3 Key Changes To CPF Policies From 2022

3 Key Changes To CPF Policies From 2022

January is the month where many people are interested in the CPF. I believe this is because we usually set our life / financial / career goals for 2022 at the start of the year. For those of you who have financial goals, I welcome you to Wealthdojo and hope that this website will be a good resource for you.

3 Key Changes To CPF Policies From 2022

3 Key Changes To CPF Policies From 2022

This article will only highlight 3 2022 CPF Policies updates. If you wish to look at all the other changes that was announced in Nov 2021, you can take a look here.

#1: Basic Retirement Sum (BRS) / Full Retirement Sum (FRS) / Enhanced Retirement Sum (ERS) Updates

The CPF retirement sum is a moving target because of inflation. This is to ensure that CPF payouts will be sufficient during our retirement years. For 2022, the amount in BRS, FRS and ERS are $96,000, $192,000 and $288,000 respectively. If you are turning 55 this year, these numbers will be relevant to you.

#2: Basic Healthcare Sum (BHS) Updates

In 2022, the BHS will be $66,000. This is the estimated savings needed for basic healthcare for old age and is adjusted yearly until the age of 65. This will be fixed for the rest of your lives. If you are turning 65 this year, this number will be relevant to you.

#3: Increase in CPF Top Up Tax Reliefs Updates

You may enjoy tax relief of up to $8,000 if you may a top up for yourself and an additional $8,000 if you make a top up for your loved ones. However, the $8,000 tax relief cap is now shared between Special Account (SA), Retirement Account (RA) and the MediSave Account (MA).

This update has posted the most concerns and I believe this will affect a specific group of individuals which I will explain later.

To understand this, we have to take a step back and look at how top ups were done before 2022 especially MA Top-ups.

Before 2022, topping up MA is a popular tax relief option together with Retirement Sum Top-Up (RSTU). It depends on 2 factors.

  • The difference between the CPF Annual Limit ($37,740) and the CPF contributions made for the calendar year
  • The difference between the BHS and current MA balance

I will be illustrating using an example of Mr Goh (age 25) with a salary of $10,000 monthly with no bonus. As he is young, we can safely assume that his MA amount is way below the BHS. As the the Ordinary Wage ceiling is capped at $6,000 currently, his annual CPF contribution will be the following.

A: Annual CPF Limit: $37,740

B: Annual CPF Contribution: $6000*12*0.37= $26,640.

C: Eligible VC-MA Top-up amount: A – B = $11,100

D: Max RSTU Top-up limit before 2022 = $7,000

E: Total Eligible Tax Relief: C + D = $18,100

As you can see, it is slightly more complicated to calculate tax-reliefs previously.

After 2022, it is very simple. $8,000 tax relief cap is now shared between Special Account (SA), Retirement Account (RA) and the MediSave Account (MA). This means for Mr Goh, his eligible tax relief decreased by $10,100 ($18,100 – $8,000).

Now that we understand the theory behind it, let’s put things into context.

Personally, I think this will not affect most of us. This is because the median income for Singaporeans is $4,534 in 2020 including CPF contributions from employers. It is an income where tax is rather manageable (in my opinion) and you might not consider to contribute to CPF for tax purposes. I do understand that some of you might be attracted to the interest rates from CPF, feel free to contribute at your discretion.

The group that I believe will be affected are the high income young individuals. At that income level, you might be looking for ways to have tax-reliefs such as SRS Top-ups to reduce your taxes.

Final Thoughts

The journey of your financial freedom begins with the first step. Congratulations for reaching the end of the article. I hope to see and hear (write down your thoughts in the comments below) from some of you in 2022.

Take care.

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.

Should You Apply For Rochor River Peak BTO

Should You Apply For Rochor River Peak BTO?

Winning the BTO lucky draw is a bonus for many of young married couples. Pinnacle @ Duxton, Natura Loft @ Bishan, The Peak @ Toa Payoh are among the few that has made headlines for being sold at over a million dollars. These BTO are typically are matured areas.

The government then came up with the PLH model to discourage property inflation especially in the matured area.

In this article, I hope to share whether you should apply for River Peaks @ Rochor in the aspect of financial planning (affordability). I will seek to illustrate how much you should be earning monthly to be able to afford this property comfortably.

Should You Apply For Rochor River Peak BTO

Should You Apply For Rochor River Peak BTO

The Assumptions

Buying price for River Peaks is $635,000 (Average of $582K to $688K).

