The Current Market Crash Pushed Our Retirement Goal Back By 3 Years, And It Might Get Worse

So the market dived another 8-10% or so yesterday. 

Every retail investors is probably mass selling and taking profit off their positions now.

There were reports that trading firms are overwhelmed and true enough, when I log into Vickers, I couldn’t even connect to my account. This truly is a once is a decade / life time event.

I wouldn’t lie, when the market crashed, it has been emotionally testing – its painful to refresh my app to see the market prices.

So earlier today, I went ahead to do a quick number crunching to see the impact of a further 20% drop of my equities towards my retirement / S$1M goal projection.

Here’s a look at the previous projection with the following assumptions:

  1. US Equity – Monthly Contribution with an overall portfolio growth rate of 8%
  2. SG Equity – Monthly Contribution with an overall portfolio growth rate of 5%
  3. Syfe – Monthly DCA with an overall portfolio growth rate of 5%
  4. Annual EPF and CPF contribution at current level.

According to the earlier projection, excluding our properties and mortgage, we should

  1. Hit a net worth (Equities, Cash, CPF) of S$1M at end 37 years old, or in December 2025
  2. Hit a liquid net worth (Equities, Cash) of S$1M at 42 years old, December 2029.

However, as the market plunged this week, we now have to add new numbers into our projection model. 
What we did was:

  1. Update our projected 2020 numbers by entering current portfolio number
  2. Add a further 20% drawdown to all our current equities position
  3. Stop our US, SG, and Syfe Investment contribution for this year

Based on the 3 new parameters, here’s the updated impact towards the 1M goal.

Based on the table, just by adding a further 20% drawdown on our equity position and stopping our investment this year, our S$1M net worth (ex property and mortgage) goal is pushed back from December 2025 37 years old to December 2026 38 Years old. 

If we exclude CPF (liquid net worth), the impact is even bigger: our S$1M goal is pushed back from December 2029 42 Years old to December 2032 45 years old, a good 3 years goal push back!

Which means now, if everything stay constant, I have to work for another 3 years just because the market crashed.

Of course, while this is bad news, we also acknowledge that the growth rate once the market recovers will hopefully be able to counteract the current decline in our portfolio and hence move our current target back on track. 

This exercise paints a good picture for us to see the impact of the current equity drawdown on our portfolio, and to really reassess our portfolio resilience. 

Currently our cash level is the highest it has been since the past 2 years as we manage to sell some stocks before the second wave of crash. Hence we will be accumulating our war chest and deploy them when situation show more signs of stabilisation. 

I feel like there will be a further 20-30% drawdown in the market because we have yet to see the domino effect of the global virus situation – ie the housing and credit crisis. 

So things will probably get worse, as we also have a significant exposure in properties.

You can also read about our horrible experience not being able to sell our stock via DBS Vickers: Earlier Today I Experienced Every Investor’s Worst Nightmare – Unable To Sell My Stock

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Earlier Today I Experienced Every Investor’s Worst Nightmare – Unable To Sell My Stock

One of an investor’s or trader’s worst nightmare happened to me earlier today, and is still happening now.

As everyone probably know, the US is officially in the bear market now, with the market dropping more than 20% from the recent high.

For Singapore, the index plunged from a high of 3281 in January to currently 2672, a 18.6% drop.

STI Index 12/3/20

We foresee that the market will drop even more as Singapore feels the aftereffect of the virus outbreak globally.

Earlier today, I wanted to take profit on some of my earlier positions simply because:

  1. We expect price to drop even more. Hence it will be better to lock in the profits and then buy in later at the lower price since the current price of some stocks we are holding is near our entry price.
  2. We want to increase our war chest to double down on other high quality counters which are trading at extremely good value now. 

However, something frustrating happened. Upon logging in my DBS Vickers account, I found out that my selling limit is too low! It’s ridiculous that my selling limit is only S$1500 and I can’t even sell the shares I own! This is probably the biggest nightmare for anyone. 

