In a recent blog post by Investment Stab, I learned that I could actually owed myself less when I use my own CPF money to buy my own place.
This is new information to me. I always know that if we take money from our CPF to pay for housing, someday when we sell, we will have to return the money plus the accrued interest. The longer the years the CPF is out, the higher the interest.
I didn’t know we had the option to pay back our own CPF earlier.
This is not common knowledge, which is unsurprising. Everyone I know pays for their housing mortgage using CPF. Singapore’s housing prices are so expensive that it is almost impossible to buy your place otherwise.
The common mentality is to use the CPF and not to let it languish in our account for decades. It seems smarter to use it to pay for our mortgages so that less cash is forked out. After all, cash is more “real”, unlike CPF which is untouchable.
Thus, most folks equate CPF as money for housing and not for retirement, despite CPF’s primary purpose. Small wonder that most people find that they have insufficient funds in their CPF to retire on.
There are also some people that think that CPF is a Ponzi scheme. Singaporeans like Han Hui Hui and Roy Ngerng were made infamous because of their protest against the CPF system. But there are some bloggers like AK71 that have big CPF balances. He has advocated using more cash and less CPF to pay for housing.
I have a dilemma now. I owe about 200k to my CPF, which includes a 24k accrued interest over the last 5 years since I bought my place. I stay here, meaning that the accrued interest will pile up over years, till the day I sell my house and return the CPF. Me at age 55 will be the year of reckoning, for that is when I will be able to withdraw some of my CPF money.
If I sell my place at 55 years of age, I will have to return about 80k in accrued interest back to my CPF from the proceeds of the sale! This is the 80k that CPF will actually pay me if I had not utilized my CPF for my place. In this case, the power of compounding interest works against me, when the CPF I use for my own house accumulates interest over the years.
Thinking about this makes me cringe. That is why I am now considering paying back my own CPF. I wonder if I am the only one doing this cos I have not heard of any doing this before.
If I return 200k to my own CPF, when I turn 55 some day, I will have extra 80k in my CPF paid by the government. But there is an obvious opportunity cost to paying back my own CPF to avoid the accrued interest.
Many blue chip dividend stocks in the current market offer 3-6% yield. Some of the Reits offer even higher yields, but all these come with a higher risk. Will some of these companies still be around in future when I am 55? Even STI etf has some company risk for a yield of about 3%.
CPF pays a risk free 2.5%. I do not qualify for the extra 1% for OA, as I have more than 60k in my SA. Is the risk free yield of 2.5% worth me paying back the 200k?
Some may ask, the market is volatile now, isn’t it a good time to hold more cash? I do agree that it is always good to have more cash. But too much in cash can be disabling as well, for I find myself always waiting for the perfect opportunity, as I have waited for the last few years. Often, I wondered if I had done it right by waiting.
And recently, I find myself tempted again by the idea of buying a new car. I have been test driving some models, and doing my sums. Luckily, I have not succumbed yet. I think I must be too bored. It may not be too wise sometimes to have too much idle cash.
After paying back 200k, I am still sitting on a sizable cash fund. The best yield I can get for cash is about 1.9%. It is not too bad for holding almost zero risk, but it is not the right way to achieve wealth.
I am looking to buy another property, but prices are still too high. The ABSD also puts me off. But one day when I finally decide to buy, I can use cash and I can also use my CPF. So that’s another plus point to top back up my CPF.
So the question is: should I “return my CPF” (Roy Ngerng is always protesting for that), hold cash for opportunities, or invest the 200k in something that pays more that 2.5% for some risk, so I can offset the 80k accrued interest.
Hmmmm…..I am wondering, should I do it?