We build on to the latest articles written to shed light on perhaps some misconceptions about the CPF in the midst of all these noises. The past three commentaries are:
- The CPF is giving us a higher rate
- I thought the CPF Life Annuity gave a high 8.5% return, perhaps I was wrong
- 2004 SAF Speech shows not all plans for CPF will work as it should
I have explained to a colleague about the general workings of the CPF, Minimum Sum and CPF Life. He message me one day that, perhaps it will be better that we shed more light on what happens when the money in your CPF is less than the minimum sum.
He explains that much of the anguish from folks that are not in touch with the topic so well is the sucky thought that they would never return the CPF to you with such a high hurdle. This hurdle is unfair and is as if the goal post is shifted.
As per the CPF,
- If you have at least $40,000 in your RA at 55 or at least $60,000 in your RA at 65, you will be automatically included under CPF LIFE
- If you have less than $40,000 in your RA at 55 or less than $60,000 in your RA at 65, you can apply to join CPF LIFE; otherwise you will be on the Minimum Sum Scheme.
This means that, regardless of the hurdle rate (minimum sum), its either they return whatever that is left in the minimum sum to you at age 65 or you can choose to enrol in CPF Life, where they will pay you an annuity every month.
Either way, it means that 65, some money comes out.
Possibility of not hitting the minimum sum
This is entirely possible. An Australian guy who used to be one of us projected that by 55 years old for me, the minimum sum would be nearly SG$540k. (growing at 6%+ per annum compounded)
If this sum is not splashed in front of me like that, I would not have thought that amount is so gigantic. It looks so far and so unattainable.
And it can be. If you choose to reach financial independence early, your CPF might stop growing and be stuck there growing at the pitiful 2.5%/4% for some years.
There will always be haters
One thing i realize with all these discussion is that, I disagree with my colleague this helps at all. The folks that have form an opinion will just bring up the following stuff:
- The sum return is so pitiful
- The rates they should give should be at least 10%!
- Once you nearly smell it they will shift the retirement age to 75 years old!
- I just want them to return ALL MY MONEY TO ME BECAUSE I AM SO SAVVY
This is suppose to address one isolated point and should be view as such. I don’t have the energy to write a long grandfather story to address everything or my point of view. I would just use this medium to reiterate what the policy is meant to be.