Friday, March 17, 2017

You don't get to hack the CPF, the CPF gets you hack you !

Ok, it is time to summarise yesterday's proceedings. In case you guys are wondering, when we conduct our talks, we don't really do rehearsals so some of us speakers are also there to listen to what other bloggers have to say. So things get interesting if there is a disagreement between us, nothing we ever do is scripted.

Here are some comments and things which I learnt from yesterday's session :

a) Budget babe's mention of SRS.

At first the company directors were slightly concerned when they realised that SRS which was covered last night was not actually administered by the CPF Board, but I think we've learnt a lot more as a result of her talk. One way of avoiding taxes is to voluntarily set your money aside into the SRS program where you can then invest in the financial markets. The downside is that withdrawal retirement age will incur a 5% penalty. 50% of all withdrawals are still taxable when you take you money at a later age.

The SRS is a great system to have but I am not currently using it. I would be more interested if withdrawals of dividends can be made tax free.

b) CreateWealth8888's market timing approach.

Jacob's session was a real treat because he shed light on the wisdom of baby boomers on how they invest their money. Jacob has a method which involved drawing money from the markets and placing it in his warchest when times are good and doing the opposite when markets are bearish.

The approach may seem simplistic, but Jacob can get 17.2% CAGR out of his approach to investing which is very impressive indeed.

c) Attendees really really like the CPF-SA 4% interest rate.

A bulk of questions involve the CPF-OA to CPF-SA transfer. I can see that folks really like that scheme and want to find all sorts of way to take advantage of this program. Although I have been a beneficiary of this technique having maxed out my CPF-SA prior to reaching 30, there are some things people need to take note of.

If you can invest 35% of your CPF-OA at 8% and keep 65% at 2.5%, you will earn 4.425% which is higher than what the CPF-SA gives. I also believe that, over the long term, as interest rates rise, the government will set the CPF-SA rate to a government bond rate plus may 1-2% so when interest rates drop again, you will stop getting 4% in the future.

Guaranteeing 4% may not be a sustainable practice.

d) Some attendee wants to hack the CPF-SA system

I think a very small proportion of blog readers are actually too smart for their own good.

One particular person wanted to contribute to his son's CPF to "hack" the CPF system. After conferring to other bloggers, I have to say that this is one of the stupidest ideas I have ever heard in quite a while and sadly my body language may have shown that I was just not too impressed by this suggestion. While I could not answer the question last night, apparently you can perform a voluntary contribution (VC) into your child's CPF which distributes the money even between the CPF-OA, CPF-SA and CPF-MA.

While the CPF program is a good one with a lot of government guarantees locked into it, a 4% interest rate on the CPF-SA is not a Constitutional guarantee. It is also cruel to lock in money for your kids when you can just get them to open a CDP account and give them some preference shares. There are currently 5 preference share counters in the SGX, if you buy each counter in equal proportion, you are likely to beat 4% every year.

The lesson for readers is this : You don't hack the CPF. In Singapore, the CPF hacks you.

Michel Foucault is a philosopher who wrote books on how prisons exert control over inmates. He pioneered the idea that the ability to influence a population's sense of what is normal is a legitimate form of power a government can have. The CPF as a scheme tells you that having a house is good, saving adequately for health is good and supporting your parents, and paying yours kid's tuition is the normal thing to do. Government officials are influenced by Richard Thaler's Nudge and practice a form of liberal paternalism on the population. ( Lucky us right ? )

The more you contribute to your CPF, it is almost always true that you get to better secure your future. But you are also letting the CPF define to you what is normal and what is not normal in your life.

While I agree that many things like home ownership and giving my mum money every month is great, I bet that almost all financial bloggers would agree that we'd prefer to have control over our retirement age.

When it comes to financial independence the CPF Board can keep its tendrils to itself.


  1. "There are currently 5 preference share counters in the SGX."

    Appreciate if you could share more details of the 5 preference share counters.


  3. I like this statement:

    The lesson for readers is this : You don't hack the CPF. In Singapore, the CPF hacks you.

    Despite the 4% interest, tax rebates etc., you have no control over changes in policy. Unless one is close to the retirement age where the draw down age etc becomes a certainty

    In my opinion, CPF is never part of my retirement plan. Because I have no control over what the policy will be 20 -30 years down the road. I'll rather try ( and perhaps get less interest) , but have the certainty of when I can use my $$.

  4. Yea, I think having control over your assets is more important.

    I made my transfer in my mid-20s when I was not as finance savvy as I am today.

    The buffer would have been 8-10 years for my mortgage otherwise. Now I am in the midst of preparing to use dividends proceeds to pay my home mortgage if my legal career fails to take off.

  5. Hi Christopher,

    I would like to clarify my doubts here. Do you not top up your own/spouse CPF SA account each year? Is it not a good saving for retirement practice?

  6. I have been unemployed for 3.5 years and my CPF-OA has been deployed to pay off my home mortgage.

    My beat practice is to become a lawyer and then review my options but my number 1 priority is to pre-pay my home loan.

  7. Chris,

    There's no snake-oil blood in you...

    Don't say unemployed.

    Say you were on sabbatical from work for the last 3.5 years.

    Or say you've gone to Law School (stretching the truth).

    It looks better in your CV and helps to sell books.

    No one will take financial advice from an "unemployed"... Or a man-whore for that matter ;)

  8. Taking control of one's finances is a crucial life skill. If we do exactly the same like everyone else does (contributing to CPF and tweaking it a bit here and there), we can never expect above average returns.
    CPF is a good "base-load system", but solely relying on it to built up a comfortable nest egg will result in disappointment and not in financial freedom.
    We have to do something in addition. Something different. Because different is better than better nowadays.
    What to do different? Just read up on what all those talented bloggers like you guys from BigScribe have shared over and over again.
    A bit of hard-reading followed by smart actions at a younger age will result in compounded returns in the long-term.

  9. SMOL,

    This unemployed man-whore thanks you for your good advice !



    Wish you were at our session. Some attendees were indeed very "different" but we're arguing whether what he was trying to do would be a wise over the long run.