3 Reasons Why I DO NOT Top Up CPF

CPF Top Ups provide some benefits like tax relief and risk-free returns, but here is why I do not top up my CPF! Hopefully it helps you decide if you should do so
📱 More content and great deals: sethisfy.com/t...
【Sponsored by Webull】
Thanks to Webull for sponsoring my video! Highest ever sign-up offer:
USD50 trading voucher (buy 1 US stock/ETF/ + 1 Mutual funds)
USD100 trading vouchers (buy 1 US options) + maintain funds for 30 days.
Total USD150 trading vouchers!
Get latest promo and see terms: sethisfy.com/w...
*Video contents are my sole personal opinion only and do not constitute personal financial advice nor represent the views of any other entity.*

[@KelvinLearnsInvesting]

Mr Loo!!! Chris!!! You see this guy don't want to topup CPF!!!

[@Sethisfy]

Wah calling in the big guns 🏳️🏳️

[@HoneyMoneySG]

Nothing wrong with not topping up CPF as long as you know what you are doing, which I know you do, Seth. Most CPF Builders I see are quite chill about their own lives and probably don't force their opinions on people to top-up

[@kitsura]

I agree, anything for tax avoiding like D.Trump. If only I can offshore my income to Ireland to enjoy 0% tax like mega-tech Corps.

[@Sethisfy]

Haha I FOMO also but just can’t find a good reason to top up. Anyway curious why you mention CPF builders don’t force opinions on people. Had to watch my video again to see if I accused CPF builders of that 😅

[@royalemakersupercell]

Whenever insurance agents try to ask me to buy their policies, I'll told them I top up all my cash into cpf bank left less than 1K. I refuse to let my income be their source of distribution cost and comms

[@laisowfong]

🤣

[@leaptech510]

Agree with you Seth. Payout Age over the years: 1987 : Start from 60 1999 : Raised to 62 2012 : Raised to 64 2015 : Raised to 64 2018 : Raised to 65 I think CPF Life will raise the payout age to start from 70 within the next 1-2 decades. Most likely my CPF savings will end up as inheritance. I think I wont be living that long, maybe due to illness/pandemic/etc. But I'm still topping up SRS and CPF-MA up to BHS limit every Jan first week.

[@echeng5722]

Maybe you can also add this data point of Life expectancy - 1987 - 75 1999 - 78 2012 - 82 2015 - 83 2018 - 83 which means from payout age to expected death 1987 - 15 years 1999 - 16 years 2012 - 18 years 2015 - 19 years 2018 - 18 years. One should then argue that the retirement years until one dies have increased (not decreased)

[@Earendal_]

It all depends which age band you are currently in. For the younger generations, CPF top-ups could still be a viable option AFTER investments and meeting other priorities if one is still left with idle cash that is.

[@Sethisfy]

Yes I have forgotten to factor in age and actually contribute to my mum’s CPF. oh well more video content for the future 😂

[@zhengshaoxuan]

Great video! Personally as a self-employed person around your age, I still do like some amount of CPF-SA. I treat it like the bonds component of a balanced investment portfolio, while also having equities as the less conservative part. I think the question here really is what proportion of money goes into what.

[@Sethisfy]

Thanks for the comment! Yeah you are right that it is a matter of how much. As a self-employed I would definitely do voluntary contribution but now that I have a full-time job I am already making compulsory contributions so I think that is enough “bonds” for me for my current age.

[@hoeyen415]

For those for early retirement, cpf dont make sense when we can invest ourselve

[@Thunderbolt89]

Thank you for taking the bold step to go against the common narrative. My main issue is also with locking up the money for over 40+ years when we start working. I feel even if u get into indexes that are slightly below 5%, the liquidity of having excess cash is always useful for people who are financially responsible prudent. People who are lazy to do homework can go ahead with conservative options like cpf, but i wish these pro-CPF pple will be less judgemental against people who decide never to top up CPF like u and me.

[@Sethisfy]

Haha I didn’t even know it was a polarising issue. Just couldn’t get past the mental hurdle of topping up SA so decided to share my reasons

[@meiyinli7409]

Thanks! May I know what is the difference between people with FRS and people with FRS+excess top up, will they receive the same amount of pay out every month? If someone can eventually hit the FRS with high paying job, why topping up?

[@Sethisfy]

CPF Life payout depends on how much you put into it. Those who commit more than FRS will get more than those who just do FRS. People top up to save on tax and to enjoy SA’s interest earlier.

[@chilly2171]

OA earn next to no interests. SA marginally average interests in a high interest rate environment, it can't even beat banks and deposits, in a low interest rate environment, it loses to REITS and equities. Not to mention, interest rates are not guaranteed like you mentioned. Also, the CPF only pay out at 65 where a lot of people can no longer travel, and do the things they love. If CPF can be withdrawn on a monthly basis at age 45, it makes a lot more sense.

