The government just announced that the CPF minimum sum will be raised to $155K this year. Back in 2003 the min. sum was $80K.
Minimum sum will be $600K by 2037
Looking at this chart I came up with a very conservative 6% compound per annum, the min. sum will be almost $600K by the time I’m 55!
I (personally) wouldn’t have met the min. sum
Provided that I continue working till I’m 55 and am paying off my flat with CPF, I would have only accumulated approximately $370K by the time I’m 55 (including CPF interests). I’m no where near the minimum sum projection.
The $5K max contribution limit will be raised very soon
I strongly believe that the current max of $5K will be increased very soon because the sums just do not work out. Here’s a fictitious example of a highly paid young and energetic local graduate drawing a salary of $5K/mth so he can make the maximum possible CPF contribution from day one.
Edit: I made some mistakes in the calculations earlier, this is an updated sheet.
(I’m having trouble uploading graphics, will do so later.)
He would have around $807K in his OA + SA by the time he’s 55, but check out his minimum sum! That’s provided if he doesn’t buy a property.
But I’m sure he wants to get married and buy a flat… and have kids… the government strongly encourages that!
He’ll have no money left in CPF if he bought a condo
So after working for 30 years and paying for a flat together with his spouse, it is fair assumption that this bloke would have $300K less in his CPF for a decent HDB flat at current prices ($600K for a flat including interests divided equally between husband and wife).
If the couple buys a million dollar, they will have nothing left in their OA.
If his wife gets pregnant and stops working we may find another dead body in Bedok Reservoir/Singapore River.
Singapore tax rate is effectively >36.5%
Given that our current CPF rate is 36.5% (20% employee + 16.5% employer) our income tax rates can be considered to exceed 36.5%. Just as an example, the highly-paid graduate above would pay about 3% income tax for a salary of $60K/yr. This would add up to around 39.5% in taxes. This is higher than many developed countries. Even in US the highest tax bracket in the most expensive state is around 40%.
What the hell are we still contributing to CPF? We should be contributing as little as possible.
On hindsight, maybe it is a good idea to spend all your CPF money on a property since you’re never ever going to get it back.
The other question would be why are we even buying older and shorter tenure properties for more money?
May 8, 2014 at 5:41 pm
Have 3 comments on your analysis:
1. 6% is actually a rather high assumption to build here. After 2015, the min sum is expected to only be raised by the inflation rate. This is because there was a MS target of $120,000 in 2003 dollars for 2015. See weblink:
http://mycpf.cpf.gov.sg/Members/CPFSchemes/MinimumSumScheme.htm
2. From what I understand, property can be pledged (not sold) to contribute up to 1/2 of the minimum sum. Property may also appreciate more than the interest charged by CPF – not sure what was your assumptions used for this?
3. On whether CPF is a tax – would you then consider social security payments and pension fund payments in other countries an income tax then? Since you also won’t get those monies back, as they are returned in CPF Life like structures after retirement…