Maximising your family members CPF contribution

Within the family, you don’t actually need to be very savvy with financial-related or investment-related matters to be constantly bombarded with queries. You just need to have that delta, above and beyond which you automatically become the guru in the family.

I was just kidding. Jokes aside, I really enjoy looking at statements and see how I could further hack or maximise the benefits from the scheme. I strongly believe financial literacy education starts from within the family. After you have reached a stable or steady state within your core, what is stopping individuals from helping with their extended family members as well?

It didn’t help that the previous generation did not have the luxury nor the availability of the tools we have today: knowledge from books / e-books, online communities for Q&A, constant stream of paid and free investment seminars or enrichment workshops. Even till today, we haven’t solved the language barrier — many investment workshops or education materials are still primarily in English.

So primarily, we would be looking at how 2 of my extended family members fare for 2019 in their CPF savings and contributions. I came into the picture late. Both have crossed 55 years of age, thus shielding does not apply to them anymore. Both are still gainfully self-employed and enjoy working for still many more years to come.

FAMILY MEMBER (A)

Family member A was in the 22% tax bracket for Notice of Assessment (NOA) FY18. Objectively speaking, he was trying to save on taxes as much as possible. He had maxed out his Supplementary Retirement Scheme (SRS) contribution at $15,300. NOA FY18 self-employed contribution for CPF was $22,560. Tax bracket was brought down to 19.5%. His question was, what more can he do?

There is a certain level of skepticism by the older generation towards the provident fund or CPF. This is understandable. However, he was convinced to contribute even more from the self-employed contribution perspective (from $22,560 to $29,560) as well as max annual voluntary cash top-up ($7,000).

This move not only further bring down his tax bracket (expected) for NOA FY19 to 19%, it further increases his rate of saving towards retirement. His Retirement Account (RA) is $30,000 away from year 2020 Full Retirement Sum (FRS) amount. The prevailing rate is $181,000. Interest is a cool $11,000 which is further upside depending on what could be done for the monies in the Ordinary Account (OA).

FAMILY MEMBER B

Family member B was in the 7% tax bracket for Notice of Assessment (NOA) FY18, and has managed to bring it down to the 2% tax bracket. She had maxed out her Supplementary Retirement Scheme (SRS) contribution at $15,300. The main objective here is to save for retirement.

The plans for NOA FY19 stayed relatively the same, unless she has excess monies, she probably would do a cash top-up to her Retirement Account (RA) this year instead. We can tell that this member is a little more on the chill side, but an interest of $7,000 is still good money with proper planning.

CONCLUSION

I have to quantify that both members are not on the investment-savvy side of things. Their best investment are in Fixed Deposits and are constantly on the look for bargains. They are really good at their work, as well as being frugal and thrifty in life.

Many self-employed contribute the minimum to their provident fund, basically to their MediSave Account (MA), which is required by law. Excluding people from the financial sector (well, even quite a number have trouble with their personal finance), most are so busy at work that they hardly have time to keep abreast with what is going on in the financial world nor keep track or spend time analysing materials for investment.

Though rudimentary, provident funds contribution not only serve as a form of forced-savings, it has other benefits which we have seen, which is both tax savings and risk-free interest bearing accounts. Have you lend a hand to your family members?

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