Wednesday, July 23, 2014

Treat CPF money as real money

There's a lot of perception out there that the CPF money is not real money. People generally are less careful with their CPF money as compared to the money in their bank account. Why do I say that? Let me give you some examples.

These are the common sayings about the CPF

  1. I want to use my CPF to pay for all my housing loan. Using CPF money to pay for a house is better than using cash to pay for a house
  2. I want to use the Medisave to pay for my hospital bills. Using Medisave to pay for hospital bills is less taxing to my current financial health
  3. I don't have to bother about the investments i make using my CPF money. When people ask me to invest in this fund using my CPF, i'm less worried about losing money. 

It is as though people believe that they would never see their CPF monies again and the government just wants to keep it all for themselves. Haven't you heard of your friends or relatives saying just use as much CPF as you can to buy a house? Better not leave your money inside the CPF? 

This is the sentiments that was seen and felt during the CPF protest at Hong Lim Park. Look at some of the placards which people wrote:

I can tell you truthfully that it is not just these people who are believing that CPF money should be released to them earlier. Even my friends and relatives around me have this believe as well. 

Behaviour perspectives on the CPF

During the IPS CPF forum yesterday, one of the panellist, Mr Donald low, made a presentation on behaviour perspectives on the CPF.  Mr Donald Low is a Associate Dean (Research and Executive Education) and senior fellow at the Lee Kuan Yew school of public policy. He said that: "People tend to focus much more on current consumption and discount their future interest heavily". This is why when you have a pay raise, there is always a tendency to spend more now than to save more now. 

He continued to say that "There is a two-selves problem. People often find it hard to imagine their future selves as themselves. Policies that involved delayed gratification, no matter how reasonable and rationally presented, tend not to be too well received." 

If you're at the age of 25 now, can you imagine yourself to be in your 70s? The below photo was shown on the slides being presented:

I bet none of us will think of how we'll be like when we're old. It is probably also why few of us will really think about retirement when we're in our 20s or 30s and some even up till 40s. More often than not, when you realise you need to plan for retirement, it may have been too late. Fortunately for these people who totally forgot that they need money for retirement, they have the CPF to fall back on. But, as i've said before, even with the CPF, most of them will have just the minimum to survive on. A few hundred dollars a month perhaps? Say good bye to the dream retirement of travelling around the world. 

Asset rich and cash poor?

This problem of asset rich and cash poor was discussed in the forum yesterday too. This reminds me of an article on straits times of an old man who lives in a bungalow but he has to eat bread everyday because he has no money to buy proper food for himself. There is an option to downgrade and live in a smaller flat so he can have some cash but it is easier said than done. It is an emotional decision to sell and downgrade and move to a totally new environment. 

The asset rich and cash poor is a result of over using the CPF for housing which leaves them little for retirement. This problem will continue to happen for future generations with our high housing prices now. 

Be prudent when handling your CPF money too. Treat it as your real money. If you want to have adequate funds for your retirement, start with the CPF. Understand how it works and make good use of the system such as taking advantage of the risk free interest rates which is given.

There has been a few useful info graphics that MOM has made the effort to come out with. One of it on CPF interest rates is as below:

Arm yourself with a little knowledge and it could go a long way for your life. Start retirement planning today!

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  1. Perhaps you start blogging on how you start your own retirement planning and share your experience on doing it.

    1. Hi Uncle CW,

      Oh yes. I've written part of my financial plan in my financial goals page. That is just the savings part. Another part would be to grow that money and create passive income to achieve financial freedom. That's the basis of my retirement plan. Any other suggestion you might have for me?

    2. One yearly update blog post on your progress on retirement planning road map will be good.

      We will have more faith when we can see with our eyes on how others have successfully do it in front of our own eyes. It is NOT magic!

    3. Good suggestion. Will consider it.

  2. People wish to withdraw their CPF monies for a myriad of reasons. It takes decisions of a more deep-seated and long-term nature to win back lost faith. Using logic and charts can only dissuade some.

    1. Hi EH,

      I agree it'll take a lot of effort to win back lost faith. The approach has to be simple for normal layman on the ground to understand. There's a lot more ground work for the govt to do.