Identify, Exploit, Subordinate, Elevate, Repeat
Monthly Allocation for 19 September 2020 as follows , with a $100 investment amount
| Counter | Quantity | Price | Investment Amount |
| OCBC Bank (O39) | 11 | $8.516 | $93.67 |
| Total | $93.67 |
Average Price of existing Portfolio counters
| Counter | Total Shares | Avg Price |
| OCBC Bank (O39) | 460 | $10.2239 |
| SIA (C6L) | 645 | $8.6553 |
Retirement to me, is when as an individual, I am able to choose whether I “want” to work and not whether I “have” to work. Some people amassed enough to live by, based on their current lifestyle for the rest of their lives, but still remain in the workforce to keep themselves active. To possess this choice, you probably need to have:
The aged-old saying for early retirement planning still holds true: put time on your side… When time is your friend, the earlier you start the more you end off with. However, it is not uncommon to have doubts:
Do I really need to plan my retirement till Age 99?
Everyone wants to live a long life — while long is subjective, what they mean is probably to live life as fulfilling and satisfactory long as much as possible. Competing to be a centenarian is probably not on the minds of anyone, I believe.
So, does your retirement funds need to last you till age 99? The good news is, you don’t have to plan till so far. The bad news is, you are probably “gone” by age 83 plus or minus. The average life expectancy for Singaporeans is 83.6 years for year 2019, 82.6 in 2014 and 81.4 in 2009.
One one extreme, we have Singaporeans doing far too little for their future — their retirement plans won’t last beyond a few years due to ‘excessive’ lifestyle or pittance retirement pot. On the other extreme, there are few (but small numbers) who over-plan. I have to quantify, over-planning is never a bad thing — it’s a matter of whether you are sacrificing too much (when you are young) for too little additional (for when you are old).
If you retire at age 65, you would do well to ensure that your retirement pot lasts well for another 18 years. And so on for any other retirement age. Planning for another 34 years (till 99) sounds abit far-fetched now, seeing that it is not very probable.
Do I have to plan for a longer retirement today as compared to the past?
Yes, yes, YES!
The infographics above has clearly shown that both male and female residents in Singapore are gradually showing a higher life expectancy. If we look at the population level, 16.4% of Singapore Residents are aged 65 and over in 2019, 9.1% in 2010 and 7.7% in 2000. The average age is inching higher year-by-year, from age 34.0 in 2000, to 37.4 in 2010 and 41.1 in 2019.
It is a undisputed fact that people are indeed living longer — whether it is due to better education, housing, healthcare provided today as compared to yesteryear.
Females statistically live longer — the numbers double / almost double especially for the various 5-year age categories above 80.
How Singapore’s population demographics progressed over the last 20 years (2000 — 2019)?
I have included the progress of the population demographics over the past 20 years. The top (> age 65) is getting fatter, while the bottom (< age 15) thinner. It is a clear indication of an ageing society. It is good that people are living longer; it ain’t so good when it is accompanied with a dwindling birth rate.
Aging population
The Resident Old-age Support Ratio shows how many young residents are present in relation to each older resident. In a span of almost 10 years, the ratio had dipped from 7.4 to 4.5. One direct impact will be on taxes. We expect most if not all older residents to fully retire from active work or at least have a chargeable income low enough not to warrant the paying of income taxes from age 65 onwards. This potentially places a higher tax burden on the future younger residents who have to pay more to maintain or even increased government expenditure on societal good.
We have not included the burden for schemes to take care of people who had fallen behind on their retirement funds for daily expenses or even for healthcare needs. It is on the government to take care of its citizens and ensure that no one gets left behind, yet we know that the source of funding still comes from its citizens.
What is my take for the future?
In comparison to my parents’ and grandparents’ generation, we have a better change of living longer, more healthier and better. Healthcare in Singapore is one of the top-notch in the world, coupled with early detection technology, the chances of discovering illnesses or recovering is also higher.
On a good gauge being age 35 today, there’s still a good 47 years or half-way through a life-long marathon.
As an individual, I refuse to fall between the cracks during my retirement. In addition so as not to burden on society and the next generation, we really need to play our part as individuals. I do not want to create a future whereby my descendants are burdened due to the incapability of our generation to plan ahead. This is also an irony when people today are more well-educated and experienced as compared to the earlier generations.
Planning for retirement is not only (being responsible) for yourself, but also for your family and of course society. Life is short and as we go through the various stages in life, we find that there is only so much time to plan for it backwards and make it fulfilling as best as we can.