DBS Vicker’s Dashboard shows my bank balance and it should be able to sell my position

There are currently so many questions running through my head now:

  1. How did DBS Vickers assign the low selling limit? My Multiplier account has more than enough money and it is reflected on my DBS Vickers Dashboard – shouldn’t they have seen the balance is more than what I am trying to sell, ie a S$4000 position? 
  2. Shouldn’t DBS Vickers have access to the stocks I’ve bought through them, my default brokerage firm and that I can sell them through DBS Vickers?
  3. How are the selling limit set? 
  4. If my selling limit is low, shouldn’t they have sent a notification notifying me to take note of this?
  5. If they are not confident of my selling limit, why would they assign a S$168,000 buying limit for me?

So I went ahead to google how to get them to increase my limit, and it turns out I need to send in my latest bank statement, NOA, pay slip, or CDP statement.

What puzzled me is that, couldn’t DBS Vickers just look at the bank balance that is shown on the DBS Vickers Dashboard?

As a DBS shareholder, this is a triple whammy for me – while stock price has crashed, the DBS Multiplier Account made recent detrimental changes to me, forcing me to make investment trades via Vickers every month to earn higher interest, and now this happened – I can’t sell the shares I bought through Vickers.

What an irony.

In order to increase my selling limit, I went ahead to email them earlier today my CDP statement and NOA, but have yet to hear from them. 

So I called in.

However, I was held on the line for 20 minutes and the line is probably and understandably too busy because everyone is probably selling their stocks now. 

I contemplated heading down to the office, but upon reading the review on Google, I think I won’t be able to get the help I need. The reviews are brutal, with people calling DBS service center trash, and that the customer representative officers being rude and unprofessional.

So here I am, stuck and whining about DBS Vickers. Left with much frustration and even more questions.

And I am officially not a happy DBS shareholder now. Borderline angry.

Over the past 1 hour plus going through all these ordeal, trying to sell my shares to lock in the profit, trying to call in DBS Vickers, and at the same time writing this article, the 3 stocks I wanted to take profit on dropped even further nearing my entry price. 

What we can only do now is just wait for Vickers to restore the selling limit, and perhaps not taking profit on them anymore.

I wonder for those who have leveraged positions and they needed to sell all their positions urgently, if they are in this situation, they would be really really pissed at Vickers.

The good thing is that, earlier this week we manage to sell off a small portion of our portion to take some profit, so that’s probably some consolation. Should have just taken profit on all the positive positions I have.

This is probably gonna get even worse, so buckle up people.

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War Chest Planning And What We Are Doing During This Uncertain Time

Looking at the market movement the past few days and weeks, we are slightly spooked by the atypical market movement, and are currently living in uncertain times now.

If you hold any US equities, you would have noticed that the past few days, the S&P 500 as well as the NASDAQ have been swinging by 2-3% per day upwards and downwards, and the market is unsure which side they want to head towards.

The 2-3% gain on one day is quickly wiped out the next day, only to recover the following trading day.

Other than the price movement, earnings from big and small companies are giving mixed signals – while most companies we are monitoring registers continued growth in earnings, but they are giving revenue drop guidance.

The full impact of the virus towards the global economy will only be registered by individual company’s P&L in the next 1 or 2 quarters. 

We are also seeing new lows everyday from counters adversely impacted by the COVID 19, such as DBS, which dived more than 10% from a month ago.

SATS too plunged >20% from the price a month ago, almost a 4 years low. Comfort on the other hand, is testing its 2 years low of S$1.91, and if the current price of S$1.92 breaches that, we will be seeing price levels from 2013.

Building Up War Chest And Preserving Cash

So what are we doing? For now, we are looking to build up our cash in bank.

What this means is that, we are resisting the urge to buy individual counters, although the price levels are very very attractive. If you look at our monthly updates, what you will notice is that every month, Mr or Mrs Budget will be initiating a position in a local counter. We will be putting a brake on that for now.

We think that the COVID-19 impact is still not being priced in fully by the global market – worse still, this might even catalyse the next recession.

The tax season and our annual insurance premium is here too, so hopefully the savings can offset these new additional expenses. 

Continue Our Syfe DCA With Reduced Contribution

Besides building up our cash holding, we will still continue our monthly DCA into Syfe our Roboadvisor.

The Irrelevant Investor recently did an article comparing the portfolio growth of “buying the dip” vs DCA and found very interesting insights.

What he found is that, a straight dollar cost averaging actually did better than the buy the dip strategy across the history.   

