Never transfer CPF OA to CPF SA when much younger is a financial mistake?
Many younger retail investors will have this dilemma!
Among the practicing investment bloggers in Singapore; it is also split!
Listen to who when we are lost ourselves!
On hindsight wisdom; Uncle8888 now thinks that his big mistake is to make a "transfer from CPF OA to SA" and even it is just one and only one time; if not his CPFIS as war chest would be even bigger and then huat more in the market!
On hindsight we are more likely to be right! No?
Can hindsight make us better going forward?
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Nowadays some young people dont have to transfer OA money to SA. Their parents are helping to top up their MA and SA.
ReplyDeleteShare prices are too high, fixed deposit rates are too low, cannot travel overseas for holidays, so spare money topped up children's OA & SA.
Typo, should be "spare money topped up children's MA & SA. I know some people also topped up children's OA too after the SA & MA have reached the limit.
DeleteHopefully when the time comes, the children can top up the parents' RA in return.
I heard got top up as young as start from infant, then let compounding work it's magic.
DeleteHow true is that?
Hmm .. can top up baby's full moon ang pow money from relatives and then every year top their CNY ang pow money until the kids grows up wiser and refuse to surrender their ang pows money for top up and telling parents that their money for them to keep or spend! LOL!
DeleteHi Uncle8888,
ReplyDeleteIn Jun 2021 it's a mistake ... but in Sep 2008? :P
More important to view everything holistically, instead of viewing things as separate buckets.
Those who do OA-SA xfer may be treating it as bond portion, while using their cash on-hand to invest in equities & other potentially higher-return assets.
Doesn't make sense today to use cash to invest in bonds or other fixed income since even 30-year SGS bonds paying less than 2%, and US 30-year Treasury not even paying 2.2% (used to be average of 5% over last 30 years).
Of course if CPF finally changes the formula for SA interest, then all these people may start blogging about mistake in OA-SA xfer! 🤣
But that's currently a 4-δ black swan ... politically untenable.
Not to mention all those retirees depending on MSS, RSS, and even CPF Life taking a big hit ... as their interest rates & target returns are benchmarked to SA rate.
Spur,
DeleteThat's smooth and gentle - "Doesn't make sense today to use cash to invest in bonds or other fixed income".
Some people treat CPF as "bond like". Shh...
We'll see in 30 years' time.
If the inflationary 70s decade comes back, those who have real assets (can see and touch) like properties will say "Heng ah! Lighting strikes twice! Who says property prices can't appreciate like in the 70s?"
Equities may depend on WHICH stocks as some sectors benefit while some suffer from inflation.... (A bit like this Wuhan virus thingy)
Those who have cash or put money in "bond like" instruments? Well....
Then again, if we believe going forward Singapore likely to have deflation similar to Japan's lost decades (aging population, future big daddy not lao lee calibre), then those who keep cash under the mattress or in CPF will smile until!!!
"Look ma! Everything so cheap! Property cheap. Equities cheap."
Who knew something as "innocent" as transferring money from OA to SA or voluntary contribution to CPF is actually a SPECULATION bet on who's crystal ball is more power!
LOL!
P.S. I just know for self interest, I support Singapore population 10M! Cash out, then relocate out to where my HDB flat can change to landed property. Surround myself with wine, women, and song. Grasshopper till the end :)
Smol,
DeleteBelow picture of how Permanent Portfolio (PP) vs typical 60/40 performed from 1972 till present.
So it covers periods of high inflation & "death of equities" to the Great Moderation in the 1990s & "stocks only go up" LOL.
Permanent Portfolio and 60/40 from 1972 onwards.
You'll notice that the standard 60/40 underperformed during the volatile 70s and early-80s. Those who retired in the early-70s got whacked, especially if they drawdown too much from their portfolios in the early years.
But after almost 50 years, its 9.7% CAGR vs 8.5% CAGR for the PP resulted in almost 2X the final quantum ($9.7m vs $5.5m).
So those with shorter timeframe or weaker stomachs should hedge with less volatile & more diversified portfolio, while those with longer timeframe & stronger stomachs can go with more concentrated risks.
While the website doesn't have data for the 1930s, the PP is designed for deflation as well, as safe longer-term govt bonds will outperform significantly & cash will outperform moderately.
Spur,
DeletePrecisely!
That's why the wealth management industry is not sweating on 1M65. Even a newbie snake oil can easily show to their clients the big difference in dollars and cents when we compound $100K at age 30 - 4% versus 8% - over 30 years to see what we'll arrive at age 60.
Just push the greed button.
Unfortunately, as quite a few has found out belatedly on hindsight, the path of Earn More is not for anyone and everyone. Its definitely not sure win or "bao jiak"!
Non more evident than those CPFIS investors still under water despite decades of waiting to breakeven one day...
CPFIS not likely to be banned since the genie is already out. I see 1M65 as a face saving way to gently wean some CPFIS investors back to the Save More path. Least they do more harm to themselves...
Which is fine.
I also see it as a hedge by big daddy just in case our working population continues to decline. Better "sell" voluntary than mandate increase in CPF contribution rates down the road... (But I don't mind increase in employer's contribution rates!)
My beef is with those parrots who say until like all we need is to Save More into CPF and everyone and anyone will be in financial paradise... Communist nirvana?