Taxes are essential for nation-building and developing Singapore into a stronger community, a better environment and a more vibrant economy. While it is crucial for the nation to collect more taxes; taxes at the same time is an expense out of the pocket for an individual — reducing the amount of taxes payable through legit means is a key and financially smart move.
We aim to avoid paying too much income taxes by maximise our tax reliefs. There is no change in total tax reliefs amount for Year of Assessment (YA) 2019 — personal income tax reliefs is still subject to an overall relief cap of $80,000.
The main aim is to hit as much tax reliefs as you can under the various categories, as found on the Ministry of Finance (MOF) website. By doing so, you bring down your tax bracket by one, two and sometimes even three tiers.
For example, an individual earning $130,000 annually is in the 15% tax bracket without any tax relief. If she can somehow maximise the tax reliefs of $80,000, her chargeable income becomes $50,000 — she is now in the 7% tax bracket. For $130,000, the gross tax payable is ($7,950 + [$10,000 x 15%]) = $9,450. For chargeable income of $50,000, the gross tax payable is ($550 + [$10,000 x 7%]) = $1,250. A tax savings of ($9,450 – $1,250) = $8,200.
| Chargeable Income | Gross Tax payable | Chargeable Income | Income Tax rate | Gross Tax payable |
| First $20,000 | $0 | – | 0% | $0 |
| First $20,000 | $0 | Next $10,000 | 2% | $200 |
| First $30,000 | $200 | Next $10,000 | 3.5% | $350 |
| First $40,000 | $550 | Next $40,000 | 7% | $2,800 |
| First $80,000 | $3,350 | Next $40,000 | 11.5% | $4,600 |
| First $120,000 | $7,950 | Next $40,000 | 15% | $6,000 |
| First $160,000 | $13,950 | Next $40,000 | 18% | $7,200 |
| First $200,000 | $21,150 | Next $40,000 | 19% | $7,600 |
| First $240,000 | $28,750 | Next $40,000 | 19.5% | $7,800 |
| First $280,000 | $36,550 | Next $40,000 | 20% | $8,000 |
| First $320,000 | $44,550 | Next $40,000 | 22% | – |
Hitting the maximum tax reliefs of $80,000 is the most ideal, though this is usually not the case. However, aiming for at least 25% – 50% of tax reliefs should not be that hard to do so.
I wanted to concentrate this discussion on tax reliefs arising from CPF & SRS cash top-ups / contributions.
It is a general rule of life. During your time in the workforce, your earning power gradually increases from the time you step into the world, sometimes taper off or even decreases as you take on less demanding role prior to your retirement. More income means you potentially move into a higher tax bracket and pay more taxes as you grow older.
| For RSTU cash top-up to SA, besides the yearly limit of $7,000 for tax reliefs, there is also the hard cap of FRS amount for SA account. |
| For contribution to SRS, there is only the yearly limit of $15,300 for tax reliefs with no hard cap for SRS account. |
There are 2 camps of thoughts:
I am in the second camp, and will pen down some of my thoughts on why you need not wait or defer to a higher tax bracket before starting your RSTU cash top-up to SA. We know the cons of RSTU cash top-up to SA, so I am not going to dwell on the one-direction cashflow, its liquidity, risk of policy changes etc.
Many ordinary Singaporeans do not earn a high annual salary of $100,000 and above. The average annual salary in Singapore is $63,312; averaging out $5,276 per month, inclusive of the employer’s CPF contribution. The Median Gross Monthly Income from work (including Employer CPF contributions) of full-time employed residents is $4,563 per month. In short, many Singaporeans are in the 7% tax bracket or under. This has not even taken into account tax reliefs to bring down the tax bracket even further to 3.5% or even 2% tax bracket.
You would probably be doing very well to be in the high end of the 15% tax bracket or annual earning of $159,999. This translates to a salary of about $13,333 per month (without bonus) or $10,667 (considering 3 months bonus) per month. I thought I would use this higher-end case as an example for discussion.
Consider a Singaporean man in his early forties having phased into MINDEF Reserve (MR) and earning an annual salary of $159,999. He has also maxed out his CPF SA by RSTU cash top-ups in his early thirties. Possible tax reliefs he can employ for his income level:
| Tax Relief type | Tax Relief Amount |
| Earned Income Relief (Below 55 years old) | $1,000 |
| Provident Fund | $20,400 |
| SRS contributions | $15,300 |
| NSmen (Inactive) | $1,500 |
| Parent relief (for 1 parent, taxpayer does not stay with dependant) | $5,500 |
| Total | $43,700 |
The chargeable income is now $116,299 or brings him to 11.5% tax bracket. It would be a tall order to bring it down 7% tax bracket by maximising $80,000 tax reliefs: $159,999 – $80,000 = $79,999.
