We Care Less About CPF Life’s Rate Of Return, More As A “Forced Savings” For The Compound Interest

On By Mr BudgetIn Financial Goals, Numbers Crunching, Random Thoughts13 Comments

Recently Mr Budget received a comment from a reader (thank you! We love reading them!) commenting on the CPF scheme.

Ronald shared his views that I should do a calculation on the CPF Life annuity scheme to see if it is a fair deal before committing so much into CPF, after all CPF contribution is a one way street – once you put in the money, you can only see it more than 25 years later.

That prompted Mr Budget to do some digging. 

Many in the financial space will be familiar with Kyith’s work from Investment Moats, and we are also big fans of his.

Kyith always use data to support his articles, and when we dug deeper into his archive of works, we found that he calculated the returns of CPF Life, which saved us the trouble of doing the calculation ourselves.

In case you are unfamiliar with the CPF Life scheme, at age 55, CPF will automatically create a new Retirement Account (RA) for you. The source of the RA account come from both your OA and SA account. For us, we foresee that we will be able to hit the full retirement sum, which is at S$181,000 now. 

Here’s the internal rate of return Kyith simulated based on the following parameter: Computed in December 2018, at age 55, a total of S$180,000 is transferred to the RA account.

Source

As Kyith rightfully pointed out, the IRR and amount disbursed changed according to the age you pass away. 

For Mr Budget, I foresee I will be able to live until 65 – 70 years old, hence the IRR for the basic plan will be between 3.97% to 4.33%, with me getting back between S$275,112 to S$313,526 from the S$180,000 CPF retirement scheme.

Of course, there are a lot of moving parts in calculating the IRR and amount received as the government will raise the basic retirement sum over time and they might also adjust the payout amount, but at this point we can only hope that Singapore has our best interest in mind, and that we can only plan based on current data.

So the question is, are we happy with the returns? I’d say we are quite happy with the results as it is quite rare for us to be able to find a guaranteed annuity giving this rate of return, especially since we expect our risk profile when we are older to be significantly lower than what we have today.

Of course, knowing the payout only paints part of the picture.

The reason why we actively contribute to the CPF account is also we see this as part of a forced savings so that we can really see compound interest in the works when we are older.

Here’s Mr Budget’s projected CPF with the following parameters: constant CPF contribution from employment as well as annual S$7,000 RSTU scheme, at an annual interest of 3.5% (instead of 4%).

YearAgeStart of Year CPFCPF ContributionCPF InterestEnd of Year CPF
201729$0.00$14,370.65$347.46$14,718.11
201830$14,718.11$25,624.74$1,029.86$41,372.71
201931$41,372.71$36,730.00$3,063.91$81,550.48
202032$81,550.48$33,640.00$4,031.67$119,222.15
202133$119,222.15$33,640.00$5,350.18$158,212.32
202234$158,212.32$33,640.00$6,714.83$198,567.15
202335$198,567.15$33,640.00$8,127.25$240,334.40
202436$240,334.40$33,640.00$9,589.10$283,563.51
202537$283,563.51$33,640.00$11,102.12$328,305.63
202638$328,305.63$33,640.00$12,668.10$374,613.73
202739$374,613.73$33,640.00$14,288.88$422,542.61
202840$422,542.61$33,640.00$15,966.39$472,149.00
202941$472,149.00$33,640.00$17,702.61$523,491.61
203042$523,491.61$33,640.00$19,499.61$576,631.22
203143$576,631.22$33,640.00$21,359.49$631,630.71
203244$631,630.71$33,640.00$23,284.47$688,555.19
203345$688,555.19$33,640.00$25,276.83$747,472.02
203446$747,472.02$33,640.00$27,338.92$808,450.94
203547$808,450.94$33,640.00$29,473.18$871,564.12
203648$871,564.12$33,640.00$31,682.14$936,886.27
203749$936,886.27$33,640.00$33,968.42$1,004,494.69
203850$1,004,494.69$33,640.00$36,334.71$1,074,469.40
203951$1,074,469.40$33,640.00$38,783.83$1,146,893.23
204052$1,146,893.23$33,640.00$41,318.66$1,221,851.89
204153$1,221,851.89$33,640.00$43,942.22$1,299,434.11
204254$1,299,434.11$33,640.00$46,657.59$1,379,731.70
204355$1,379,731.70$33,640.00$49,468.01$1,462,839.71
Mr Budget’s CPF Projection

