I bumped into a friend a few weeks ago. He had just passed an important life milestone – the double digit 55. For most of us, especially those who have been working most of the time, hitting this milestone is akin to getting the coveted key to a treasure chest – the CPF. After all, most of us have been working hard all these years and, certainly, would look forward to unlock this ‘can-see-cannot-touch’ national forced saving scheme.
Apart from setting aside a full Retirement sum of $166k, he still has more than $83k to enable him to go for the Enhanced Retirement Scheme (ERS) for which he would enjoy a monthly payout of about $1,920 for the rest of his life after he crosses the age of 65. He decided to go for that. But here is in interesting irony. Instead of drawing down from Ordinary Account (OA) and Special Account (SA), he decided to join the ERS by topping his retirement account with cold hard cash, drawn down from a commercial bank. Meanwhile, the balance amount after deducting the full retirement sum was still left in the CPF under the ordinary and special account attracting 2.5% and 4% respectively.
The above episode invites two camps of thoughts. The first, being spender camp, would believe this is one of the stupid course of action to take. The general belief is that they have worked hard and have accumulated a huge forced saving all these years. Reaching 55 is a god-send and, surely, they cannot wait to unlock the piggy bank that has been stowed away for many, many years. The common excuse is that they are almost at the tail-end of the life-stage and if they do not use it, then when? The general motto is ‘enjoy it while you can’. The second camp is the saver camp. This is the group that believes in delayed gratification. They believe in holding their savings as long as possible so that they can enjoy the tastier fruit in the later part of their life once they crossed 65.
After evaluating two options, perhaps the topping up with cash may not be a bad idea if we can afford it. It may not look like a wise decision at the first thought, but coming from a difficult life when even $1 was a treasure during my childhood days, I thought it was not a bad idea too. While a big chunk is being stowed away in the ERS to secure our livelihood until death, the remainder in the CPF would attract a higher interest of 2.5% in the OA and 4% in the SA. It is an excellent place for putting our money for emergency, and yet able to secure a high interest yield while our funds lay idle. It is certainly better than putting the emergency cash in a commercial bank attracting less than 1% interest. This is after all, emergency money and is not supposed to be touched unless really necessary. By so doing, it would help free up the savings in commercial banks for other investments. Furthermore, even if the fund is earmarked for investments some time down the road, it is still a good place to park our funds in view that most of the stock markets have already touched their all-time highs. Not a bad idea at all!
Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.