For the recent 2 months, I have been reviewing many investment portfolios with my clients and creating new ones with new clients as well. One of the most commonly asked aspect is whether investing our CPF monies is worthwhile. As you can see in the above screenshot, which shows one of the many double digit growth portfolios, especially with CPF investments, it can be highly rewarding when the investment portfolio has been well-positioned, well-diversified, and having risk diversification measures in place to catch on growth potentials towards the retirement goal.
At this point, I wish to highlight that having double-digit growth year on year is a really bonus because what we want to achieve is to have a sustainable portfolio that grows potentially higher than what we are given by the CPF Board, while meeting each of our unique risk profile, CPF savings amount and inflows, CPF planned usage(s), and retirement needs, etc.
For many of us in Singapore, the Central Provident Fund (CPF) has always been our go-to for retirement savings. It’s been a reliable way to put money aside, with interest rates that provide some growth over the years. But as we look ahead to the realities of retirement, it’s becoming clear that CPF interest rates might not be enough to ensure the comfortable and secure retirement we’re all hoping for.
I will explain more below on why depending on CPF rates for growth is no longer enough by itself to meet our retirement needs.
Let’s start with the basics. As of August 2024, the CPF Ordinary Account (OA) gives us an interest rate of 2.5% per year. The CPF Special Account (SA) does better at 4% per year. These rates have stayed pretty stable, which has been reassuring. On top of that, there’s an extra 1% interest on the first $60,000 of our combined CPF balances, and if we’re over 55, we get another 1% on the first $30,000.
At first glance, these rates might seem like they should be enough. After all, 4% per year in the SA is nothing to sneeze at. But when we start thinking about what we’ll actually need when we retire, the picture gets more complicated.
If you’ve been to the grocery store or paid a medical bill lately, you know firsthand that prices are going up. Inflation has been slowly but steadily eating away at the value of our money. Even though our CPF savings are earning interest, the rising cost of living means that what we’re saving today might not stretch as far as we’d like in the future.
Healthcare is a big concern here. As we get older, we’re likely to need more medical care, and those costs have been rising faster than almost anything else. Even with MediSave and MediShield Life, we may find ourselves dipping into our CPF savings more than we expected. And once we start using those funds, the balance left to earn interest gets smaller, which can lead to a downward spiral where our savings aren’t growing enough to keep up with our needs.
Singaporeans are living longer than ever before. This is great news, but it also means that our retirement savings need to last longer. Life expectancy in Singapore is now over 83 years. With the retirement age moving up to 65 by 2030, many of us can expect to spend two decades or more in retirement. That’s a long time to stretch our savings.
When you think about spending 20 years in retirement, it becomes clear that we’ll need a substantial nest egg to maintain our lifestyle, cover medical expenses, and deal with any unexpected costs that come up. The current CPF interest rates, while steady, might not provide the growth we need over such a long period, especially if we’re relying on them as our primary source of retirement income.
So, what can we do to make sure we’re covered? One option is to look beyond CPF and consider other investments that might offer higher returns. This could mean putting some money into stocks, bonds, or even real estate. Of course, these options come with their own risks, and they’re not guaranteed to perform better than CPF. But with careful planning and a good understanding of our risk tolerance, diversifying our investments could give us a better chance of growing our retirement savings.
It’s also important to remember that retirement planning isn’t just about saving money—it’s about managing it well. That means being mindful of our spending, planning for unexpected expenses, and staying informed about the financial tools and resources available to us.
CPF has been a reliable part of our retirement planning for years, but as the world changes, so do our needs. The interest rates that once seemed sufficient might not be enough to cover the rising costs of living and the longer lifespans we’re enjoying. By taking a more active role in our retirement planning—exploring other investment options, managing our expenses, and staying informed—we can better prepare for the future and ensure that our retirement years are as secure and comfortable as we’ve always hoped they would be.
Investing your CPF savings can be a powerful way to grow your retirement fund, but it’s important to do it wisely. Here are some key tips to consider:
First, make sure you understand the CPF Investment Scheme (CPFIS) and the options available, like stocks, bonds, and unit trusts. Each has its own risks and potential returns, so choose what fits your comfort level.
Second, know your risk tolerance. If you’re more conservative, stick with safer options like bonds. But if you’re open to taking on more risk for potentially higher returns, consider stocks or unit trusts.
Diversification is also crucial—don’t put all your eggs in one basket. Spread your investments across different assets to balance potential gains and losses.
Watch out for fees, as they can eat into your returns. Lower-cost options like ETFs might be a good choice.
