MPs offer ideas to improve CPF

[CY09]

Lets do a simple work example on how an investment yielding 6.25% (slightly below GIC's 20 yr return) will fare against a 4.5% pa investment plan.

Let’s say we have a graduate who enters the workforce at 25 years old and decides to make a yearly contribution of $5,000 to his investment plan. Using the 4.5% return, when he is 65, he will have approximately $559,000. If the return is 6.25% instead, the individual will have $820,000 at age 65. This means a staggering $261,000 difference between the two.

This is similar to a real life example we experienced when we do investing
Note: Apologies for not being able to elaborate further as I am bound to a certain "code of conduct".

[Temperament]

No! On the contrary, it's because CPF is your money, please don't ask G. to take the the risk of investing for higher return. It's really a thankless task for anybody. Even for the G. So go ahead and take all the risks you want but make sure you have enough for MA and RA for yourself. But OA money is a good source for ????

[CY09]

Hi temperament this concept may sound a little alien.

Lets say at the age of 25 now, on my free will, I aim a target of $813,000 at age 65 to meet my basic retirement needs and medical expenses. What can I do? One of the best ways is to start investing in equities at a higher weighting at the young age and gradually move towards bonds at the older age. Why is this so? This is because research has pointed out that if you stay invested in equities over the long run, the returns are generally better than bonds. Conversely, if your investing time frame for equities is very short term, you may be at the short end of the equity volatility. Therefore, advisers always advise youths to be heavily weighted in equities than bonds at a young age due to this point.

It is not advisable to be heavily weighted on bonds at a young age. This is because you will be short changed in the compounding effect as equities returns are generally higher than bonds over the long run.

This is a purely personal finance view but very applicable to real life.

Using my example above, assuming I will save for 40 years and my returns are 4.5%, I will need to save $603 per month.
If the returns are 6.25%, I will need to save $379.37 monthly instead.

[Temperament]

Hi temperament this concept may sound a little alien to you.

Lets say at the age of 25 now, on my free will, I aim a target of $813,000 at age 65 to meet my basic retirement needs and medical expenses. What can I do? One of the best ways is to start investing in equities at a higher weighting at the young age and gradually move towards bonds at the older age. Why is this so? This is because research has pointed out that if you stay invested in equities over the long run, the returns are generally better than bonds. Conversely, if your investing time frame for equities is very short term, you may be at the short end of the equity volatility. Therefore, advisers always advise youths to be heavily weighted in equities than bonds at a young age due to this point.

It is not advisable to be heavily weighted on bonds at a young age. This is because you will be short changed in the compounding effect as equities returns are generally higher than bonds over the long run.

This is a purely personal finance view but very applicable to real life.

If you keep reading on (from the internet) current articles of "How To Invest In Retirement" (to me it can be any age), you will realise they encourage you to invest from 40% to 60 % in equity to make sure your portfolio (aka your money) will at least keep up with inflation or worst QE.
So to me (even now) it's best to have 20% to 80% of your portfolio in equity-depending on "What's The "Time of The Day In The Market" Mr. BEAR, Mr. Bull. or Mr. BLACK SWAN?

One thing i agree with you, when i first invested, i put almost all my money into equity for a number of years.

[Big Toe]

Nah, I would rather have the money now.
Having cash is always very very useful, even though I have no immediate use for it now.
When opportunity arises and there is no cash. Then it is no opportunity.

Pardon my extreme view but people ought to be more responsible for their own lives.
Forget about cpf(yes, I know it is a significant part of our money), work hard and do something now
to earn sufficient for you/your family's current needs and future needs. Sounds like a no brainer but not a
lot of people know where they are heading/have a plan for it/working hard in the right direction/getting what they want in life.
If a person is not earning a lot, at least be in a job that they enjoy doing.

Spending an excessive amount of time debating about CPF and retirement is pointless.

[Big Toe]

Retirement is a way which man marks the end of a person's working life.
It is defined by age, which is total rubbish.
There are people who passed 70 and still physically and mentally more alert than people in the 30s/40s.

[specuvestor]

^^^ in theory our kids should strike out on their own with no help from the parents when they are of working age

In theory people should take care of their own retirements and not be swayed by Batam

In theory we shouldn't really care if the streets are littered with young and old vagabonds. To each his own and they probably deserve it

In theory each should take care of their medical needs and if thou should be stricken by a disease then all the best.

Until the society can come to peace and agree to being indifferent to the plight of fellow citizen, the govt should perform some social duties. Then again if that day comes when we are indifferent, probably humanity has become irrelevant.

