CPF is the lowest hanging fruit one Singaporeans can optimize for their retirement.
The goal is to reach the prevailing FRS as soon as possible.
Once that happen, we will automatically secure a “passive income” stream from age 65 for life… until we die.
This is the payout from 2020:
As you’ll noticed, once you hit the FRS, the MONTHLY payout ranges between $1,390 – $1,490. So in a year, you’ll be getting paid about $16,680 – $17,880.
This monthly income is to help us with our basic expenses when we retire.
At this stage, we can term it as forced savings for retirement.
In 10 years, when we’re about 75, that’s about $166,800 – $178,800 in payouts from the $181,000 set aside – hopefully we don’t die before that.
And if we can get to live till 85 years old, we would be be paid MORE than what we set aside.
At this stage, we can term this payout as passive income.
Which is pretty decent…
So… stay healthy!!
The thing about the FRS is that, because of inflationary growth, it increases every year.
And there are ‘hacks’ to get around this increase.
The hack is to hit the prevailing FRS with our special account.
The interest earned every year from the special account will offset any inflationary increase in the FRS.
This way, we don’t have to worry about not meeting the FRS when we retire.
It’s not easy in the beginning, but it’s worth it.
Starting this year, I am going to optimize my CPF to hit the FRS.
Because my CPF is low in numbers, this is going to take some time.
There are a few ways I am doing this.
- Transfer $4,000 from OA to SA every year
- Invest in bank stocks using OA during the downturn of the credit cycle
- Invest in S&P 500 via endowus during market crashes.
Here’s what’s going to happen in the next few years or so:
- The current Cap for Medisave is at $63,000. So the cap should hit in September. Meaning to say, the monthly contribution to MA will then flow to my SA, which should help increase it at a faster pace.
- The yearly transfer from OA to SA will continue to happen and if all goes well, based on an estimated calculation, I should be able to hit the FRS in another 9 years. By then, I will be about 49 years old. And anything above the FRS can be withdrawn from the OA + SA.
- The current excess in OA that’s not being transferred to SA will continue to wait for opportunities in banks and S&P so as to earn a higher rate than the 4% SA can give. Since there is an opportunity cost involved, I wouldn’t want to bet everything and leave everything in OA while waiting for the cycle.
- If all goes well, and assuming I am still working by 55, I should be able to withdraw a minimum of $200,000 from my CPF while setting aside the FRS for retirement.
Of course these are just estimates.
If there are market crashes and down cycle from the banking sector, I should be able to increase these numbers.
Again, the main objective is to hit the FRS.
The rest are just bonuses
I consider them forced savings – amid using strategies to maximize their returns safely.
Will continue to update the annual numbers in my portfolio page.