He also concluded that if something goes up over time, then the longer you delay investing, the worse off you are. 

So for the Mrs and I, we will still continue our monthly DCA. However, we will reduce the DCA slightly from a monthly of S$1,500 to S$1,000. This is so that we can build up our cash to buy high quality blue chips stocks that are really too attractive to give a pass now. 

Cutting Down On Unnecessary Expenses And Exploring Free Entertainment

The third thing that we are doing during this uncertain period is to cut down on unnecessary expenses.

What this means is that, we will try as much as possible to lower our entertainment cost and dine out cost. This also means that we will try to cook in more, eat more cai fan for lunch during work, as well as looking out for free entertainment such as exercising during the weekend or simply Netflix-ing at home more.

Hopefully we can bring up our current cash holding and leverage on the market recovery if it does happen.

This is our war chest planning for the next 6 months:

Cash HoldingMr BudgetMrs Budget
Targetted in 6 monthsS$65,000.00S$65,000.00
6x Monthly Expenses S$30,000.00S$12,000.00
Available for InvestmentS$35,000.00S$53,000.00
“Bullets” available for
S$5,000 individual investments

What are you doing during this uncertain times?

Looking to invest via Syfe? You can use our referral code: SRP6X8B8Y when you create an account. We would both get $10 to $100 depending on your first deposit amount, and you’d receive your bonus within 5 business days. 

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Geopolitical Risk In Malaysia Is Seriously Scaring Investors Away

So one of the biggest thing that happened earlier today was that, Malaysia’s prime minister has just announced that he will be resigning as the prime minister of Malaysia.

The motives aside, the stock market of Malaysia reacted and fell to its 5 years low, the index fell below 1500 points for the first time in 5 years.

One of the things I mentioned to my friends in Malaysia is that, the Malaysian stock market confuses me. It seems that the market is driven not by company fundamentals, but rather driven more by geopolitical movements. 

As investors, I think this is discouraging. We only have access to the financials of companies, and we make investment decisions based on the company’s financials. However, it seems as though geopolitical risks are very high in Malaysia, and the politics can swing a high rising company stock and send it crashing down.

When the new coalition party managed to overthrow the ruling party’s grip in the last election, market crashed because there is a change in regime, hence affecting companies largely with dealings with the government. 

Stock prices didn’t really recover over the past few years, even if the stock prices had the chance to recover, surely the recovery now is again stifled by the change in government again.

This affects not just companies with dealings with the government, but also independent companies listed in the KL Bursa who has no dealing with the government with sound business fundamentals. 

As an investor, I will surely be staying out of the Malaysia stock market – who knows when things are starting to stabilise, the new government might mess things up again. 

If you’ve noticed from our portfolio, Mr Budget have been holding onto some Malaysia equity. Those were purchased before the previous election.

Following the past 2018 election which saw Pakatan Harapan overthrowing long ruling Barisan National, the whole portfolio went down by -40% in just 2 weeks. Currently I’m holding on to a paper loss of -60%. The good thing is, the overall holding is only worth less than S$2,000 now. 

With the high geopolitical risk, along with the bad Malaysia stock market performance, the state pension board (EPF) also recently announced a low interest rate of 5.45%, the lowest since 2008. 

Malaysia Historical EPF Rate

I have also been doing voluntary contribution to the EPF board since last year, and might look into this strategy to see if it make sense to continue contributing to EPF. While the EPF rate is still higher than CPF (SA 4%), in the long run, the rate might continue to drop, and the currency depreciation might erode the returns of the EPF.

Geopolitical risk can play a very big factor in investor’s sentiments, and as a Malaysian, I’m feeling sad for the country. 

Hopefully Singaporeans don’t take the Singapore government for granted, because I really think Singapore have some, if not the best, ministers anyone can find. 

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Lessons From My Historical Trades – Keep Calm And Keep Holding On To Get >100% Returns

One of the recent discussions I had with Mrs Budget was that, I should have held on to some of the stocks I bought when I started investing back in mid 2017. 

Back then, Mr Budget started off by looking at US equities.

Some of the popular counters which I was looking at include NVIDIA, AMD, Micron, PayPal, Amazon, Adobe and more. These are counters that I am familiar with as I see them everywhere.