Nonetheless, the above table do not include other possible scenarios for tax reliefs to further bring down the chargeable income e.g. having children: Working Mother’s Child relief, Grandparent Caregiver relief, Foreign Maid Levy relief, Qualifying Child relief and even Parenthood Tax Rebate.
Some people feel that it is not as worth initiating RSTU cash top-up to your SA early in your work life, as low tax bracket means you don’t seemed to enjoy the higher tax savings that you might at a higher tax bracket later in life. At 3.5% tax bracket early in your career for example, you only enjoy $7,000 X 3.5% = $245 in tax reliefs.
The point I wish to make here is that it is not the end of the world when your SA reaches FRS. At 11.5% tax bracket, he is missing out on $7,000 X 11.5% = $805 tax reliefs annually; at 7% tax bracket, $7,000 X 7% = $490 tax reliefs. Even if we look at the highest tax bracket of 22%, he only missed out on $1,540 for not being able to RSTU cash top-up his SA.
Comparatively, if his SA is maxed out at prevailing FY2020 FRS of $181,000, the interest earned (4% p.a.) is $7,240.
To me, it does not make sense to defer your RSTU cash top-up your SA to FRS, if it does not yield any real advantages. The earlier one reaches FRS in his SA, the faster he allows the nature of compounding interest to take over.
Is deferring of RSTU cash top-up to SA being overrated to you?
I wanted to strengthen my understanding as well as my readers’ on CPF lump sum withdrawal from age 55 after my last post on whether you can withdraw ALL excess money from your CPF SA / OA account after meeting FRS / BRS. Some questions got me thinking, but I thought that just thinking ain’t going to get me far in my understanding without playing out the various scenarios applicable with real numbers.
Theoretically, withdrawal of CPF savings from age 55 “is this simple” from the below table, found in the CPF website.
In reality, there are so many scenarios depending on your circumstances; some straightforward, others requiring more than a little logical thinking.
I spent a night of deep thoughts and broken them down into as many different scenarios I can think of, from the various combinations of without/with property pledge, meet/does not meet FRS, various contribution types (mandatory, OA to SA transfers, RSTU cash top ups) and amounts in the SA/OA savings.
Assuming prevailing FY2020 FRS of $181,000 and BRS of $90,500.
Without Property Pledge
The scenarios under no property pledge is straightforward enough; you are able to draw only from your SA/OA accounts and nothing from RA.
(First 9 columns): No matter how much SA/OA savings you have, you can only draw up to a maximum of $5,000 if you are unable to meet FRS in your RA and no property pledge done. The exception is if you have less than $5,000 in your SA/OA savings at 55; you can withdraw ALL of your monies which is between $1 to $5,000.
(Last 3 columns): If you meet FRS in your RA, you can withdraw the excess beyond FRS ($181,000), residing in your SA/OA savings.
How much RSTU cash top-ups done is not a factor here as there is no withdrawal from RA (with a property pledge).
With Property Pledge
We have discussed above how much you are able to draw only from your SA/OA accounts without doing property pledge. By pledging your property, you are able to withdraw a further $X amount up to a maximum of between FRS and BRS amount (up to $90,500).
You need to have minimally BRS amount ($90,500) in your RA account (which is created from your SA/OA savings) to be entitled to participate in the scheme. Thus in the examples in the table, age 55ers who have $4,000 or $10,000 which is less than BRS amount cannot pledge property.
Interests earned and top-ups under RSTU and government grants are not included in the calculations for how much monies you can withdraw from your RA.
If you do not meet FRS in your RA but still qualify to pledge property, the amount you are eligible to withdraw from RA must include the $5,000 that is eligible to withdraw from your SA/OA savings. In short, eligible withdrawal amount from RA:
| If FRS is not met, withdrawal amount from RA is equals to Total SA/OA savings — RSTU Cash top-up — BRS amount — $5,000 |
If you meet FRS in your RA and pledge property, the amount you are eligible to withdraw from RA does not include the $5,000 in the calculation.
| If FRS is met, withdrawal amount from RA is equals to Total SA/OA savings — RSTU Cash top-up — BRS amount |
With Property Pledge — A closer look at how RSTU cash top-up affects eligible withdrawal amount from RA
For starters, OA to SA transfers are considered as the same category with mandatory contributions. This is why columns 1 & 2, as well as columns 4 & 5, have the same results or $X amounts when you play around with the figures.
