But you should have known this anyway.

For those that don’t, go on and read Leong Sze Hian and Roy Ngerng’s posts (part 1 and part 2). Just ignore the sensationalist headline. It’s lengthy but I think presents some information that will be enlightening to most.

Why I’m not counting on my CPF to retire in the first place?

It’s simple. The OA pays 2.5% (well below historical inflation rate) and the SA (which has less contribution going in there) pays 4% (barely enough to cover inflation). If you monies can’t apply the 8th wonder of the world (compound interest) on a real basis, then pray tell, how is (an average) one supposed to retire?

Any wonder then, that most Singaporeans use their OA to pay for their property? After all, the traditional belief is that property will generate higher returns than the miserly 2.5% and honestly, Singaporeans in general have gotten this right because property is a leveraged asset class (for most of us, at least). The average Singaporean property buyer takes at least an 80% (?) loan? That would mean a leverage of 4:1 which means property only has to return 0.625% per year in order to equal the returns on the CPF OA. Doesn’t take a genius to figure out that property is the better option.

The question that most people don’t think about is whether they can treat their property as fungible enough to sell off and count on those monies to see them through the rest of their life.*

*The strategy of course, is to sell off the place and downsize or rent. Rest of the monies are then used to fund one’s retirement lifestyle.