The couple is eligible for BTO application, no debts, no grant whatsoever. They pays for equal portion of the HDB downpayment and the loan. They starts from zero with no help from parents.

We are using HDB loan that requires the couple to pay at least 10% downpayment ($63,500) of the purchase price. We do not use bank loan as it require 25% downpayment and we assume that it is not an easy sum to pay.

We do not include stamp duties and misc expenses.

Illustration #1: Young Couple that just started working

If your partner and yourself are young with a few years of work experience, HDB loan might be the only option if you do not have capital.

Taking the medium monthly gross $3468 for the age group 25-29, your CPF-OA contribution will be $797.85 monthly. It will take you roughly 40 months / 3.5 years to have $31,750 in your CPF-OA. This means that you can consider applying for this BTO if you have already worked at least 3.5 years. Of course, if you have a good saving habit, you can use cash to pay for the downpayment (see #1A).

However with the monthly gross salary of $3468, the available HDB loan that is $458,400 and this is insufficient as the loan amount required is $571,500. There is shortfall of $113,100.

In this case, you cannot apply for the Rochor BTO unless you have saved an extra $113,100.

Should You Apply For Rochor River Peak BTO HDB Loan Estimator

Should You Apply For Rochor River Peak BTO HDB Loan Estimator

Illustration #1A: Young Couple that just started working and are savers

Let’s push the assumption one step further and assume that the young couple saves 30% of their income for downpayment. This translates to $1040.4 cash and $797.85 CPF-OA per person per month.

Shortfall: $635,000 (property value) – $458,400 (potential loan amount) = $176,600

Monthly Couple Saving Towards Property: [$1040.4 + $797.85]*2= $3,676.5

This translates to 48months or 4 years.

Their estimated monthly mortgage repayment will be $2,080 for a 25 years payment at 2.6%. This works to be cash of $242.15 per person monthly.

This is doable but not easy. However, majority of their equity will be in their house.

Illustration #2: Young Couple that just started working with higher median monthly income

Given that the constant is the amount of loan that can be obtained, I did the reverse calculation and found out that a monthly income of $4,400 will produce the HDB loan of $576,000.

Should You Apply For Rochor River Peak BTO HDB Loan Estimator 2Should You Apply For Rochor River Peak BTO HDB Loan Estimator 2

Should You Apply For Rochor River Peak BTO HDB Loan Estimator 2

In this case, a monthly income of $4400 would mean your CPF-OA would have $1012.09 being contributed monthly. It will take around 32 months or 2.7 years to have $31,750 in your CPF-OA.

Similarly, their estimated monthly mortgage repayment will be $2,080 for a 25 years payment at 2.6%. This works to be cash of $55.82 per person monthly.

Definitely suggest that you probably need a higher income to be comfortable to afford this property.

Final Thoughts

I expect that people applying for this BTO is probably going to be couples that have worked for at least 4 to 6 years (maybe 28 to 32 years old). I expect that their income to be at least $4000 to consider this project.

This assumption means that they have both time to save in their CPF and their saving account to afford for this project.

The downside is that the project have a waiting time of 71 months or close to 6 years (without delay). This means you would not be able to have a home until you are close to the mid 30s.

What do you think about this project? Let me know in the comment below.

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.

How Do You Start Self Directed Investing

How Do You Start Self Directed Investing

How Do You Start Self Directed Investing

How Do You Start Self Directed Investing

Investing is a like taking a trip to a dream destination that you really want to go. You might feel it is nerve racking as this might be the first time you are going to take a long trip. You might also be unsure what to pack and bring. You might also feel anxious as you don’t know if you prepared enough for the trip.

If you have experience planning for a 10 days (or even longer) holiday, the skillset used there can be transferred over to investing. Here are 5 things to prepare before going on your trip.

Special note: Whether you are starting the journey or have already started, I wish everyone a safe journey.

#1: Determine Your Destination.

Many people stumble on this point right at the start. One of the most interesting conversation I ever had was with a friend in university. I remember him saying that he wants to get “many experiences” travelling. However, when I asked him where he wanted to go or what he wanted to experience, he couldn’t give me an answer. He simply stared at me said “anywhere lah”.

In the end, he didn’t go anywhere at all. He just couldn’t decide.

It is the same for investing, you might want to be a self directed investor because you want to make more money but you might not know how much you need to make. Although “the more the better” is relevant here, the lack of destination creates a tension in your mind because your brain don’t know what to do. In the end, most people don’t start.

Knowing your destination is simply require simple mathematics. I’m going to assume the following.

