Yay! KPO's CPF has hit a milestone, my SA (Special Account) has hit its first $40,000!
If you are wondering, what is the big deal? It is just 4/5% of risk-free interest (for now) that can be compounded for many many years :) I have been transferring my OA to SA ever since I started working. The reason why I can do this is that I do not have any liability/mortgage to pay as of now. Going forward, I will stop transferring as I need to build up my OA for my house in 2019!
Anyway, the interest rates for our CPF are as follows:
These interest rates include an extra 1% interest paid on the first $60,000 of a member’s combined balances (with up to $20,000 from the OA).
To be more specified, OA has 2.5% interest with an additional 1% on the first $20,000 (3.5%) and 4% for SA and MA with additional 1% on the first $40,000 (5%). You can refer to the CPF site for more information - CPF Interest Rates.
As usual, KPO likes to make some assumptions and play with the numbers...
Assuming if I were to stop working now and there will be no contribution to my CPF SA account anymore, I would have an estimated amount of $141,000 in my SA account when I reach the retirement age of 55. That is an increase of 2,525% based on simple interest. Pretty impressive right? This is also why Albert Einstein claims "compound interest is the most powerful force in the universe".
KPO took a step further and tried to forecast the Basic Retirement Sum required when he reaches his retirement age to see if he can hit it "now". lol. According to the CPF Retirement Sum Scheme site, the Basic Retirement Sum has already been determined for the next few years, till 2020.
Based on the above, the average "inflation" rate is around 2.97%.
Woah. $188,141 is required (imagine the pui blood meme). Seems like KPO needs to continue to work and contribute to CPF. Hahahaha.
You can refer to this spreadsheet or even download a copy and play with it - CPF SA Forecast.
Let me end with another of Albert Einstein's quote - "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it".
Health - KPO Needs to Lose Weight
Date: 2017-09-16
Weight: 79.5 kg
BMI: 26.6
If you are wondering, what is the big deal? It is just 4/5% of risk-free interest (for now) that can be compounded for many many years :) I have been transferring my OA to SA ever since I started working. The reason why I can do this is that I do not have any liability/mortgage to pay as of now. Going forward, I will stop transferring as I need to build up my OA for my house in 2019!
Anyway, the interest rates for our CPF are as follows:
These interest rates include an extra 1% interest paid on the first $60,000 of a member’s combined balances (with up to $20,000 from the OA).
To be more specified, OA has 2.5% interest with an additional 1% on the first $20,000 (3.5%) and 4% for SA and MA with additional 1% on the first $40,000 (5%). You can refer to the CPF site for more information - CPF Interest Rates.
As usual, KPO likes to make some assumptions and play with the numbers...
Assuming if I were to stop working now and there will be no contribution to my CPF SA account anymore, I would have an estimated amount of $141,000 in my SA account when I reach the retirement age of 55. That is an increase of 2,525% based on simple interest. Pretty impressive right? This is also why Albert Einstein claims "compound interest is the most powerful force in the universe".
KPO took a step further and tried to forecast the Basic Retirement Sum required when he reaches his retirement age to see if he can hit it "now". lol. According to the CPF Retirement Sum Scheme site, the Basic Retirement Sum has already been determined for the next few years, till 2020.
Based on the above, the average "inflation" rate is around 2.97%.
Woah. $188,141 is required (imagine the pui blood meme). Seems like KPO needs to continue to work and contribute to CPF. Hahahaha.
You can refer to this spreadsheet or even download a copy and play with it - CPF SA Forecast.
Let me end with another of Albert Einstein's quote - "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it".
Health - KPO Needs to Lose Weight
Date: 2017-09-16
Weight: 79.5 kg
BMI: 26.6
Hi KPO,
ReplyDeleteWow. It must be a strange coincidence. I just happen to did my transfer from OA to SA today too!
Congratulations on your milestones too :p
DeleteHi sleepydevil,
DeleteThank you! You continue to surprise me, managing your CPF at such a young age too! Good job man.