Lets do a simple work example on how an investment yielding 6.25% (slightly below GIC's 20 yr return) will fare against a 4.5% pa investment plan.

Let’s say we have a graduate who enters the workforce at 25 years old and decides to make a yearly contribution of $5,000 to his investment plan. Using the 4.5% return, when he is 65, he will have approximately $559,000. If the return is 6.25% instead, the individual will have $820,000 at age 65. This means a staggering $261,000 difference between the two.

This is similar to a real life example we experienced when we do investing
Note: Apologies for not being able to elaborate further as I am bound to a certain "code of conduct".

There is a staggering difference between a constant absolute return of 4% and say 6.25% that is punctuated by at least one crisis within a decade. Timing becomes important. Psychology of greed and fear becomes important. Explanation of short term performance becomes important, especially politically. People remember Temasek's $40b loss in 2008 but forgot (conveniently?)she made almost the same from chinese banks.

If your logic is correct then it makes asset allocation between bonds and equity irrelevant. Everyone should just do 100% equities

What you can't use CPF money for is to pay for holidays, or buy that fancy bag or watch. Or restaurant dining. Or buy a boat. Or buy a car.

No siree, CPF money is not our money! Selfish and crafty and corrupt government with a AAA credit rating. DARN IT!

Agree. We need to have a balanced view of what CPF can do and what it cannot do. Indeed what it is designed to do. And like i emphasized earlier, the primary principle is retirement needs. If one doesn't agree with this principle, or don't think govt should be paternalistic and force people to save for retirement, there is no scope for argument. It will always degenerate to "give us back CPF" or "CPF is stuck" or "you will never see all your CPF monies while alive"

[Freenasi]

Agree. We need to have a balanced view of what CPF can do and what it cannot do. Indeed what it is designed to do. And like i emphasized earlier, the primary principle is retirement needs. If one doesn't agree with this principle, or don't think govt should be paternalistic and force people to save for retirement, there is no scope for argument. It will always degenerate to "give us back CPF" or "CPF is stuck" or "you will never see all your CPF monies while alive"

Yes agree. Most people are fair not to ask for the sky from cpf board. Since the figures have proven that in a given time frame the GIc can get a return of 6.5%, it is not unreasonable to have a return closer to 6.5% (rather than 2.5%). Some may claim that the money is "guaranteed", but also many in reality does not buy the idea. The restriction of not being able to mobilise the cpf money is a greater concern. It does not help too that our "guaranteed" money is strinking every year, towards our old age.

[yeokiwi]

Agree. We need to have a balanced view of what CPF can do and what it cannot do. Indeed what it is designed to do. And like i emphasized earlier, the primary principle is retirement needs. If one doesn't agree with this principle, or don't think govt should be paternalistic and force people to save for retirement, there is no scope for argument. It will always degenerate to "give us back CPF" or "CPF is stuck" or "you will never see all your CPF monies while alive"

Yes agree. Most people are fair not to ask for the sky from cpf board. Since the figures have proven that in a given time frame the GIc can get a return of 6.5%, it is not unreasonable to have a return closer to 6.5% (rather than 2.5%). Some may claim that the money is "guaranteed", but also many in reality does not buy the idea. The restriction of not being able to mobilise the cpf money is a greater concern. It does not help too that our "guaranteed" money is strinking every year, towards our old age.

Well, in the same notion, is it fair to ask the people to tolerate if there is a negative -3% return for any year?
I suppose you are familiar with unit trust. Is there a unit trust that guarantee future gains?(link please). Even for insurance company, it is always about guaranteed gains and projected returns. No one in the investment industry will up the guaranteed ROI to the limit of the past performance.
And.. ain't the following sentence familiar
"Past performance is not an indication of future results"

The special account return is 4% or 4+1% for the first 60k which is reasonably closed to the historical return. If you want, you can transfer your OA to SA and get to enjoy the higher return.

The restriction of not being able to mobilise the cpf money is a greater concern

By the way, it have been explained that in so many posts that the 2.5% account is simply very usable for investment and if you are really want to try to beat the 2.5%, you are welcomed to do that.

And, in the past, the OA account can be used up to 100% for stock investment. Perhaps, you are smart enough to guess what had happened and why it was reduce to 30%.

[Porkbelly]

Yet, when we use the OA to buy shares, the dividends is not used to calculate returns.

The board will use the purchase price against the current price to determine the difference and this will indicate if you 'owed' money to your OA account.

So, it is based on capital gains and not return on capital.