I've always said life is better when CPF is a minority share of our total networth.
From the comments, I see most of us are in agreement ;)
Its not a hedge (another word for diversification) when the hedging position is greater than the main portfolio, can't it? (Soft poke)
For example, having 5% or 10% gold in our portfolio is a hedge; having 50% in gold is a big conviction bet! LOL!
I hope my role as the "provocator" or "catalyst" can benefit youths who are reading.
Can you not see its mainly old fogeys who have made our money OUTSIDE of CPF that are "abusing" CPF to our own benefit?
Yes, even someone who has never invested a single cent but have a well paying day job is on the Earn More path.
Its youths who are voluntary contributing to CPF that make me sleep better at night.
I no children, but I suspect non of the old fogeys here will advise their own children to 100% depend on the Save More path.
Every parent's default is the Earn More path. If not why the pressure to get into "attas" schools and graduate from elite universities?
You graduate earn $8K per month; others earn $3K per month.
Sure, tell those who earn $3K to Save More...
And the oxymoron elephant in the room:
How is it financial "independence" when its just letting others grab us by the bxxls???
Meow.
Wifey is 50 this year. Last year I move her OA to SA leaving $20k in SA. Thereafter, I used cash top up her SA to FRS. Fast forward 2021, I use dividends and coupons to VC3A. She restarted working about 8 years ago. I am making sure she can catch up. Preparing her retirement.
ReplyDeleteCW,
ReplyDeleteLOL!
That's why we often debate and poke each other.
Huh?
"Among the practicing investment bloggers in Singapore; it is also split!"
1) Hello, we are not lawyers or doctors lah! Practice what? Investments bloggers broadly 2 kinds: Talk male-chicken like me, and those who see themselves as Joan of Arc - If you believe me, follow me!
2) Split? You see yourself as Ying/Yang equal share? Sorry, sorry. I should not have equated you with the 2 dots. Please forgive.
To answer your question, I not sure hindsight can make us better, but it sure can help us talk like got dragons and phoenixes!
You need to view at portfolio level. OA to SA when you have too much cash.
ReplyDeleteCurrent 2.5%/4.0% are the lowest guaranteed by law (ACT was not repealed despite years of near zero % after GFC, too high a political risk to repeal?). If the inflationary 70s & 80s resurface, quite possible CPF rates would move in tandem, as seen in the 80s/early 90s. CPF are super attractive bonds not available from the market anywhere - AAA rated but with yield of BBB rated, coupon adjustable as per inflation-linked or perpetual bonds with periodic reset mechanism, but capital protected unlike the 2 (OA, RSS/CPF Life are more like annuities, with return move in tandem with inflation).
ReplyDeleteThat said, CPF (or bonds) as an "investment" asset class should be avoided for those who are (a) confident of your ability to generate higher return from investment (or trading) in other asset classes (property, equity, gold, bitcoin, forex ..), and/or (b) very sure of the future direction of the economy & market (any setbacks are just transient, experience of 1930-1940 will not repeat itself, the lost decades of Japan is unique to Japan, equity market is always on a up trend given time, experience of 1920-1940 & 1960 -1980 will not happen again .....), and/or (c) have not accumulated sufficient wealth & need to have higher return than CPF to achieve the desired standard of living [possibly the reason young generation is not on the CPF path] and/or (d) have accumulated sufficient wealth but don't believe in the theory of asset diversification never mind it won a Nobel prize and/or (e) prefer the excitement of investing in other asset classes, to have sense of achievement.
I have accumulated sufficient wealth for desired retirement needs (min $10.000/month) but believe in asset (and income) diversification for wealth/income preservation & peace of mind. Therefore (a) have topped up wife & own RA to Enhanced + prevailing cap for the year (b) will return portion of sum withdrawn for property (~ $2 mil principal + interest) upon sale of investment properties.
Thanks for your sharing your views and perspectives retiree5559. Always happy and keen to learn.
DeleteI turned "pro-CPF" when I got nearer to 55, no doubt "helped" in part by diminishing appetite for risks as I get closer to retirement. Fortunately or unfortunately (depending on your crystal balling power) , the CPF savings will form the backbone of our retirement sources of income. In our retirement, stability and consistency of cashflow will be paramount to us as we want to preserve our capital. And among the various sources of income, we see the CPF sources as the ones capable of providing consistent and stable cashflow.
This is how we planned our income for our retirement sustenance (based on past & current performance of our dividend and rental incomes)
Now (60 to 61):
Dividends : $64,000 pa
Rental : $35,000 pa
CPF Interest (from OA & SA, based on 11 months) : $55,000 pa
Total cashflow : $154,000 pa
(The incomes will be reinvested as we do not need to tap on them yet)
62 to 69:
Dividends : $64,000 pa
Rental : $35,000 pa
SRS drawdown : $43,000 oa
CPF Interest : $58,000 pa
Total cashflow : $200,000 pa
70 and above:
Dividend : $64,000 pa
Rental : $35,000 pa
CPF interest : $58,000 pa
CPF Life : $53,000 pa
Total cashflow : $210,000 pa.
The planning was "easy" and looks good, but in reality, we are only "male chicken" sure of the SRS, CPF interests and CPF Life payout sources.