Understanding CPF
Useful Facts About The CPF Contribution & Allocation Rates
For most employees, they contribute a certain amount of your salary to your CPF account. This information might be something that everyone knows about.
But here a certain things that you should know about that might affect the way you finance your home or even healthcare in the future.
Employers’ contribution
If you are below the age of 55, you know that 20% of your monthly salary will be contributed to our CPF accounts.
However some might not know that your employer is also contributing to your CPF account. They contribute 17% of your monthly salary.
Hence it is actually a total of 37% of your salary that is being contributed to your CPF account.
The rates changes after 55
As you grow older and slowly looking towards the age of 55, you should be prepared for some changes.
After the age of the 55, your contribution rate will decrease. Both you and your employer will be contributing a lesser portion to your accounts.
It might be good news to some as you will have much more of your salary in cash. However, you will be having much lesser in your CPF account.
One other reason to the decrease of CPF contribution rate would be to the favour of employers. As people get older, it is hard to be retained in the workforce. Therefore, with a lower contribution rate, it gives employers a chance to save some money on overhead expenses.
It is not an equal allocation to each account
If you thought that the money contributed equally to each account, you would need to change that fact. The changes over time would mean that you are contributing lesser to your Ordinary account.
Eventually, when you have reached the age of 55, most of your CPF contributions go to your MediSave account. That means that most of it will be priorities fro your healthcare expenses.
It does make sense, as we do need more treatment when we get older. And at the same time we are no longer earning an income anymore. As a result, the money in our MediSave account can partly help in our healthcare expenses.
READ ALSO: Here Is All You Need To Know About Your CPF Account When You Reach 55
Mortgage matters
Most Singaporeans do use their CPF monies to pay for their mortgage. And it is perfectly normal to use it.
If you are able to pay off your mortgage before the age of 55, that is definitely great news for you. You have one less worry crossed off your mind.
However if you reached the age of 55 and you are still financing your home with your CPF monies, you might face some difficulty.
For example, a couple that has a combined income of $6,000 monthly has been paying off their mortgage via their CPF monies. They bought the flat at the age of 30, which is about 5 years ago. They have around 20 more years left to pay off their mortgage.
Their monthly mortgage payment is $1,380.
Upon reaching the age of 36, they realize that their CPF monies were not enough to pay off their monthly mortgage. As a result they have to top up via cash.
The reason is due to the decreasing CPF allocation rates. After the age of 35, there will be a decrease for every 5 years.
Therefore, do not be surprise if you need to use more and more cash as years pass by. All this do factor in if your income does stay the same all these years.
READ ALSO: 3 Important Facts About Your CPF Ordinary Account (OA)
Retirement Matters
CPF is one of many avenues for Singaporeans to depend on for their retirement. But as said before, it can be one of your retirement plan but not your only one.
The fact that the contribution and allocation rate for the CPF do decrease over time, it means that not much of your salary will be focused for retirement purposes.
And with the possibility that you will be using much of your CPF monies for your housing matters, you simply cannot rely on your CPF to fund your retirement.
READ ALSO: Things You Should Know About CPF Retirement Account (RA)
Still a useful tool as long as you know how to use it
You can use your CPF for so many purposes. And we do have to be thankful that we can use it for housing.
Not everyone can buy home. With CPF, you are given a chance to have a place called home.
Nonetheless, the amount in your CPF is just a fraction of your salary. That means even with various uses, you are only limited to use them for some.
You cannot expect a nice home and pretty good sum for retirement as well by solely relying on your CPF monies. You would need to plan your CPF budget carefully and know which one is a priority.
Careful planning would refrain you from making desperate choices. With such a high inflation rate, you simply cannot make huge financial mistake.
Therefore, do utilize your CPF monies wisely and timely.
That comes to the end of this article. Hope that this is beneficial for you and do share it with your family and friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