If all things stay constant, Mr Budget should be able to hit S$1,000,000 in his CPF by age 49. That is really quite a lot, and from the table, you will see that every year, the interest received is getting higher and higher, and we earn the magical interest on interest.

To be honest, we have yet to enjoy the benefits of compound interest especially in our current bank account because we are always moving our cash around. Our cash in bank will also be depleted every time we have a new milestone in life.

Hence CPF in a way is really our “forced savings” portion of our portfolio, for us to really see the effects of compound interest. There is probably no other ways we can clearly see this manifested in our lives other than CPF because we tend to move our funds around, and that’s always the case for Mr Budget.

By age 55, after setting aside the basic retirement sum, Mr Budget can also withdraw the rest out for usage. 

We confirmed that we can withdraw the rest of our CPF based on the CPF withdrawal Q&A on the CPF website.

CPF example of withdrawal computation

Of course, this is the idealistic projection because there are many unforeseen things that could happen:

  1. Government might change certain rules with regards to CPF withdrawals or interest rates.
  2. Mr Budget might lose his job or have a pay cut
  3. Mr Budget may need money for his child expenses, hence the annual contribution will be reduced by S$7,000
  4. Mr Budget passes on before 65 years old.

If Mr Budget really passes on before 65 years old, then the S$180,000 would not be worth it. By then, money wouldnt matter anymore to me haha.

So to Mr Budget, the main reason for the annual CPF top up is basically leveraging the CPF to get an annual 4% interest rate so that we can see a compound growth over the next decade and we can enjoy the fruits in the future. The annuity portion of CPF life is really just a small reason why we actively contribute to CPF. 

And hopefully the government don’t introduce big changes to the CPF scheme over the next 30 years! 

Also one last note, this post is not to show off the CPF amount, because the truth is, the same compound interest applies to everyone, and if most people chart their CPF projection, they will most probably get similar graphs.

It’s to share our thinking behind why we contribute regularly and to visualize (in numbers) compound interest in the works. This is also not any investment advise as Mr and Mrs Budget is just 2 regular working PMET trying to make sense of our financials and to plan for the future. 🙂

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More Intentional Living In 2020

On By Mr BudgetIn Random Thoughts2 Comments

Last night, I was having a chat with Mrs Budget before we go to bed. I told her that in 2020, we need to have more intentional living, otherwise, another year will pass and we will waste another year again.

I think this is timely because we are still at the start of the year and it is probably a good time to set certain goals for the year, and even if we don’t achieve most of them, we will still achieve something.

So for 2020, other than personal finance related goals, I told Mrs Budget that we should host more of our close friends over at our place.

Since we are staying at a private housing, and are paying monthly mortgages and maintenance fee, we should try to make use of the facilities and our house more before we get lazy few years down the road. We both agree that we will host more regular dinners at our place with our close friends this year.

Another thing that we want to achieve more is that we want to spend more time with our family.

Mrs Budget shared that she would love to have more breakfasts with her parents and that breakfasts are more meaningful and nice since its the start of the day and everyone is still energised and not rushing for anything.

Besides do you notice that after breakfasts, you will feel like the days are longer because you still have so much time to go about your daily activities after the meal. So that’s something that we will be doing more this year.

Both Mrs Budget and I will also try to exercise more this year. We’ve set aside a biweekly run around the neighbourhood and this will happen during the weekends. One thing that I’ve learnt is that, everything compounds in life, including your bad habits. As we laze around more, I think bad health will catch up with us one day. So it’s probably a good idea to exercise more to make sure that we are always in good shape. 

