Alternatively, this could have been titled, “An Ode to my CPF”.

I know I’ve given lots of shit to CPF (for example, “CPF monies: to depend on it for retirement is a pipe-dream“, the footnote in “Early retirement: some math“, or more recently, “What’s the economic logic behind CPF’s accrued interest policy?“) but think about it:

*What if you had regular contributions to your CPF and you let it compound?*

There is a group of people in Singapore that has spent so much on housing that they have barely any contributions to their CPF each month. Those that even have to fork cash out of their pockets to pay the mortgage are in truly dire straits. If you happen to find yourself in this situation, read on below.

### A Very Personal Example

I happen to belong to the camp that has regular CPF contributions because my housing loan is so low that my monthly CPF contributions more than covers the monthly mortgage. Also, I will finish paying off my loan in another 4 years or so (background here).

So I decided to run the numbers on the following scenarios to see how much I would have when I turn 55 (the age that we can finally take some of the money out of our CPF accounts):

A: If I work for another 20 years

B: If I work for another 10 years

C: If I work for another 5 years

The assumptions I’ve made are as follows:

*#1: Current contributions increase by $10,000 per year after our housing loan is paid off.*

*#2: Contributions remain constant over time. i.e. No increases in salary.
*

This is for easy math and anyway, I don’t expect my salary to increase drastically beyond the inflation rate so the contributions can be viewed in ‘real’ terms.

*#3: CPF returns 3% across all accounts.
*

I’m assuming this despite having more monies in my Special Account (SA) at this point in time. I know the SA earns a higher rate of interest and combined sums (subject to a cap of $60,000) in your accounts earn an extra 1% but once again, this is for easy math and to set a floor.

*#4: I’m starting with roughly $130,000 in both my OA and SA.*

### Numbers

Thanks to the magic of Excel:

Scenario Final Amt at 55 ($)

A $1,180,000

B $772,000

C $495,000

### Final Thoughts

Obviously, the numbers above are not going to be representative of what another Singaporean might end up with. I’m making above the median salary although NOT much more than the Median Household Income. Of course, a major factor is that my wife also works and our household size is smaller than the average*.

I still believe that the CPF system needs a revamp. Way too many people are spending what should be their retirement savings on a property, either as an investment (which is still somewhat excusable) or on housing (gasp!). That’s probably one of the main reasons why only about half of CPF members can meet the retirement sum despite pledging their property.**

Also, one big sore point for many people is the Retirement Sum*** going up. There’s a good article on what the retirement sum may be like for younger people today when they reach 55 later on. Just eyeballing the table, it seems that based on my calculations above, meeting the retirement sum shouldn’t be a problem.

Very often, people forget that compounding needs time to work its magic but for compounding to work, there’s needs to be something to compound in the first place. If you spending all your money on housing, there won’t be anything left to compound. And if you want to turbo-charge compounding then you need both time and regular contributions.

Notes:

*I believe the average household size is 2.1 in Singapore. No, us having a cat doesn’t count.

**There are also other factors at play. I suspect that the labour force participation rate should explain quite a bit. Some (especially mothers) may have only worked very few years of their lives and hence have little in their CPF accounts. For example, my own mother practically stopped working full-time after she had me and my brother. By the time my youngest brother came along, she had already stopped working for some years.

***The Retirement Sum is the minimum you need to have in your CPF accounts so that the CPF can slow-drip the money back to you in old age so that you have enough money to meet your basic spending needs.