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Making CPF a stronger player

Turning 55 - the best is yet to be

There is still time to catch up if you missed out on saving money in CPF

Turning 55 is supposed to be a momentous event in our lives.

When my dad reached that milestone 33 years ago, he stopped working. He also got a big windfall from withdrawing all his Central Provident Fund (CPF) savings. Those were the days when a person did not have to set aside any money in his CPF for retirement needs or medical expenses.

Time flies. I could scarcely believe that it was my turn to hit 55 earlier this month. I still look and feel pretty much the same as always, but my friends made a big fuss about it and hosted me to dinner at the Tanglin Club to celebrate the occasion.

For me, the greatest significance of this milestone is the need to take decisions on our CPF savings, which can turn out to be quite a sizeable sum for some of us.

In my case, the choice is simple. After setting aside $161,000 in the newly created CPF Retirement Account, I still have some funds left in both my CPF Ordinary and Special accounts.

I could have withdrawn the monies like my dad did all those years ago, but I decided against doing that because the CPF pays a much higher interest rate vis-a-vis what I can get from bank deposits.


ST ILLUSTRATION: MIEL

I also did something which my dad would not have dreamt of doing - I wrote a cheque to put another $80,500 into the CPF Retirement Account to top it up to the so-called Enhanced Retirement Sum limit of $241,500.

I also reckoned that if I pour another $7,500 each year into the Retirement Account for the next 10 years, the sum in it would escalate to about $470,000 by the time I turn 65. That is not including the additional savings that I would have accumulated from the contributions made to the CPF Ordinary and Special accounts so long as I keep on working.

Those who want their CPF money back as soon as they can get their hands on it will think that I must be crazy to be putting more money into my CPF Retirement Account.

However, to me, the ugly possibility of my CPF money going up in smoke or not getting the money back is practically nil. The CPF is probably the safest place in the world to park our retirement nest egg and get an attractive, risk-free return to boot.

This is because Singapore is one of the few remaining triple-A rated countries and the Singapore dollar is one of the world's strongest currencies.

In doing what I did to achieve the best returns I can get out of the CPF, I am simply relying on the power of compounding - once described by the great scientist Albert Einstein as the eighth wonder of the world.

I am also assuming that the CPF will continue to keep payouts at the current attractive levels while inflation stays low for a long time - a scenario that seems conceivable since much of the global economy is stuck in a rut of low growth which dampens consumer spending.

To try to achieve the same returns elsewhere, I would have to take on risks which may cause me to lose part of my nest egg if I am not careful. Given the availability of the CPF mechanism to accumulate returns risk-free, this is one issue which I would rather not lose sleep over.

Those who want their CPF money back as soon as they can get their hands on it will think that I must be crazy to be putting more money into my CPF Retirement Account.

However, to me, the ugly possibility of my CPF money going up in smoke or not getting the money back is practically nil. The CPF is probably the safest place in the world to park our retirement nest egg and get an attractive, risk-free return to boot.

I also find that I am not the only person who adopted such a strategy. At a recent class reunion, a classmate friend said that he had taken a similar approach.

What we are doing reminds one of the snowball analogy about accumulating wealth that was once articulated by Mr Charlie Munger, the billionaire business partner of investment guru Warren Buffett.

Mr Munger likens the process to rolling a snowball. It helps to start on top of a long hill, start rolling early, and try to roll that snowball for a very long time. It pays to start saving when one is young and to live a long life.

WHAT IF YOU HAVEN'T SAVED?

Now, this is well and good for people who have the foresight to consistently save more than they spend. We can afford to leave our monies in the CPF to enjoy a further snowballing effect on our retirement savings because we have other sources of finance to fall back on if we are suddenly confronted with an emergency.

This may, however, not sound like music to the ears of those in their 50s who may have missed out on the opportunity to squirrel away more savings when they were younger and who may be eyeing the CPF money, now locked out of their reach, to help defray their expenses.

This is the group which most keenly feel the threat of being pushed out of their jobs because their companies may want to replace them with younger and cheaper staff - but which want to carry on working, not because they want to, but because they have little savings to fall back on.

For them, turning 55 can be a scary turning point in life - the beginning of the end, as one friend despondently puts it. But this is surely no reason for despair if they are worried about their finances. There is still time to catch up.

I believe that the expertise they acquired from their many years of working will enable them to build up their wealth in a significant way if they put their heart and soul into it.

One of the most heartwarming stories I have ever read is that of a remarkable woman, Ms Anne Scheiber, who turned the US$5,000 which she had saved up when she retired at 50 into a mind-boggling US$22 million by the time she died at the ripe old age of 101 in 1995.

During her long career at the US Internal Revenue Service until she retired in 1944, Ms Scheiber never earned more than US$4,000 a year, and despite being an exemplary worker, she never got a promotion. She also suffered financial losses in the 1930s after getting bad advice from stockbrokers.

In short, hers is a familiar hard-luck story that those of us who may be stuck in a career rut and got burned in our investments when we looked for alternative ways to make money, can relate to.

Yet, after she retired, Ms Scheiber was able to turn adversity into advantage by putting to good use the analytical skills she picked up on her job by looking for worthwhile investments. Her investments included shares of companies such as healthcare products maker Johnson & Johnson and consumer products maker Colgate-Palmolive.

The best part of it all is that until her death, she operated from a tiny apartment in New York and nobody knew how incredibly wealthy she was.

There was even an upbeat end to her story: Towards the end of her life, she quietly arranged for her fortune, which had blossomed through both boom and bust, and every sociological change imaginable, to be donated to a university to set up a scholarship to help support women's education.

Ms Scheiber is a shining example that, in our 50s, the best in life is yet to be.

A version of this article appeared in the print edition of The Sunday Times on August 28, 2016, with the headline 'Turning 55 - the best is yet to be'. Print Edition | Subscribe