Assumption:

I want $5,000 monthly or $60,000 yearly for my retirement.

I wish to retire at age 55. Since male mortality is age 83 (female is 88), I would require 28 years of $60,000 or $1,680,000.

In this simple illustration, you would have already determined your destination. It is time to start packing.

#2: Buy A Map / Make Sure You Have Google Maps

If I were to ask you to drive from your house to Tuas Crescent 1, would you be able to do it? Unless you know Tuas very well, it would be very difficult and time consuming. This issue escalates for longer journeys. Imagine, asking someone to drive to Four Season Hotel in Thailand, Bangkok without a map.

For self directed investors, one of the most important thing is to have a map. This map is a strategic game plan that allows you to move from Point A to Point B. It is a map that would show you where are the possible danger spots and route to take.

via Gfycat: Looks easy?

In investing, we call this a game plan. There are several game plans out there. Each and every of them will eventually get you to your end goal. Some example of game plans are like ETF dollar cost investing, Robo-investing, Value investing, Growth investing, Value-Growth investing, Options investing, Momentum Growth Investing, Multi-Asset Value-Growth investing or trading. These game plans are created by people who have gone ahead of us and are itineraries that we can consider.

You might prefer certain itineraries to others. Some of more “adventurous”, some take the safer route. However, the lack of tour guides means that you have to take ownership of the trip.

You might find yourself stuck at this stage because you don’t know which is the best route to follow. My advice is to try out any path. This is because you will quickly understand which paths fits you the best ONLY IF you step on that path. You can also change your path along the way.

#3: Get Your Passport

A passport allows to travel across countries. For investing, the passport is your brokerage account. It allows to buy and sell. This is the most straight forward step for self directed investors.

You can consider between the brokerage account in the traditional banks or the new brokerage accounts like Moomoo or Tiger.

There may be promotions at different periods. If you have enjoyed reading this article, I would appreciate if you could register an account with my referral above. Appreciate it loads!

#4: Leave The House

I remember leaving my house for my student exchange in Sweden. There was a mixture of excitement, fear, uncertainty and I missed home suddenly. Of course, that trip turned out to be one of the best trips I ever did in my life.

Our house is our “comfort zone” and in the same way, investing into the stock market is usually outside our comfort zone especially if you have never invested before.

The journey of a thousand miles begins with the first step. It is only when you put in real money into investing can your journey truly begin.

Leave The House Uppsala

Leave The House: One of my favorite photos of Uppsala, Sweden

#5: Keep Track of Your Progress

Nothing is more scary than being lost. One of my first solo trips was to Taiwan. My plane landed in Taipei and I was trying to get to Kaohsiung. In my very silly attempt to save money, I decided on taking the bus to Kaohsiung instead of taking the train.

It took me 8 hours from Taipei to Taichung by bus and I knew something is wrong. My phone battery was going to be flat and I was meeting a friend in 3 hours time. I transferred to the next train to Kaohsiung (in the end, I spent even more money) and landed at Zuoying Station. I happily told my friend that I will be waiting for them at MacDonald. My friend asked me which one? Who knew that there was Zuoying Station and Xin Zuoying Station. My phone battery took one last breath before shutting down.

Luckily~ my friends found me on their first try.

It is the same for investing. Sometimes we do get caught up in the moment and make irrational decisions. It is crucial to acknowledge when you are lost and change directions immediately. It would be easier especially if you have a group of mentors whom are familiar with the workings of the market.

Even if you are on the right direction, take note of your milestones and celebrate them when it comes.

Final Thoughts

Being a self directed investor gives you a lot of control but you have to learn how to control it. It will take both time and effort. Starting is very scary but once you start, I can assure that it will be a well lived life.

Are there any other tools you feel you need to get started? Let me know in the comment below.

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.

Will NOV 2021 CPF Changes Affect me

Will Nov 2021 CPF Changes Affect me?

Will NOV 2021 CPF Changes Affect me

Will NOV 2021 CPF Changes Affect me?

2nd Nov marks an important date for many of us. There are changes in the CPF act that will potentially affect us. Please view the original article here. I will help to interpret these changes to those that are affected and how these changes will affect them.

That is the lifeblood of Wealthdojo and I aim to share one Financial Tip a day from my Telegram Channel.

For Retirement Sum Scheme (RSS) Members

If you born before 1958 or have less than $60,000 in your Retirement Account (RA) at age 65, you are probably be in this category. RSS was the main payout scheme prior to the CPF Life.