Finally, Mr Budget is trying to pick up his habit of reading books again. Hopefully I can finish one book a month. Mr Budget is currently reading his first book now and he is only at 10% in when it is already mid month. So I should probably buck up more. 

While these might all be seen as small incremental habits, hopefully we are able to achieve all of them and that 2020 will be a great start to the new decade. We tried to think of big drastic goals for the year, but the truth is, we can also find joy in the little things in life. 

Mr Budget is currently reading the Art Of Thinking Clearly by Rolf Dobelli now. Are there any books you would recommend us to check out?

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Baby Steps For Our Retirement Planning – Regular Top Up Of Our CPF Special Account

On By Mr BudgetIn Financial Goals2 Comments

One of the many stuffs that Mr and Mrs Budget set out to do this year is to top up our Special Account via the Retirement Sum Topping Up Scheme. 

With the receipts from the wedding angpaos recently, Mr Budget has used the receipts and went ahead to top up S$7,000 to his Special Account.

The reason why I do it earlier in the year is to allow the compounding effect to start earlier this year in order to enjoy the interest rate by end of 2020. Of course, we also stand to claim a personal tax relief of the amount contributed.

Mrs Budget will also be contributing to her CPF SA account in the next few weeks when we do our monthly finance reconciliation. 

With the RSTU done, what’s left for Mr Budget this year is to:

  1. Increase Singapore portfolio to S$110,000 from the current S$80,000 level.
  2. Reduction of annual expenses from current S$95,000 to a more manageable S$60,000, or even lesser since the real mandatory expenses we calculated for last year was at around S$35,000.
  3. Start renovation for Malaysia property and then rent it out for rental income to balance off the monthly mortgage payment. Will have to wait for the TOP for the project.
  4. Monthly consistent S$1,000 contribution to Syfe Roboadvisor.

If you are thinking of topping up your CPF SA account to enjoy the tax relief this year, you should probably do it earlier too. 🙂

Also, Chinese New Year is just less than 2 weeks away, if you have not exchange your new bank notes, you should probably do so soon!

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The Best Personal Finance Decision Mr Budget Made In 2019 – Expenses Tracking

On By Mr BudgetIn Financial Goals, Living Expenses, Random Thoughts2 Comments

Regular followers of Mr and Mrs Budget will know that we track our expenses monthly.

We have been publishing our monthly expenses since the start of this publication and if you have missed it, here’s our expenses for October, November, and December.

Many might find that tracking expenses is a tedious thing to do, especially you need to log down every single transaction that you spend on a daily basis. Mr Budget, like many many Singaporeans or Malaysians trying to sort out his life, tried to start tracking his finances long time ago, and always failed to keep to the habit. 

I remember my first attempt of daily expenses tracking was in university back in 2010, when I needed to know where I spend my money on. After tracking for a few days, life caught on and I soon stopped tracking because I didn’t understand why I need to track my finances, and told myself that since I have no control over my finances, there was no point in tracking.

After all, every month I would always end up spending everything in my bank account.

I tried again when I first entered the workforce in 2012, but because I was living pay check to pay check, with an entry salary of S$2,400, all of my salary would be used up for my rental payment, school loan payment, and my daily expenses.

To me, there was no point in tracking my expenses too because the entry would be the same – I would spend S$500 on rental, S$500 in school loan payment, S$500 on food, and the rest would either be brought over to next month, or will be spent indulging on entertainment.

It was only in mid 2018 when I finally sit down and told myself that I need to know where my money is going and only with these information can I optimise for my cashflow. 

This was also due to the fact that all financial gurus out there included expenses tracking as one of their mantras – surely all of them cant be wrong?

