Money, Self-Improvement

CPF Minimum Sum Has Increased. Now What? – Vanessa Tai

So, the CPF Minimum Sum has been raised once again. While it’s definitely annoying, we shouldn’t be parking all our savings in one source anyway. 

Retirement savings

If you intend to retire in Singapore, you need to practice forward planning. As it is, CPF policies are ever-changing so you’ll need to have a backup plan in order to enjoy your golden years. But first, why does the CPF Minimum Sum increase every year? The short answer: inflation. In order to keep up with the rising cost of living, the CPF Minimum Sum has to increase as well.

However, consider this – the CPF Minimum Sum went up from $148,000 last year to $155,000 by July 2014, which is a 4.7 percent increase. According to a press release by global consulting firm ECA International, employees in Singapore are only expected to receive a pay increase of 4.5 percent in 2014. What this means is, wages in Singapore are not rising fast enough to keep up with the annual CPF Minimum Sum increase. We could whinge about this all day but it probably wouldn’t change a thing. We just need to get smart with how we save our money.

Here are two other avenues of retirement savings you should be looking at:

1. Endowment Plans 

What is it: This is a type of life insurance contract that offers you a payout upon the end of your contract term. Look out for policies that offer annuities, which are a stream of fixed payments paid out over a specified period of time.

Pros: Stable, less risky. Depending on how old you are when you sign up for the policy and the length of your payout, an endowment plan offers you a decent amount of leverage. Remember to always compare the capital guaranteed portion with the projected figures so you know what you’re getting yourself into.

Cons: Longer waiting time, less flexibility. While you usually get to choose when you want to receive your payout (anywhere from 45 years old and above), the amount of premiums and payouts usually vary depending on the length of your policy. Also, such endowment plans are not as flexible as other type of financial products as you’re unable to adjust your savings amount throughout your premium term.

2. Investments with dividends

What is it: When a portion of a company’s profit is paid out to shareholders, the payment is known as a dividend. Many people invest in divident-paying stocks because of the steady stream of payments as well as the opportunity to re-invest these dividends into other shares of stock.

Pros: Higher potential returns. Investments with dividends tend to be pretty stable, even though the value of your capital may still fluctuate. Of course, each stock comes with its own pros and cons, so it’s best to consult with your financial advisor before making an investment.

Cons: Market downturn. At the end of the day, there is no guarantee when it comes to investments. No matter how safe anyone tells you a stock is, it will never be foolproof. These sort of investments are only suitable for people who are willing to take some form of risk.

At the end of the day, it’s always prudent to have a combination of financial tools in your portfolio, above and beyond your CPF savings. Speak to your financial advisor to see how which tools are best suited for your retirement needs.

Disclaimer: This is a general guideline purely for informational purposes only. As everyone has varying attitudes and beliefs towards investments, it’s always a good idea to speak to a professional financial advisor about your financial goals.

About The Author: Vanessa Tai is a founder of Material World who has previously worked on magazines Simply Her and Cosmopolitan Singapore. Now a freelance writer and a full-time contributor to this website, the 26-year-old dreams of attending every single major music festival before she turns 30. Follow her on Twitter @VannTaiTweets.

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