[@Sethisfy]

Yeah I think normal contributions for 65 is sufficient. Not gonna top up beyond that

[@royalemakersupercell]

4 to 5% compound interest is still btr. Past performance do not determine future performance in equities. Just see what happened in 2022.

[@Sethisfy]

Crashes are fine and to be expected. In the long run equities will still go up. If past performance cannot guarantee this upward trend, CPF will also not be able to keep up with their interest rates.

[@cyong]

I believe any excessive amount can be withdrawn once the amount has hit FRS, hence topping up SA can make sure u hit FRS earlier

[@Sethisfy]

Top ups made to CPF SA cannot be withdrawn even if you hit FRS. There’s a workaround which is to contribute to Medisave instead so that “overflows” go to SA. Those overflows would be withdrawable but you will need to hit Medisave BHS before any overflows happen

[@FG-tu1kr]

Hi, no. After hitting FRS in your SA, all sums in excess of FRS in your SA (including RSTU portions) can be withdrawn after the prevailing age for withdrawal. Can check with CPFB, I have personally received confirmation of this point 🎉 So Chee Yong is correct

[@cyong]

I had the same confusion before but Chris has clarified in the comment in the video below: kzbin.info/www/bejne/l4OroGaaaK9gq5o

[@Sethisfy]

Thanks both for the comments. Let me check through

[@longtermspeculator1566]

How about people who are in high marginal tax brackets like 22% or above? Tax savings can be hudge when taking into account time value of money

[@Sethisfy]

Yeah that’s fine after they max out their SRS first. They are unlikely to miss this $8,000 per year in liquidity anyway

[@boy30002000]

Hi Seth, chanced about your videos and I find them really useful. One point that I want to point out is that our entire CPF money is not locked up all the way to 65 and above and transit into monthly pay out. As long as we meet the FRS (which most middle income Singaporean should be able to achieve without topping up) when we are 55 years old, we and withdraw whatever is above that FRS amount. Is that correct? So given the tax relief plus the compounded interest, potentially the $8k accumulate over the years will results in more than the notional amount that can be withdrawn (which most of us can qualify based on the middle income point above). Happy to hear your thoughts. Thanks

[@Sethisfy]

Hi yes I clarified with a colleague and money above FRS can indeed be withdrawn. I think there are a few big factors which I should have highlighted (perhaps in a new video) that would make the case for CPF top-ups. Age, tax savings, and risk tolerance are the main ones I can think of. If someone is young, not much tax to pay, and have high risk tolerance, topping up CPF is not that great an idea. If we assume $8,000 at 11.5% tax bracket, we are looking at $7,080 to invest vs $8,000 to be placed in CPF. For 30 years, invest will net $40,663.92 at 6% p.a. while CPF will do $25,947.18 at 4% p.a. Even at 20 years there is a big difference.

[@boy30002000]

@@Sethisfy Thanks for the reply and clarification. Your scenario assumes a 6% p.a. return which I think you are referring to equity (probably S&P or reits). While long term equity does give those return, it doesn't come without risk (depending on when you put in) while SA is risk free. Its the same argument why we are putting into SSBs or Tbills which has lower returns but risk free versus putting into equity or reits. These are low risk allocation while other cash are set aside for higher risk like equity. You should be comparing CPF top up to other forms of risk free investments like Tbill or SSBs instead of 6% which is equity. The only thing about SA is that it is illiquid but it comes with features like tax reduction and compounded interest. Bonus to CPF top up is the tax reduction. Again your use of 11.5% is capped at 120k and any thing above spike up quickly to 15% and beyond which does make a different and tax savings low hanging fruit (realised in next 12 months). Happy to hear your thoughts and look forward to your next video.

[@Sethisfy]

If we are talking about the short term, SA is indeed lower risk than investments. T-bills and SSBs are great if you need the funds in the next couple of months/years. But in the long term if equities cannot do 6% p.a. then SA is unlikely to continue giving 4% p.a. as well since the returns are not generated within a vacuum. It is not exactly “risk-free” because CPF SA monies face a different set of risks as rates and policy are subject to change. There is also a risk of not getting enough returns for future needs.

[@boy30002000]

@@Sethisfy Agree that long term equities has to score higher in order to reward 4% to SA. Sadly not everyone is as good as those deploying those monies or have the time to manage themselves or is able to react cleverly or emotionlessly to market movements. As for the policy changes, I believe a huge market phenomenal have to change for rates to be reduced. In those cases, I doubt your equities can strive. Losses don't come from vacuum as well.

[@Sethisfy]

​@@boy30002000 Yeah my point exactly! If we can recognise that both are linked in the long term then we should do well to cut out the CPF middleman, or at least not feed it more than our mandatory contributions.

[@clneosg]

while if you age 50 and above and your income tax is above 12% bracket, then make sense lor. No need to wait that long to take the money liao.

[@Sethisfy]

Oh yes I have completely forgotten to factor in age 🤦🏻‍♂️ More content for a subsequent video I guess haha. (I do top up for my mum.)

