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.

The 2021 Madness. What's Next

The 2021 Madness. What’s Next?

The 2021 Madness. What's Next
The 2021 Madness. What’s Next

The past 2 years have been madness. I believe you saw how COVID-19 took the world by storm. Your company might have been left paralyzed, our governments scrambled and ordinary people that you know became separated from their loved ones.

Just as we think that things are becoming more stable, Omicron emerged. When will this ever end?

First thing first, for readers following Wealthdojo, I would like to thank you for all the support you have given by sharing my articles. It is really a pleasure.

As you know, it is a yearly tradition to write a reflection of the year so that we don’t miss the lessons we learnt (Read More: 2019 Reflection. 2020 Reflection). In this annual 2021’s reflection, I have a new epiphany.

What if things never really ends and these will continue forever?

History In Context

100 Years Of History And The Stock Market
100 Years Of History And The Stock Market

In the last 100 years, things were crazy. If you travel through time to the 1900s and tell someone that you can find all the information in the world in a 6 inch metal piece (smartphone), they will think that you are crazy.

Do you know what else is crazy? Imagine all of these happening just in the last 100 years.

  • 1.3 million Americans died while fighting nine major wars.
  • Four U.S. presidents were assassinated.
  • 675,000 Americans died in a single year from a flu pandemic (This wasn’t even COVID 19. 777,000 and counting died because of COVID-19)
  • 30 separate natural disasters killed at least 400 Americans each
  • 33 recessions lasted a cumulative 48 years.
  • The stock market fell more than 10% from a recent high at least 97 times.
  • Stocks lost a third of their value at least 12 times.
  • Annual inflation exceeded 7% in 20 separate years.

Every single time when we thought things are crazy, we bounced back as a human race to be where we are now. I believe things will be crazier from now on. (Maybe the Metaverse isn’t that crazy after all. More on the Metaverse in the points below.)

The Crazy Things That Happened in 2021

Let’s start with my pet peeve. Over 35% of all the American dollars ever printed by the U.S. government has been printed in 2020! These American dollars are given out for people like shopping vouchers. I cannot imagine how inflation will be like in the near future. This has raised food prices and (unintended so they say) impacted countries like Egypt, Libya, Syria, and Yemen where people are rioting in the streets for having nothing to eat.

We also saw terrible companies’ stock soar insanely high. Companies such as Gamestop (GME), AMC saw great gains. The worse part of it all is that I see speculators trying to rationalize those buys.

One of the biggest property developer in China, Evergrande is on the verge of collapse.

HDB is being sold for millions. Good Class Bungalows are being snapped up like hotcakes in Singapore.

NFT are now sold for millions with the current record of $69 million. Did I mentioned cryptocurrency already? Anyway, here’s the NFT that was sold.

Christies NFT Auction 69 Million
Christies NFT Auction 69 Million

Investing in 2021 is like going to NTUC before PM Lee gives his speech. There will be lot of people buying, stocking up on toilet paper and cup noodles. There will be fair share of people taking photos or videos of situations. It is funny, exciting and everyone will have a story to tell.

Please enjoy my reflections as I reflect on the 2021.

No One Gives a Damn About Long Term Investing Anymore

If they are, they are probably very seasoned investors or part of a Long Term Investing community.

It is not easy being a self directed long term investor. We live in a world of instant gratification. If you want food, just hit the Grab App and you will get it in 30 minutes. If you want a dress, just hit the Shopee App and you will get it in 2 to 3 days. If our internet connection is down for 15 mins, we behave like the world is over. In a world where things comes so easily, the virtue of patience becomes very hard.

The stock market is one where we see unique individuals. Some people treat it as a place to buy high quality companies. Others might treat it like a platform to instantly change their lives by putting all their savings in one company/coin. I don’t think there is right or wrong to this. I just wonder if they do get their intended results.

Social media changed the stock market completely. 🚀🚀🚀. Everyday, we are going to the moon. HODL. 🚀🚀🚀. It almost makes investing looks like it is easy money until it is not. Corrections happen and people suddenly becomes a “long term investor” again. Well.. at least until the correction is over.