Obviously, these are all high growth stocks and their price were increasing every single day. When I first started to invest, I was a trader and just bought them based on price action and what other financial analysts were saying. 

There were no research done whatsoever on my part, and because my position was very low, to me then, it made sense for me to trade in and out. 

Here are some of the historical trades which I have made.

StocksOpen PriceClose Price% P&LEntry DateExit DateHolding period (months)Current PriceCurrent % P&L
Alibaba Group Holding Ltd$144.34$177.9923.31%04/08/201729/11/20174$215.7749.49%
Facebook Inc.$126.57$175.1738.40%04/08/201729/11/20174$213.0668.33%
The Walt Disney Company$110.92$105.02-5.32%04/08/201729/11/20174$142.5928.55%
Activision Inc$62.34$63.201.38%04/08/201729/11/20174$61.63-1.14% Inc$41.52$38.57-7.11%04/08/201729/11/20174$40.10-3.42% Inc.$979.85$1,152.0717.58%04/08/201729/11/20174$2,133.91117.78%
Micron Technology Inc.$34.51$44.6829.47%04/08/201729/11/20174$57.3366.13%
Mr Budget’s US Equities Trade History
Trade history in image

From the table, you can see that my average holdings were only a few months. The profits from each trade were subsequently poured into the market. 

Looking at the table, if I held on to all the stocks I bought until today, I would have made a lot more! Some of the big multi bagger which I’ve missed out is definitely AMD, Adobe, and Amazon!

For AMD, while I took a 44% profit in just 1 month, if I held on to now (19 months), the profit would have been 211.81%!
For Adobe, while I took a 6.75% profit in 3 months, if I held on to now (36 months), the profit would have been 113.02%!
For Amazon, while I took a 17.58% profit in 4 months, if I held on to now (26 months), the profit would have been 117.78%!

Other positions would also see a profit of between 15% – 70%. 

If history is any lesson, I should definitely hold on to any good US stocks for at least 12 – 24 months, and let the multi baggers continue to go up and just ride along with the bull wave.

Of course, this is easy for me to say now because in 2019, US equities generally had a good run and any US technology equity would have grown up by a fair bit if you went into the US market early last year.

Epilogue – while the tables looked great, in the end of 2018, there was a mini correction and I made a lot of bad calls and sold a lot of my active holdings back then at a loss, hence wiping out all of my profits throughout the first few years of investing. I also conveniently left out these trades towards the end of 2018, all of which are money losing trades haha.

So moral of the story – for strong US equities which are category leaders, be strong and keep holding on as long as business fundamentals remains intact, and the price are continued to be supported by growing EPS.

Don’t be afraid even if the prices are hitting new ATH (all time high) every other month.

Also, trading is mostly bad if you do not have time to actively monitor the counters.

Do you have any counters that you regret selling?

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Does It Matter If The Girl Earns More Than The Guy In A Relationship?

Recently, Mr Budget came across a discussion thread on Facebook which piqued my interest. 

The question goes: 

Does it matter if you’re the girl and your starting salary is already $1000 more than what your partner is drawing and he’s been working for a year already since he graduated from uni? Would it be a potential issue in future where you’ll start to draw a lot more than he does?

As much as I am not a lady, I understand why the person would feel that way, after all, who doesn’t want to have the sense of security provided by her husband. This is also especially true in a society heavily influenced by Chinese beliefs and culture, where money often equates to security.

So where do we stand on that?

First of all, we don’t think that it will be much of an issue if a guy earns less than the girl.

Everyone has a different starting point in their career. What is perhaps more important is that – does the guy have a high future earning potential given his current career path? Assuming the guy earns lesser than the girl at the start of their career, it is not certain whether the guy won’t be able to catch up with the pay.

When Mr Budget started out with his career, his first job only paid him S$2,200 a month in the private sector. Mrs Budget on the other hand, started off working in the government and has way higher starting pay. Slowly, Mr Budget manage to close the gap in terms of income and is now earning almost as much as Mrs Budget – a slow but steady catch up.