[@frjuy]

@@Sethisfy then you dad? 🥲

[@Sethisfy]

Top up for dad no tax relief. Don’t want top up 😂

[@frjuy]

@@Sethisfy oh? How come? If you don't mind sharing. If too private, can ignore my question

[@cuthbertyeo4717]

Paiseh Seth! Slight disagree with you on this. In most cases, CPF per se is an additional tool against tail end risk (ie. market “dips” say during your intended retirement phase). Many people whom I know top up CPF does it only after other better investment avenues had been exhausted. Beats leaving it to sleep for the spares.

[@Sethisfy]

Haha no need to paiseh this is one topic I’m happy to get differing views because I’ve always wanted to top up CPF but haven’t found a compelling reason to do so. I do agree it has a use but beyond compulsory contributions it’s really difficult for me to justify topping up since I rather invest. Not sure I understand what you mean by other avenues are exhausted though

[@NinJa-qr1sp]

Hmmm... You still young man la. You wait another 10 years, you see whether your stand will change. Heh heh. When I was in my 20s I also think it's crazy. But as I approach 40, I wish I had done so earlier.

[@Sethisfy]

If you’re approaching 40 we’re not that much different in age 🙃 Still, I would consider topping up when I’m a lot closer to 65. Even at 40+ I might hesitate, but we’ll see.

[@NinJa-qr1sp]

@@Sethisfy damn you look young.

[@frjuy]

you didnt mention MA also

[@Sethisfy]

Yeah I didn’t 😅 (Must leave something for next video.)

[@royalemakersupercell]

While it is true. Saying how the current govt can lose power and alternative parties can come in, the chances of that happening is so low. In life everything has risk. If u can me the risk of market crashing is still alot higher than the leading govt changing

[@royalemakersupercell]

But I would rather have funds lock up for a long time. I don't have any liability like children or marriage. I have 0 major life expenses or car or condo. So I don't need flexibility . And I'm sufficiently insured also

[@jironghuang4895]

Look beyond S&P 500 and you would find that many indexes do not outperform 4-5%.

[@Sethisfy]

Then why ignore the S&P500 which makes up such a big part of global equities?

[@jironghuang4895]

@@Sethisfy if you are familiar with external validation methodologies in research, you want to stress test your hypothesis across multiple samples. In this case, it could be different markets. I do this quant validation at institutional level.

[@biaofo5258]

Oh, I noticed you are also a board game lover.

[@hoeyen415]

❤

[@Sethisfy]

📱 More content and great deals! sethisfy.com/telegram 📈 Free Shares: sethisfy.com/trading-apps/ 💳 Credit card deals: sethisfy.com/cards 🔥 Hot deals: sethisfy.com/deals

[@cchew23]

Your last point is waaaay too generic.. I summarise it simply as uncertainty given your following statements: “things may / will change, the future is unpredictable.” I’ve got two more points following this: I don’t think our CPF interest rates will fluctuate as much as you claim it may because of an uncertain future. After all, I think they have been unchanged for 20+ years, since Jul 1999. Your point on the political risk to the Govt is probably a contributing factor as to why they did not change the interest rates the past 20+ years. www.cpf.gov.sg/content/dam/web/member/faq/documents/InterestRate.pdf Finally, your “uncertainty point” can be applied to other points you mentioned in the video. E.g. the 5% interest rate of the UOB One account seems more likely to be changed (and probably downwards) in the shorter term compared to CPF interest rates. It of course does make sense to get the 5% interest, it’s higher than OA rates, around MA / SA rates. E.g. the stock market (I assume S&P500) also probably can’t guarantee you 10% annualised returns even in the long term E.g. what if the policy changes regarding SRS? What if the 5% penalty for early withdrawal increases to 10%? These things may happen, so then why invest? Why still top up into your SRS?

[@Sethisfy]

Just because unpredictability affects everything does not mean some things aren’t more affected than others. If UOB one account changes rates, I can find another bank. If SRS increases the penalty, I can still withdraw albeit at a 10% penalty. Or wait till 62 to withdraw the whole thing. What’s a person with lots of CPF monies going to do if they decrease the rates? The future being uncertain clearly affects things that are locked up for a much longer term which is the whole point of my final point - 20 years? Sure. Beyond that, I’m so sure.

[@cchew23]

Then wouldn’t this point of yours - high uncertainty in the long term (20 years) - contradict your other point on certainty of better returns (>4-5%) from the stock market versus CPF interest rates over 20 years? 5:27

[@Sethisfy]

Stock market has shown itself to rebound after each crisis, and the stock market has a longer track record. CPF has shown itself to change by deferring retirement age, withdrawal mechanics etc. Are both unpredictable? Yes. Are both the same level of being mercurial in the longer term? No. It’s like saying the stock market is unpredictable and the casino is unpredictable, so both are somehow equally good/bad ways to grow one’s wealth. Plus, if the stock market does indeed fail to behave like it did in the past century or so, what makes you think CPF can continue to deliver its returns?