For the RSS, it will allow you to receive a monthly payout until your retirement saving is depleted. If you continue to work and contribute to your Ordinary Account (OA) and Special Account (SA), the money will sit in your respective accounts. To continue to receive payouts, you will have to apply to transfer money from your OA and SA to RA.

With the new changes, OA and SA saving will be automatically transferred to the RA. There is no need to apply to transfer the money.

I believe this is to make it easier for money to be received by RSS members. Previously, the application might have been a cumbersome process.

For CPF Life Members

As compared to RSS, CPF Life allows you receive monthly payout no matter how long you live.

If you are already receiving your monthly payouts and wishes to contribute more to your RA for higher CPF Life payout, you will have to apply for it.

With the new changes, your new contribution to the RA will be automatically transferred. There is no need to apply to transfer the money.

For People Who Top Up Their CPF

From 1 Jan 2022, tax reliefs will be provided to the giver who tops up the account. The cap for tax reliefs will be set at $8,000 for top up to your Retirement Sum Top Up (RSTU) and voluntary contribution to Medisave Account (MA) for employees.

If you wish to contribute cash top up to your loved ones’ account, the tax relief will be $8,000. This will bring the total to be $16,000 a year.

The top up limit for Medisave will just depend on Basic Healthcare Sum (BHS) moving forward.

If you wish to reduce your taxes with tax reliefs, please be aware of the limits, run your numbers before contributing.

For People Making A Estate Claim From CPF

For un-nominated CPF-monies more than $10,000, all eligible beneficiaries must submit their information and supporting documents to the Public Trustee’s Office (PTO). This could be a long process.

For un-nominated CPF-monies less than $10,000, a beneficiary representative may be appointed to represent all eligible beneficiaries and make one consolidated claim for the dead CPF member’s un-nominated monies.

This representative must be an eligible beneficiary according to the rules of distribution under the Intestate Succession Act or the Administration of Muslim Law Act.

Preferably, you should do you CPF nomination. It is free and took less than 5 minutes for me.

Others

CPF will not retain unclaimed CPF monies after 6 months. No interest will be payable after that. I believe this is to encourage people to quickly claim from CPF.

 

Final Thoughts

Personally, I believe that the new changes are for the better. Certain policies are “smoother” and clearer. Hope it benefits you in the right way. Here’s a summary. In an event of a doubt, please refer back to the CPF Amendment Bill Highlights 2021 here.

Let me know what you think about the changes below.

If you wish to read more CPF, here are our top 5 most read articles.

3 Things To Know Before You Do CPF Shielding

Top 5 CPF Decisions To Be A CPF Millionaire

5 Things You Need To Know About Your CPF

CPF Accrued Interest Trap: Can You Downsize and Retire?

5 mistakes people make using their CPF

 

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.

SRS Last Chance Save 1 year with $1

SRS Last Chance: Save 1 year with $1

SRS Last Chance Save 1 year with $1

SRS Last Chance Save 1 year with $1

SRS is a voluntary scheme to help individuals save for retirement in additional to the Central Provident Fund (CPF) saving.

The SRS offers tax benefits and you can find a quick summary of SRS here. This information is crucial to you especially if you are above 40. I will be conducting a SRS webinar in the next few weeks. Join my Telegram Group where I share 1 financial tip a day where I will be posting more details.

Why is this a last chance?

SRS allows you to make penalty free withdrawals from your SRS on or after the statutory retirement age (currently at 62) that was prevailing at the time of your first SRS contribution. 

In the National Day Rally in 2019, it is already made know that the statutory retirement age will increase to 63 (in 2022) and 65 (by 2030).

This means that if you don’t make your first SRS contribution before 2022, your penalty free withdrawal year will increase by 1 year to age 63. This is your last chance in doing so.

SRS Last Chance Retirement Age Increase National Day Rally 2019

SRS Last Chance Retirement Age Increase National Day Rally 2019

How much do I need to contribute?

All it takes is $1. You didn’t hear me wrong. You don’t need to invest in anything yet. The account opening only require $1 (and around 1 minute). The purpose of it is to “lock in” your statutory retirement age to be 62. You can find out more in one of my most read article last year called the $1 SRS strategy.

You can then consider to invest it or think about investing using your SRS in future.

Final Thoughts

Personally, I think it is a no-brainer to open the account. The “opportunity cost” is just $1. That being said, the choice is still yours at the end of the day.

For those of you who have opened your accounts. What are you investing in currently?

Let me know in the comments below.

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.