Finally, keep an eye on your investments. Regularly review and rebalance your portfolio to stay on track with your goals. And if you’re ever in doubt, don’t hesitate to seek advice from a financial advisor.
By taking these steps, you can make your CPF savings work harder for you, helping you build a more secure and comfortable retirement.
Cheers.
𝗟𝗲𝘁’𝘀 𝗖𝗼𝗻𝗻𝗲𝗰𝘁:
I am Zechariah See
➡️ http://linkedin.com/in/zechariahsee
#retirewell #planearly #maximisegrowthpotential
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𝘋𝘪𝘴𝘤𝘭𝘢𝘪𝘮𝘦𝘳: 𝘛𝘩𝘦 𝘢𝘣𝘰𝘷𝘦 𝘤𝘰𝘯𝘵𝘦𝘯𝘵 𝘪𝘴 𝘧𝘰𝘳 𝘪𝘯𝘧𝘰𝘳𝘮𝘢𝘵𝘪𝘰𝘯𝘢𝘭 𝘱𝘶𝘳𝘱𝘰𝘴𝘦𝘴 𝘢𝘯𝘥 𝘱𝘦𝘳𝘴𝘰𝘯𝘢𝘭 𝘷𝘪𝘦𝘸𝘴 𝘰𝘯𝘭𝘺, 𝘢𝘯𝘥 𝘴𝘩𝘰𝘶𝘭𝘥 𝘯𝘰𝘵 𝘣𝘦 𝘥𝘦𝘱𝘦𝘯𝘥𝘦𝘥 𝘶𝘱𝘰𝘯 𝘢𝘴 𝘱𝘳𝘰𝘧𝘦𝘴𝘴𝘪𝘰𝘯𝘢𝘭 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦 𝘺𝘦𝘵. 𝘙𝘦𝘢𝘥𝘦𝘳𝘴 𝘴𝘩𝘰𝘶𝘭𝘥 𝘴𝘦𝘦𝘬 𝘪𝘯𝘥𝘦𝘱𝘦𝘯𝘥𝘦𝘯𝘵 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦 𝘵𝘩𝘢𝘵 𝘪𝘴 𝘵𝘢𝘪𝘭𝘰𝘳𝘦𝘥 𝘵𝘰 𝘵𝘩𝘦𝘪𝘳 𝘪𝘯𝘥𝘪𝘷𝘪𝘥𝘶𝘢𝘭 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘰𝘣𝘫𝘦𝘤𝘵𝘪𝘷𝘦𝘴, 𝘤𝘪𝘳𝘤𝘶𝘮𝘴𝘵𝘢𝘯𝘤𝘦𝘴, 𝘢𝘯𝘥 𝘯𝘦𝘦𝘥𝘴. 𝘊𝘰𝘯𝘵𝘦𝘯𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘳𝘦𝘷𝘪𝘦𝘸𝘦𝘥 𝘣𝘺 𝘵𝘩𝘦 𝘔𝘰𝘯𝘦𝘵𝘢𝘳𝘺 𝘈𝘶𝘵𝘩𝘰𝘳𝘪𝘵𝘺 𝘰𝘧 𝘚𝘪𝘯𝘨𝘢𝘱𝘰𝘳𝘦.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Personal Story:
I almost lost an arm and that was when I realised I had zero insurance.
Many years ago, I was living my life on the edge and very involved in many adventurous outdoor sports. All these came to a shocking realisation when almost lost my arm (or even my life), while kayak surfing with the high waves and deep waters overseas.
This lucky escape began my journey into the financial advisory business.
I wanted every person and family to know about the hard truth of being underinsured early and help everyone become better prepared. We run the risks of losing so much with every day we are not taking action to protect ourselves and our families financially.
Nobody has to deal with the same shock that I had experienced. You deserve better.
Why Me?
✅ I have a unique forte in helping families with their financial diagnosis and planning, since day one. I have been helping families, including young couples, big families, DINK couples, as well as their individual’s complex needs.
✅ I am a dedicated learner in the financial industry. I invested in my Masters in Wealth Management at SMU for this reason. I am still constantly upgrading myself year-on-year to become the best financial consultant for my diverse client profiles.
✅ My forte is in financial diagnosis.
My experiences in accounting and finance helps in giving proper diagnosis of your unique portfolio so that the correct approach/solutions could be personalised for you.
✅ I have a one-stop solutions platform.
Being an independent financial broker, I can represent you to find the solutions you need, all in your best interests. No need for hard selling. I am here for you and your family.
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Feel free to reach out to me for a free consultation session with you and/or your family.
See you soon!
Email: zechariahsee@fapl.sg