Here’s the first annual expenses report after I started tracking my expenses:

Expenses CategoryTotalAverage%
Meals$4,861.24$405.105.05%
Transportation (mrt)$795.04$66.250.83%
Entertainment$1,278.51$106.541.33%
Groceries / Home$9,931.37$827.6110.31%
Shopping / Cloths$1,525.40$127.121.58%
Phone Bill$687.20$57.270.71%
Utilities$495.25$41.270.51%
Insurance$2,720.51$226.712.83%
Parents$2,574.66$214.562.67%
Income Tax$1,415.72$117.981.47%
Hair Cut$323.20$26.930.34%
Digital Subs$302.51$25.210.31%
Malaysia Mortgage 1$10,222.20$851.8510.62%
Malaysia Mortgage 2$1,308.91$109.081.36%
Rental$2,125.00$177.082.21%
Singapore Mortgage & Home Renovation$16,102.11$1,341.8416.72%
Travel$2,575.48$214.622.67%
Hometown Expenses$1,305.12$108.761.36%
Wedding$13,758.50$1,146.5414.29%
CPF / EPF$8,000.00–8.31%
Others$13,976.99$1,164.7514.52%
Total$96,284.92$8,023.74100.00%
Mr Budget 2019 Expenses Table

Looking at Mr Budget’s 2019 annual expenses, the highest expense categories are our current Singapore home related expenses, taking up a 16.72%. This is on the high side as we just moved into our new home this year and incurred a one off renovation and move in expenses. 

This is followed by our wedding expenses, which Mr Budget spent almost S$14,000 on. This is another one off item and the cost is cushioned by a one off receipt in January from our wedding angpao received. 

Another high expenses category is the monthly mortgage payment of Mr Budget’s condo in Malaysia, which will be done soon, earmarked for investment purposes. 

Our home and groceries expenses is also another high expense category as both Mrs Budget and I are still purchasing new stuffs for our home occasionally and we are figuring out our co-living expenses. We foresee this to ease a bit this year in 2020.

Surprisingly, Mr Budget’s food expenses only makes up 5% of his total expenditure in 2019. We will be using this as a barometer to compare against our projected expenses for our retirement planning. 

While the overall expenses is high, eclipsing almost $100,000 of cash outflow in 2019, Mr Budget draw comfort in the fact that the high expenses categories are either one off items or are for asset building purpose.

These are the expenses paid in 2019 for asset building:

Asset Building ExpensesTotal%
Malaysia Mortgage 1$10,222.2010.62%
Malaysia Mortgage 2$1,308.911.36%
Singapore Mortgage & Home Renovation$16,102.1116.72%
CPF / EPF$8,000.008.31%
Total$35,633.2237.1%
One Off ExpensesTotal%
Rental$2,125.002.21%
Wedding$13,758.5014.29%
Others$13,976.9914.52%
Total$29,860.4931.01%

Minusing these, the actual day to day expenses such as meals, insurance, commute, groceries et cetera only makes up 32% of my total expenses in 2019.

With these data points, Mr Budget looks forward to comparing them with my 2020 expenses to see if there will be any improvements. I foresee that while bulk of the one off expenses this year will be channeled towards the asset building expenses this year, especially to continue servicing my mortgage responsibilities, we will see an overall reduction in expenses this year. 

For those of you who have not been tracking your cashflow, Mrs Budget and I really encourage you to start doing that. Once you get into a monthly habit of collating your expenses, you will continue to do that to find your spending patterns and with that, you are able to better optimise your personal finance and make data driven decisions. 

Happy tracking! 

Side note, do you track your expenses? What do you use to track them?

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December 2019 Monthly Expenses Update

On By Mr BudgetIn Living ExpensesLeave a comment

At the end of every month, Mrs Budget and I will reconcile our monthly expenses and see what are we spending on, and where we can optimise or cut down our expenses.

We subscribe to the believe that every penny saved is a penny earned – sometimes its easier to save S$100, than to earn S$100, both of which results in the same net worth increase.

In December, here’s what Mr Budget spent on.