Another equally important point is also on money management. While the girl may be earning more, she might be spending more on items such as entertainment, dining out, cosmetics, or shopping, and end up with a very high expenses. On the other hand, the guy who might be earning lesser, may end up saving more and have a higher savings rate

The red flag for any girls should be if the partner is lazy and unmotivated at work (low future earning potential), and is uninterested in managing his personal finance – this shows that he don’t have a strong outlook in life and is quite irresponsible. In this case, this will definitely be a potential issue in any relationships.

At the end of the day, both the couple needs to be open with one another in terms of their finances.

I think having open communications will give a lot of security to the lady in any relationship, and shows that both parties have full trust on each other. Besides, a relationship is more than just the money.

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What We Think About The Wuhan Virus And The Stock Counters We Are Looking At

It seems like the talk of the town is the Wuhan virus. Our social media news feed is full of updates of the virus, be it an increase of new local cases in Singapore, or people overseas succumbing to the virus. 

We came across a great video explaining the virus and we highly recommend everyone spending 5 minutes to understand more about how the virus work and how worried we should be.

How Worried Are You?

To be honest, both Mrs Budget and myself we are not too concerned about the virus yet.

While there seemed to be new cases every other day in Singapore, most of them are imported cases or the result of interactions with imported case.

The virus seems to have a lot mortality rate and those who have passed on from the virus are mostly the more senior patients with lower immune system. 

We also have full faith in the Singapore government to control the spread of the virus and we trust that they will be transparent with Singaporeans and share any necessary updates with us.

From my understanding, the Singapore government has been preparing for a case like this since SARS, and have a playbook on how to handle a health care emergency like this now that it has happened. So the best thing we can do now is stay calm and let the government do their thing. Besides, we are lawful tax paying citizens 🙂

How Bad Do We Think It Will Be

The 4 new recent cases are a result of an interaction with a Chinese tour group. As the Chinese tour group linked to the local transmissions had visited at least six places in Singapore, we expect the number of cases to spike in the next few days.

As contact tracing had inevitably started by the government, hopefully the at risk individuals have been identified and have been quarantined. We probably expect the confirmed case to hit 50 to 100 before plateauing off.

Source: Channelnewsasia

In the grander scheme of things, 100 confirmed cases in Singapore only represent 0.002% of the 5 million people in Singapore – so we should be ok.

Indonesia Is A Wild Card

That said, the media rightfully pointed out something that ought to be an area of concern.

Outside of China in the midst of the global health emergency, Indonesia, which has a population of over 264 million people, has yet to announce any case of the virus.

Seems a bit weird if you ask us. If one small tour group from China can result in local transmission in Singapore, surely Indonesia which has more inbound tourist from China should have at least seen some local transmission.

What is scary to think is that, the government there might not even be aware that the virus might have been in the country already and there are already widespread transmission which goes undetected due to the lack of proper resource. After all, Indonesia is a huge country.

Are We Wearing Mask

For now, Mrs Budget and myself are still not wearing masks although we have some stocked up at home.

However, if we do visit high risk areas such as a crowded event, or visiting the local polyclinics, we will be wearing them. During our day to day commute or when we visit our neighbourhood, we are not wearing them.

The government also mentioned that there is actually no need for us to wear mask if we are feeling healthy, and to only wear them if we are sick. Practicing a good personal hygiene is equally if not more important than wearing a mask.

Stock Counters We Are Looking At

Of course, the stock market has been taking a beating since the virus spread. Our stock portfolio went down as much as 3% at one point but has since recovered a bit. If the market continues to fall further, there are some stocks that we are eyeing at:

  1. – we have been looking at this for a while now and recently the price went down to the USD1800+ range. If it falls to below USD1700 range, we will be initiating a position.
  2. MTR Hong Kong – we have been following this too thanks to our friends at Fifth Person – great business to own (Hong Kong’s MRT) but it has been facing a stock selldown due to the double whammy of the Hong Kong protest and the virus now. If it falls below HKD43, we will be initiating a position.

Other than that, we are not really eyeing any other stock counters as we have recently been looking at investing through roboadvisors.

None-retail or hospitality REITs are also very resilient and prices are sky high now, hence we probably won’t be buying any of them as we are quite happy with our current portfolio now.