AMC TO THE MOON
AMC TO THE MOON: I wonder how this Youtuber is doing now.

I find it so difficult to talk about investing now when their expectation is getting multi-baggers in the next few weeks. If it is not 100%, don’t even bother.

I wonder if people will be ever satisfied by buying and holding quality companies anymore. That being said, my own investment thesis is still investing and holding on to the quality companies in the long run.

Burn Outs Are Real

Do you remember holidays? Holidays are mostly overseas trips requiring you to pay buckets loads of money for you to take a photo over a scenic location. (Kinda look like this).

Burn Outs Are Real
Burn Outs Are Real

Jokes aside, I noticed the lack of holidays causing burns outs among my friends. Doctors, healthcare workers, teachers and people from all walks of lives are reported to have face anxiety, depression and burn outs in the pandemic. It is so hard to walk away from our work now and worse still, we can’t even go for a holiday.

I always thought that holidays were a temporary reset that we need in a driven society. There is always an email that you need to reply. There is always a whatsapp work group chat that you need to give attention to. You are constantly engaged. Although holidays are temporary relief much like Panadol, you might feel that at least it gives you the opportunity to disengage yourself from work and enjoy that moment.

*Important* If you find yourself constantly feeling helpless or trapped, having an increasing cynical outlook of life or lacking motivation, back pains, shoulder aches, gaining those extra pounds around your belly, those might be signs that you are experiencing a burn out. You might need some help. 

I’m not suggesting that I’m an expert to help with burn outs. Pandemic or not, I believe it is very important to take breaks or just a time to do nothing. I can tell you that it is not easy to do nothing. We have NOTHING in our culture that focuses on doing NOTHING. I grow up learning that I should not waste time and I was punished for wasting time.

Took me 5 years to learn that relaxing is not wasting time. This is so important that I’m going to bold and type this sentence again. RELAXING IS NOT A WASTE OF TIME.

Burn outs are real. Take breaks.

The Common Man Behaves Like Experts

Put a smart phone in the hands of ordinary man and they behave like experts. In my university days, I learnt about Bunning-Kruger Effect in Behavior Economics. Dunning-Kruger effect is generally reported as an irrational tendency among certain incompetent individuals systematically to overestimate their true level of competence.

Dunning-Kruger effect
Dunning-Kruger effect

An obvious example is ordinary man or woman becoming “experts” in vaccines overnight and being able to share certain theories. For companies like Moderna who aren’t even sure if their vaccines will work on the Omicron without new data, how can the common man be so sure?

I struggle with this a lot. It seems like everyone thinks there is a conspiracy theory everywhere and they are very convinced about their own theory. The trust in the government is tested regularly with every strain or every spike in COVID-19 cases. Though I feel annoyed when there are heighten restrictions on dining, I believe we are doing all we can to get through this.

Thinking deeply, I believe the struggle of this generation will be to find the right information. We have an overload of information and it is our duty to sleeve through all the noises. I see this in investment as well. There is probably someone you know who talks about Bitcoin and may be earning money if you know what you are doing.

For me, I placed high importance in finding places with right information.

Be Open Minded AND Keep your Eyes Open

I would like to finish off with this statement. I can’t help but feel that the world is constantly changing. Something that might have worked 5 years ago might be obsolete now.

Floppy discs, CDs, DVDs, MP3 players, the pager, overhead projectors, fax machine are just some technologies that once took the world by storm and are obsolete today. The world is changing and so should our minds.

Be open minded.

Be Open Minded
Be Open Minded

I’m currently learning about everything related to the Metaverse and recording them here. You can follow the page if you wish to be updated. I believe that this is an emerging trend and we are still early in the adoption of the technology.

It is also important to keep our eyes open. With the new shiny object in the room, there will be new scams, new rug pulls (I just learnt this term) and new ways to be cheated. Open your eyes and move. There is no guarantee that we will not be hurt but it is important to keep moving.

Final Thoughts

This is probably my last article for the year. Wishing all of you good health and may fortune favor the brave.

What about your reflections in 2021? 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.

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.