ExpensesDecember
Meals$432.84
Transportation $65.00
Entertainment$71.80
Groceries / Home$2,181.93
Shopping / Cloths$946.50
Phone Bill$56.10
Family$1,000.00
Income Tax$103.05
Hair Cut$36.00
Digital Subs$30.56
Malaysia Mortgage 1$879.83
Malaysia Mortgage 2
$141.89
Singapore Mortgage$1,231.78
Others$2,222.01

My total expenses for December is S$9,399.28, consisting of a fixed expenses of S$3,479.20 and variable expenses of S$5,920.08.

The expenses high an all time high as in December, Mr Budget made a few wedding related expenses, all of which are one off expenses. 

It is scary to think that Mr Budget is spending close to S$10,000 in December, but find consolation in the fact that some of these expenses were recovered via the wedding angpao, as shared in our previous update.

Hopefully 2020 will be a year of high savings and personal finance growth! The one part which can not be optimised further is the various mortgage payments – 3 in total, of which one is for the current Singapore house, and another 2 for the condos in Malaysia, both of which are for investment purposes. Hopefully we can reap the benefits in the future.

Also Read: We Spent A Net Total Of S$16,000 For Our Wedding, Or S$80 Per Wedding Guest.

For Mrs Budget, here’s what she spent on.

ExpensesDecember
Meals$274.52
Transportation$109.80
Family$600.00
Groceries / Home$2,181.93
Phone Bill$39.71
Endowment$303.97
Insurance$87.25
Shopping$439.71
Gifts (Wedding Festives)$388.00

Mrs Budget’s total expenditure was S$4,424.89, out of which S$1,415.25 is the fixes expenses.

Other than contributing a monthly stipend to her parents and contributing to her endowment plan, the other high expenses is the wedding table downpayment which we captured under our “Home” category. As per usual, Mrs Budget’s spending is well within our satisfaction.

October 2019 Monthly Expenses Update

November 2019 Monthly Expenses Update

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Thailand Returned 300% More Than Singapore In Past 10 Years And That Intrigued us

On By Mr BudgetIn Investment, Random ThoughtsLeave a comment

While browsing around the web for news, Mr Budget came across these tables that I thought would be interesting to document it here.

The first compares the 2019 global market returns, ranked best to worst, with its 2018 return as a comparison. The second is global total returns for the 2010s decade.

Source

Some interesting notes:

  1. Saudi Arabia returned double digit returns in 2018 and 2019.
  2. Both 2018 and 2019 saw a negative return for the Malaysia market.
  3. IT, Consumer, Healthcare and Real Estate is still the biggest growth sector in the US, and probably applies to other economies too.
  4. In the past 10 years, Thailand and Philippines returned the most, charting a growth of 181% and 154% respectively. Singapore on the other hand – 63% while Malaysia is at 33%, and China 71%. 

Point number 3 is interesting, and when we look at our portfolio, most of our investments are also in the IT and Real Estate industry, and if there are any opportunities that arises from healthcare or consumer products, we will be taking a closer look at them. 

But what caught our attention was point number 4, that Thailand and Philippines has been returning good rewards to investors. We’ve occasionally heard about Thailand being a good stock market haven for investors, but we have never really paid much attention to it. Of course, how can we do that when there are just so many things for us to monitor, especially since we are investing in the Singapore market, the US market, and are looking at the Hong Kong Market now. 

However, the lack of time shouldn’t be an excuse for us – looking at the total returns over the past 10 years of Thailand vs Singapore, Thailand returned 300% more as compared to Singapore! 

We also did a quick check if Saxo or DBS Vickers, both the brokers we are using, to see if they allow us to trade the Thai stock market, and to our surprise, they don’t allow us to do that!


Source

It seems like we may soon need to open up or change another brokerage account! 

Are there any readers who have traded the Thai market? Where should we start at? 

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We Spent A Net Total Of S$16,000 For Our Wedding, Or S$80 Per Wedding Guest.