Some other stocks nearing their 52 week lows that are worth looking into are probably Jumbo, SATS, Comfort Delgro, Breadtalk, and more but nothing really stood out to us as it is hard to see short to mid term price catalyst or high long term potential.

We will continue to accumulate our cash and see if there are any further future opportunities. 

In the meantime, stay safe everyone and let’s hope the wuhan virus will get better soon!

Which stock counters are you looking at?

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The Dangerous When-Then Trap That We Never Knew We Might Be Caught In

Recently Mr Budget came across an article and some pointers which is worth sharing – there is this trap called the When – Then Trap, which most of us are prone to fall into.

Basically, most of us might think that when we achieve something, only then will we do what we always wanted to do.

For example in our lives, some classic examples of the when-then trap:

  • When I hit S$1,000,000, then I will be happy. 
  • When I get this new job, then I will spend more time with my family.
  • When I hit 80kg, then I will start eating more healthy and cut down on my weight.
  • When I get my bonus this year, then I will start investing.
  • When my kids grow up, then I will spend more time with my wife.
  • When I get a promotion, then I will sleep more.
  • When I get a new kindle, then I will start reading more books.
  • When I get a gym membership, then I will start exercising more.

For the first case, most of then time, when we hit S$1,000,000, we will aim for S$2,000,000, then S$3,000,000 and so on. And at the end, we will end up not pursuing happiness. 

Also more often then not, what we think we will achieve when we do something, we almost always never deliver on the “thens”. 

When we hit S$1,000,000, will we truly be happy?
When we get the promotion, will we really sleep more?
When we get a gym membership, will we really exercise more? 

As we head into the new year, let’s be mindful that we set out to achieve the things we set to do in the new year, after all, we did promise ourselves that when the new year come, then we will change things and make things better, didnt we? 🙂

So it’s a good time to remind yourself (and your loved ones) to not fall into the When – Then Trap. 

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Of Wuhan Virus, Syfe’s New Real Estate Portfolio, And CPF.

Hi guys, Mr and Mrs Budget has been away last week for our honeymoon, hence the lack of articles. But we are now back with our regular scheduling. 

The biggest news this past week is definitely the Wuhan virus which has gotten many people worried. The Mrs and I are equally worried too and we are one of the many kiasi-s who have started wearing our mask when we take the public transportation. 

Of course, the virus have spooked the market too, with our portfolio registering a 3% decrease in one day yesterday! They dropped as fast as they rose! However, we have not taken any actions and are keeping the faith that this too shall pass and that our portfolio will continue to return us the annual dividends.

Some of the counters that we are eyeing this year are the usual suspects of high quality REITs which we find the prices are still sky high.

Notably, we are looking at the Mapletrees and the Ascendas, as well as Keppel DC REIT.

The good thing is that, our friends at Syfe told us that they are launching a new fund focusing on REITs in Singapore. The new Real Estate portfolio is slated to launch in February, and we might choose to put some money in it if we like what we see. According to the investment manager, the way the portfolio is constructed, one will be shielded from major corrections! Sounds too good to be true, but let’s see. 🙂

If you are looking to join Syfe, here’s my referral code: SRP6X8B8Y

Besides that, Mr Budget has also received a lot of great feedbacks with regards to my CPF calculation. Some readers pointed out that the calculation is slightly wrong. It makes more sense to max out the Medisave first so excess Medisave will overflow to our Special Account up to the full retirement Sum. There is also a cap on the RSTU to our SA account. 

Another great pointer pointed out was that one should keep some money in the OA and not empty out the OA to SA because of the cap on the RSTU so that in the future, we can continue to enjoy the tax relief of RSTU, hence it makes more sense to drag out the time where you hit your full retirement sum of the SA account. We will probably be doing another article and scenario play this. 

We have also received our CPF annual statement as with everyone else. In 2019, the total interest credited was S$3063.91 as compared to a total of S$1029.86 interest credited in 2018. This represent a 300% increase! This is not far off from our projections.

Mr Budget’s 2018 CPF Interest Received (highlighted in yellow)
Mr Budget’s 2019 CPF Interest Received (highlighted in yellow)

Do keep a look out for more of our articles in the next few days for our monthly updates! In the meantime, happy Chinese new year to all, and don’t let the virus dampen our festive mood. 🙂 

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

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.


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
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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