If we look at column 3 and 6, whereby RSTU cash top-up forms a proportionately large amount of SA/OA savings, we find that the eligible $X from RA also falls when the formula is applied.
| If FRS is not met, withdrawal amount from RA is equals to Total SA/OA savings — RSTU Cash top-up — BRS amount — $5,000 |
| If FRS is met, withdrawal amount from RA is equals to Total SA/OA savings — RSTU Cash top-up — BRS amount |
Conclusion
We know that OA to SA transfers is not considered under the calculation to derive eligible amount for withdrawal from RA, while RSTU cash top-up does affect. However, this should not deter your decision to continue contributing to your CPF SA for the following reasons:
Most of the time when we talk about CPF contribution, we are usually thinking more of the Employer / Employee contributions. Let’s not forget, CPF contributions for freelancers or Self-Employed is equally important for retirement planning.
This interesting question just popped up today:
Can RSTU cash top-up to SA be withdrawn from age 55 onward after meeting FRS (or BRS with property pledge) in RA account?
There are 3 objectives of building up the firepower in your CPF account:
How much can I withdraw from age 55?
From age 55, you can withdraw up to $5,000 from your Special and Ordinary Accounts, or your CPF savings after you have set aside your Full Retirement Sum in your Retirement Account, whichever is higher.
Your Full Retirement Sum can be set aside fully with cash, or with cash (i.e. at least the Basic Retirement Sum) and property. For the latter, it will exclude interest earned, any government grants received and top-ups made under the Retirement Sum Topping-up Scheme.
If you were born in 1958 or after, you also have the option to withdraw up to 20% of your Retirement Account savings as at age 65. This includes the first $5,000 that can be withdrawn from age 55.
When you reach age 55, your RA account is created first with monies from your SA account, then OA account, up to FRS amount. MA monies remain status quo for medical related expenses, claims and hospitalisation insurance premiums.
The excess monies after meeting FRS (or BRS amount with property pledge) can be withdrawn at any time.
BUT… how much of this excess monies can be withdrawn actually?
By top-ups, i refer to:
If you meet FRS amount in your RA however, it is a clear-cut that you can withdraw the excess from your SA/OA.
How about for people who intend to pledge property, to withdraw the gap between FRS and BRS from their RA. Can they withdraw ALL of it between? How much more can they withdraw?
Prevailing FRS amount for FY2020 is $181,000.
Scenario 1: Assuming that you had OA ($0) and SA (made up of $100,000 mandatory contribution and $100,000 RSTU cash top-up) on the day of age 55. Your RA is newly created with $181,000 monies, with excess $19,000 in SA account. You will be able to withdraw this $19,000 from your SA since you met FRS. If you further pledge property to meet FY2020 BRS amount ($90,500), you will be able to withdraw the excess, or $9,500 amount from your RA. Total amount withdrawn = $19,000 + $9,500 = $28,500
Scenario 2: Assuming that you had OA ($0) and SA (made up of $50,000 mandatory contribution and $150,000 RSTU cash top-up) on the day of age 55. Your RA is newly created with $181,000 monies, with excess $19,000 in SA account. You will be able to withdraw this $19,000 from your SA since you met FRS. If you further try to pledge property to meet FY2020 BRS amount ($90,500), you actually have no excess withdrawable from your RA. Total amount withdrawn = $19,000 + $0 = $19,000.
To end off, it is very clear as well from the CPF website on the use of top-up monies in the calculation and withdrawal of excess CPF monies after meeting BRS amount.
| How can top-up monies be used? Top-up monies are set aside specifically for retirement needs and can only be used for monthly payouts under the Retirement Sum Scheme, or CPF LIFE1. It cannot be withdrawn in cash or used for any other purposes such as education, investment, insurance premium payments, housing etc. Top-up monies will form part of your retirement sum. However, top-up monies in the RA will not be taken into account in computing how much RA savings2 can be withdrawn in cash (for property owners), as well as how much RA savings2 can be used for housing purpose and CPF transfers to spouses. 1 Note that non top-up monies will be used first before top-up monies. 2 RA savings refers to the cash set aside in the RA (excluding amounts such as interest earned, any government grants received and top-ups received under the Retirement Sum Topping-Up scheme). |
Theory of Constraints 