On By Mr BudgetIn Living ExpensesLeave a comment

Regular readers will know that Mrs Budget and I recently just got married! And we are glad that everything is finally over now!

Of course, as with all money matters, we tracked our spending as much as possible to see if we have overspent and if there are things we can improve on.

So here are all our wedding costs listed:

Pre Wedding ItemsCost
Wedding Bands$2,964.50
ROM fees$42.00
Ping Jing$4,976.00
Betrothal Package (Guo Da Li)$78.00

Wedding ItemsCost
Friend Accomodation Cost$338.98
Bridal Package$3,788.00
Groom Suit$890.00
Bride Additional Gown$178.00
Bridal Make Up Artist$720.00
Photographer extra hour charges$118.00
Car Rental$306.00
bridal car deco$80.00
Jing Cha Angpao$240.00
Wedding Banquet$25,693.01
Wedding Video$688.00
Wedding Gift$30.00
Wedding Photo Album$62.00
Wedding day angpao$878.00
Emcee$888.00


Grand Total$42,958.49

As you can see from the above table, we’ve spent close to S$43,000 for our wedding.

Of course, this includes line items like the wedding bands and the Ping Jing, all of which is from Mr Budget’s own pocket. For the actual wedding stuffs, most of it is co-shared by Mr and Mrs Budget.

One of the most expensive line item is our bridal package, which is at S$3788, consisting of 2 wedding gowns and 1 set of Kua for Mrs Budget, 1 set of male Kua for Mr Budget, on day 10 hour photography as well as on day make up artist for Mrs Budget. Overall we feel that the price we paid for is still quite reasonable for what we receive from the bridal shop.

For Mr Budget’s suit, we had it tailored for S$890, consisting of a 3 piece suit, an additional shirt and a tie. Other miscellaneous cost we incurred are getting a videographer to do our march in video, hiring a wonderful emcee to host our wedding, make up artist for our family members, wedding day angpaos for the groomsmen and bridesmaid, and of course, the biggest cost for us is the wedding banquet itself, at S$25,693.01. 

When you add all of these up, it comes up to a grand total of S$42,958.49, all of which we slowly paid for since last year.

Wedding ReceiptsTotal
Angpao (friends)$13,128.00
Angpao relative$19,688.00
Jing Cha$1,644.00
– table surplus-($7,480.00)


Grand Total$26,980.00

As with all weddings, we received angpaos to help cushion the cost, and we count ourselves lucky that the angpaos are able to cover the cost of the banquet.

For the angpaos, we received a total of S$32,816, which more than cover the wedding banquet all thanks to Mrs Budget’s very generous relatives. To be fair to our parents, for all surpluses of wedding angpao from the relative’s table, we gave them back to our parents.

Adding the additional angpaos from the tea ceremony, we received a total of S$26,980 worth of angpaos.

All in all, the net spent for us is S$15,978.49.

That may be a lot for some, but what we received in return is:

  • A day filled with lots of memories and catching up with people who makes us happy (albeit a short catch up)
  • The official marriage of Mr and Mrs Budget (although we have already been legally married)
  • A tailored 3 piece suit for Mr Budget
  • A beautiful wedding gown for Mrs Budget
  • Wedding jewellery worth >S$10,000

What we got back was definitely worth more than what we paid for. 🙂

Another way to look at the costing is that, for our wedding, 200 people came, so that’s about S$80 per person we spent to come celebrate our wedding with us.

All in all, we’d say we are quite happy with what we’ve spent, and there are probably not much areas that we felt we have overspent. We did away with a wedding live band which probably saved us S$1,000 – S$2,000. 

On top of that, we also optimised our credit card for the wedding banquet and received up to S$1,000 in cash back – this is only possible as the hotel allow us to make monthly charges to our respective credit cards, hence we charged S$2000 monthly to each of our UOB One credit card to get a max 5% cash back, and the rest of it we charged it to our Standard Chartered Unlimited Cash Back Card.

Do you think we’ve overspent? How much did you spend for your wedding?

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