Hi KPO,
ReplyDeleteAt the age of 27, you have over 40k in SA, is impressive. I reckon you did a significant amount of transfer from OA to SA. Would you be able to share how much have you transfer till date, and why that amount?
Hi Ren,
DeleteThank you! I have been transferring all my OA since I started work - slightly more than 2 years already! However, I do not wish to share too much numbers (one might reverse the numbers to get my salary! Haha).
I did it now because I do not have any liability Leaving them in OA means I will only earn 2.5/3.5% while in SA, I will be earning 4/5%. So I might as well let compound interest work for me :)
Actually, from this chart, if one is alert enough, can already reverse the numbers to get ur salary. Nonetheless, I shall not spoil market. If not ganna blanket party.
DeleteGood job on ur achievement.
Hi reallydead,
DeleteHahaha. I thought about it but really cannot reverse. There are other contributions before my current job as a student and usage of OA (first 5% deposit for BTO). Not to mention, I have been using my MA too ;)
Woah! You are so daring to transfer all your OA to SA! I didn't dare to do so because I was aiming to get a flat when I started working. Though I haven't got it, it could be soon so I need to have enough OA to use!
ReplyDeleteHi Cherry,
DeleteApologies on the late response, I just came back from Hong Kong!
I have already gotten my flat in 2015 and paid the first 5% deposit. The next 5% would be in 2019 and in between, there's no need for OA and we decided to transfer it away for higher interest. So plan accordingly! Hahaha.
Hi KPO,
ReplyDeleteThanks for the sharing, an insightful article!
I'm a little confused, but how did you derive the figure of 3,525% increase (highlighted in green)? Thanks again!
Hi Targar,
DeleteThank you! I calculated using simple interest (141k - 40k) / 40k ~ 2.525! I have no idea how I derive 3.525 >.< Thanks for highlighting the error, I have corrected it.
hi KPO
ReplyDeletecongratulations on hitting. I was damn skeptical to actually transfer all my OA to SA, knowing that i cannot do anything to it until i am 55 year old. also i just booked a house and already half of my OA gone from the booking of HDB. as such, i have some questions for you:
1) have you and your significant one(SO) gotten a BTO? if so, why would you be daring to dump all the OA to SA? my only guess would be your SO have enough in her/his OA for the first downpayment.
2) transferring all the OA to SA, despite getting a higher interest rate, won't you be putting yourself in a precarious situation where in the future when you need to pay off your housing loan? (assuming you are taking HDB loan)
thank you for your response and for your info, and i have been working for about 2.5 years too :)
Hi Tingkai,
Delete1) Yes, we have gotten a BTO in 2015 and already paid the first 5% deposit. The next 5% payment will be in 2019 (keys collection) and in between, there is no need for any OA so why not transfer for higher interest which will be compounded over the years. I calculated and ensure that we can hit the 5% again before 2019 (both of us made the transfer).
2) Yes, we are taking HDB loan. Are you referring to loss of jobs? We are like the lowest life form in the company, wun get sack one la. Hahahaha. Most importantly, just plan accordingly at your own comfort. Right now, we do not have any liabilities. In the future with the loan, we will definitely have some buffer in OA for those "precarious" situation - CZM says she wants to be housewife and stop working >.<
Hi Kpo, congrats on your achievement! Can I ask if the extra 1% is on the combined of MA + SA or purely on the SA? My understanding is that it includes the MA
ReplyDeleteHi Daniel,
DeleteThank you! You are correct. It was stated in the CPF site as combined MA + SA but there's no clear ways how to derive/calculate the interest for it. So for simplicity sake, I just assumed that it is on SA since SA money cannot be used at all.
Hi KPO,
DeleteThanks for the reply! The CPF board does give an acct summary at the end of the year. Believe its possible to derive it from there. Maybe this calls for another blogpost at the end of the year. Haha.
Hi Daniel,
DeleteNo worries. Yeah. I will see how that goes. Posting an account summary (after this post) might be too much information being revealed. Hahahaha.