)

Quicksilver is an 80s film starring Kevin Bacon. Directed by Thomas Michael Donnelly, it follows Bacon who is a stock trader who loses it all. He starts over as a bike courier, gets mixed up in frightening intrigue, and makes his way back to the market. It’s a great tale for anyone who needs to have a new beginning.

Watch it on Tubi, Vudu, Apple TV, and more.

Working Girl (Rated R)

Working Girl, directed by Mike Nichols and starring Melanie Griffith, is a film that follows one woman’s journey from secretary to the top of the business ladder. Griffith has a brilliant idea stolen by boss, Sigourney Weaver. Griffith trades places with her for a while and launches her own career. Learn how anyone can succeed in the business world when you watch this flick.

Catch on Apple TV, Amazon Prime, and more.

Glengarry Glen Ross (Rated R)

If you want to see what’s really going on in the real estate world, catch greats like Al Pacino, Jack Lemmon, and Alec Baldwin in Glengarry Glen Ross. This film directed by James Foley paints a picture of corruption.

Watch it on Hulu, Amazon Prime, and more.

Final Thoughts

Let’s brighten the mood this Chinese new year!

These are tough times for financial markets. Everyone has had to tighten their belts and look for ways to spare their wallets. Inflation keeps going up with no end in sight. There’s no better moment to focus on investing to give yourself some peace of mind. If you know how to sock money away or make your current savings grow, it will help you to weather any storm.

Pop some popcorn, pour yourself a drink, and give yourself a day to line up your pick of films that show you what investing is all about. They will either inspire you or tell you what not to do when investing.

 

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

Should I Pay My Property Mortgage Loans Singapore

Should I Pay My Property Mortgage Loans?

by with No Comment Money ManagementMoney MindsetProperty

Property Mortgage Loans are getting a lot of attention now as the interest rates are increasing. On 15 Nov 2022, DBS, OCBC and UOB raised their fixed home loan interest rates, with rates reaching up to 4.5 per cent. If you are approaching your refinancing period, there is a high chance that you are thinking of paying off your property mortgage loans. Should you do it or not?

Side note, if you are unaware of the latest property cooling measures, click here to read about it.

Should I Pay My Property Mortgage Loans Singapore
Should I Pay My Property Mortgage Loans Singapore

Brief Introduction

Mortgage is a loan that is secured by real property. It is a financial tool that makes the ownership of property possible as not everyone have the luxury of having hundreds of dollars in the bank at once.

The mortgage is made up of Borrower (you), Lender (usually the banks), Loan Amount, Interest Rates, Loan Tenure and Monthly Installment. Using a formula, you will be able to find out your monthly installment for your mortgage.

Should I Pay My Property Mortgage Loans Mortgage Formula
Should I Pay My Property Mortgage Loans Mortgage Formula

The Methodology

Behind every financial model, there is a few key assumptions that we will have follow. I have build an adjustable model to take into account your property mortgage loan value and also the interest rates. Here are the assumptions.

  1. Loan Value: $1,000,000
  2. Interest Rates: 4% and 1.1% (for comparison)
  3. Interest Rates are Annualized
  4. Amount to Pay Off: $100,000
  5. Loan Tenure: 25
  6. If not paying down loans, will be investing $100,000
  7. If paid down loans, will be investing the interest that is saved by paying down loans

The 2 scenarios are whether this person should pay off their loans or not.

The Results

Should I Pay My Property Mortgage Loans Singapore Interest Rate 4%
Should I Pay My Property Mortgage Loans Singapore Interest Rate 4%

In the first case study at interest rate 4%, you can see that it only make sense to pay down your loan if you are unable to find an instrument to invest at >4% (with the actual number closer to 5%). Usually, this means that you might be a balanced or adventurous investing personality.

The are interests in T-Bills and Singapore Saving Bonds (SSB) as these instruments are now offering cut off yield of 4.2% (T Bills on 5th Jan 2023) and 3.47% (SSB on 1st Dec 2022). Very simply, if you invested into T-Bills and SSB at this rate with an existing property loan of 4.5%, you would be worst off.

Should I Pay My Property Mortgage Loans Singapore Interest Rate 1.1%
Should I Pay My Property Mortgage Loans Singapore Interest Rate 1.1%

If we were to rewind the clock and see property mortgage loans to be at 1.1%, it make senses to pay down your loan if you are unable to find an instrument to invest at 2%. Although this number might seem low, it also worth noting that at that period, interest rates for T-Bills and SSB were significantly lower too. The average interest for SSB on 2nd Jan 2022 was 1.76%.

In this scenario, those that were invested in the equity markets would definitely not pay off their loan.

To put these 2 scenarios together, there is a strong case not to pay off the loans in a lower interest environment.

Final Thoughts

That being said, I would advise you to consider that there are many more factors that you should take into consideration.

  1. If you are thinking of paying off the loan, will this reduce your saving significantly? While it is good to reduce the amount of interest you are paying, it is unwise to do it when it affects your liquidity ratio. A period of retrenchment or illness will let you wish you didn’t pay down the loan.
  2. Are you planning to invest into another property? As you pay off the loan, you will be able to get another loan to acquire another property.
  3. Are you someone who considers being debt-free important? Is accrued interest daunting if you are using your CPF-OA?

The above is simply a financial model. You are unique in your own situation. If you would want clarity in your situation (depending on your interest rate, loan tenure etc), feel free to reach out to me so that you can understand your situation using the financial model above.

Mortgage planning is an important element in financial planning. I wish you all the best and happy chinese new year!

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.