Pondering about my CPF. Am I working it right?

Point no. 3 is what most Singaporeans have in mind and I have always feel that I cannot let the money in CPF OA to idle receiving the minor 2.5% interest compare to investing in equities. But the 35% limits on your OA account is really limiting. Looking at 20k interest @ 3.5%, 35% of OA invested in stocks @ average of 6% yield and the rest at 2.5% interest. The following table states the yield for OA at their level.

What if transfer all OA to SA every month with first 60k of SA at 5% interests.

Assuming with an OA account of 50k. How will it pan out with the above 2 methods.

Plan A:Investing CPFIS

Plan B:Transferring to SA

Plan A gives an average of 3.98% yield while Plan B give a 4.69% yield, almost 18% more than Plan A. Plan A could have lower yield as the CPFIS portion cannot be deploy fully at all times and also capital gain/losses Plan B will be a hassle free pumping in of funds will do. However, with Plan B, SA fund cannot be touched.

Below is a table from CPF. By 2020, the Full Retirement Sum(FRS) will hit $181,000. For simplicity, let's assume a increment of $5000 for a man who will hit 55 of age in 20 years needs to hit $271,000.

If the man has salary of $4000, his CPF contribution is $800 and his employer's $680, a total of $1480. This is split into OA, SA and MA with the amount $920.56, $239.76 and $319.68 respectively. Using TVM calculator, We can calculate the Future Value. For simplicity, compounding is done p.a instead of by month and compounding using the average yield.

Assuming a13th month and 1x bonus, one year contribution to SA is $3,356.64, OA $12887.84. Using Plan A, OA will have $463,740 and SA $139,935.07 after 20 years. Total of $603,675.07($529,779.34 if compound at 2.5%).

OA Compounding

SA Compounding

Similarly, if He uses Plan B and a year of contribution to SA is $16,244.48. To hit $271,000 this time requires about 10 years. By the time He reach 55. SA has $644,920.50.

Apply Plan B for 10 years to hit estimated FRS

Applying Plan B till 55

Plan C

Hitting a critical point ASAP to allow SA to compound to $271,000 without contributing a single cent. By applying Plan B for the next 4 years. The SA will compound to $271,000 when He hit 55. No need to worry if hit by unemployment.

Apply Plan B for 4 years.

Compound till Age 55

Conclusion

The table shows the amount in the CPF at age 55. There is not much significant between Plan A & B if the CPFIS portion is manage right. With no plan, CPF basic compounding still give and substantial amount but about 20% lesser returns. I believe Plan A is the best as it provide flexibility of OA. One can follow Plan C then switch to Plan A so as to secure the FRS by age 55. 

FRS at $271,000, one can expect standard payout to be 50% more than the current rate. $2000 per month would be nice. As price double every 20 years due to inflation, a plate of carrot cake will cost $8 in 2038, $16 in 2058. When the payout starts, $2000 is worth less than $1000 today. Ouch!

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