CPF For Retirement

I am sure you have heard of Loo Cheng Chuan. If you google him or "1M65" you will get to see him and you can read his recent interview here. He advocated the movement to accumulate 1 million in CPF by the time you reach 65 years old and is probably the poster child for CPF. 

If you have been long enough in the blogosphere, you would also have heard of AK71. He recently shared that his CPF balance has crossed $1.1m.  

For my personal CPF journey, I finally crossed the 1M mark in 2022, showing that it is possible to reach that before 65. We have to diligently plan and work towards it. 

Finally reached the 1M mark in 2022

Having said that, 2022 is an interesting year, where the rising interest rate poses an interesting conundrum. You may have to rethink how you implement your CPF strategy. 

With fixed deposit rates crossing 4% and borrowing costs >3%, it has crossed the breakeven point whereby it makes sense to place any excess cash in fixed deposits and use CPF OA to service your mortgage loans instead 🤔  

My biggest regret for 2022 is having the opportunity but did not convert my mortgage rate from floating to fixed. I have gotten complacent with the low interest rate environment and never expected the Fed to hike interest rates so drastically to tame inflation (See chart below on lesson learnt). 

SIBOR and SORA rose significantly throughout 2022 (showing early signs of slowing)

My mortgage has increased so significantly that I am waiting for the lock-in period to be over before paying down my loans. Another option is to use the CPF to pay down my mortgage but I closed off that optionality when I fully repaid the cash used (instead of leaving a small CPF amount drawn outstanding). Another lesson learnt? 😂

How I use CPF in retirement planning 

I have mentioned before that CPF (to me) is the basic foundation for my retirement. In other words, I don't want my CPF to take on too much market risk or use CPF to speculate the market. Assuming a fixed deposit rate of 4%, you can get a risk-free income of $40,000 per year or more than $3k per month. A pretty decent passive income at 4%!

My goal for 2023 is to optimise the cash in the CPF account (i.e. whether to use it to buy Treasury Bills). Seedly has written the article - Should you use your CPF to buy T-bills or fixed deposits. Dollar and Sense wrote an article on investing CPF into fixed deposits here.

Breakeven yield to use CPF to invest in T-bills (use 2 months time lag to be safe)

As rightly pointed out in the article, when money is deducted from the CPF account, you will miss the interest for the deducted amount in that month; and when money is credited back to the CPF account, it only begins to earn interest from the following month.

If you look at the timeline of the T-bill application, the whole process from auction date to maturity date can take 7 or 8 months, depending on whether the auction date and issue date cross over different months. In other words, you will miss 7 to 8 months of CPF interests for 6 month of T-bill yield.  Currently, the process is still very manual and you have to head down to the bank to apply but this may change in Q1 this year, if the banks can get their act together. My RM did offer to send me the form for my signature (instead of me going down to queue up), so I may take up that offer instead.

1M50, 1M55, 1M60, 1M65 or 1MXX

So what is your call code to hit 1M in your CPF account. Is it 50 years old, 55 years old, 60 years old or 65 years old? It doesn't really matter when you hit the number but whether you have planned for it. 

You may not have 1M in your CPF account but you have a fully paid 1M property earning passive income instead. There are many roads to Rome (aka retirement), just make sure you plan to reach there!

Happy retirement planning (with CPF)