Are you maximising your CPF to its full potential?
First things first, what is CPF?
The Central Provident Fund (CPF) is a compulsory savings plan for working Singaporeans and their employers.
Contributions are made monthly and its primary purpose is to fund retirement. However, it has since been widened to include healthcare, housing needs and some investments.
How is CPF relevant to my life?
By age 30, most are recently married (or about to) and are looking for a home to live in. A savings plan for you children’s education won’t be too far away. With good financial planning, your CPF can help you sustain these. However for it to work, you will need to make your CPF work for you by investing in the right options.
Between 23 – 35, most people will be getting married, paying off their university loans and planning to purchase a house (just the down payment). This will be supported by your ordinary account (OA) and most likely deplete it.
Thus it is important to ensure that your OA has sufficient balance to support your new house. This is best done through careful financial planning from a young age.
Between 35 – 47, most people will be paying off their mortgage (Installments for that new house) and begin saving for their children’s education. Singaporeans send their children for extra tuition, enrichment classes and sometimes a piano/violin class on top of the regular school fees. University is not cheap and even as a Singaporean with government subsidies, a local university course can cost up to $13k per year.
Your OA has the ability to act as a sponsor towards your children’s educational fees, as well as your mortgage payments. This could be possible through combining the monthly payments contributed from your monthly income as well as your OA.
Around 47 – 55, people should be gearing up for their retirements. Whether it will be a blissful one or one struggling to pay off the house will depend on your actions today. Don’t forget that retirement planning is not just for your holidays and lifestyle though; you will have to plan for your insurance and medical bills which have a fair chance of increasing as well.
How much do you need for retirement?
What kind of lifestyle are you looking for?
What happens to your CPF after your retirement?
All these are personal questions that have to be answered and planned for in advance.
What can I do to optimize my CPF?
In view of all the things that you will use the CPF for, what can you do now to make sure that you won’t sell yourself short?
To start with, you will want to minimize any liabilities towards your mortgage. This can be done by paying a higher monthly installment or paying off a larger down payment. But the money has to come from somewhere. That’s why it is best if you are able to find an investment that has a solid, stable interest rate which will give you more bang for each buck you earn, saving you lots of money in the long run.
One common pitfall is to purchase a second property when you cannot afford it. This has caused many in Singapore to delay their retirement because they end up having to work to pay off their mortgages during Stage C. Furthermore, their CPF will have insufficient funds to support them medically which will come back to haunt them as they find themselves retiring later and later.
All in all, the CPF is not just some government forced savings account that can only be used when you retire. It is a means to an end and should be utilised to its maximum value at each stage of life. Whenever you see people travelling and boasting about how good their retired lives are, remember that it was hard work and planning that did it, not mere luck.
To learn more about how I may be able to help manage and tailor your financial needs, please contact me:
☎ +65 9763 7746
Deepak Singh is a highly qualified financial adviser with Global Financial Consultants Pte Ltd,who gives unbiased and honest financial advice. He manages the financial portfolios of Singaporeans, Permanent Residents (PR) and expatriates. Deepak Singh is a representative of Global Financial Consultants Pte Ltd – MAS Licence no. SDK30016098