TOPPING UP THE PARENTS’ RETIREMENT PIGGY BANK

Today, it was the monthly old girls’ gathering and our topic revolved around scary varicose veins, housing issues, CPF etc. So I was reminded to explain my rationale on why I top up my Ma’s CPF. First, and foremost, you may wish to read on how CPF interest rates are computed on a monthly basis here. Basically, the lowest balance of each month is taken into consideration.

Some Background

Since Jun 14, on top of a monthly allowance to my parents, I have decided to top up $200 monthly into my Ma’s CPF Retirement Account (RA) as long as it is within my means. She is turning 56 this year, and has been a full time homemaker for a larger part of her life. She has very minimal CPF savings from her first few years of work as a factory assembly line worker. Hence, she is under the CPF Minimum Sum Scheme ie minimum monthly payout of $250 from age of 65 until the sum is drawn down.

Current State

Using a rough figure of $5,000 as current stash in the CPF RA account, and a 5% annual interest rate assumption (since account balance is under $60,000), the payout will be exhausted in 2 years 10 months, just before my Ma turns 68. Absolute payout dollar is  $750 + $3,000 + $3,000 + $1,829 = $8,579.

MA CPF SA No Top Up

Making an impact ourselves

Instead of giving my parents an additional $200 for allowance now, I diverted the cash into my Ma’s RA (which earns an additional 1% interest vs my Pa) since they are unlikely to need this portion of money for a good 10 years. With the 5% interest, the $200 today will become slightly over $300 in 9 years plus (a risk free 1.5x money booster). I intend to do the top up until my Ma gets down to the draw down age of 65. While $200 a month does not seem very substantial, the total top up will amount up to $22,600. Thanks to the recurring interest, the payout can last slightly over 18 years, a little over her 83 year-old birthday. Absolute dollar payout will shy a little of $55,000.

MA CPF SA Top Up

Well, a $250 payout alone doesn’t seem much especially with increasing inflation rates, but it is still good money to be cherished. For me, it is the same $200 that I need to chip in, so I’d rather maximise the value for my parents first until it is needed (especially for my parents who are simple folks who know nothing about investments). And the second beauty of it is the money get deposited into their account every month so the feel good factor (vs me passing the allowance directly to them) is definitely higher for them. Sometimes I can only regret not looking through these for my parents earlier to make better use of the compounded interest. Recently there have been many talks involving CPF, but my stand is always the same – understand the pros and cons of a system then work it to your advantage / situation. I will only wish the extra 1% for the first $60,000 can be maintained as long as possible, and of course I won’t grumble if CPF interest increases eventually.

SGYI does two simple and good article on CPF and the minimum sum here and here, you may wish to take a look and learn more. Do also note there is tax relief in topping up the CPF account so that is double maximising the dollar.

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