Thoughts on 1M65 CPF Idea

I had attended a talk from Loo Cheng Chuan recently (Thank you Alvin and Alex for the invite).

I was always curious on what he had to share and why did he think of it that way (I am late to the bandwagon I know, but I admit that CPF is not on the top of my priority considering I will hit the Full Retirement Sum with my SA alone by 49 assuming no increase in salary until then).

Here is some of my interpretations.

Scarred by experience of the 1997-1998 Asian Financial Crisis

• He started as a fresh grad interested in making money
• Applied for a Yishun BTO (which would take 4 years to complete) and a resale flat to capitalise from the fall in housing prices and flip it before getting the BTO to get more returns
• However, due to AFC, many people forfeit their flats and the BTO shorten to 6 months.
• This resulted in him being forced to liquidate his 4 room flat and took a 100k loss
• In addition, he had a loss of 20k on his stocks too
• This made him "bankrupt" and had to be bailed out by his dad using his dad's life savings (a primary school teacher, probably helped by pension during that time I guess)

He was shown the power of compounding interest from a friend/mentor and was amazed by the simplicity and snowball effect of CPF 4% compounded interest.

He believes in using the CPF to build a safety net, here is his POV

• By having 130k in the CPF Special Account + Medisave Account. the couple after 35 years will have 1 million in combined balances
• For most couples
• His idea is that knowing you have a safety net so that you won't die from poverty at retirement
• And because of this, he feels his life has changed to give him more financial guts to 
• Withstand market fluctuations
• Invest in crashes (he invested in 2008 GFC, Euro Debt Crisis and China Debt Crisis)
• Try out businesses (he quit his VP job in Singtel's Amobee to try out something different)
• Work for a job of your passion
• From his POV, create safety nets in this order
• Insure sufficiently using Term Life Policies+Hospitalisation Plans
• Then, Fill up the CPF accounts
• Finally, invest, and try some businesses/passions you are interested in
• I personally wondered is it because of his risk management, investors psychology and the scars from AFC that is the real underlying cause. I personally did do SA topup and OA to SA transfer to build a safety net to hit the minimum sum reasonably early but I don't feel it helps stabilise my psychology during investing/trading.
• I do feel that if he's trying about a business after building the safety net seems to be fine as even if he's bankrupt due to the business going wrong, the CPF is protected from legal claims.

He believe in saving hard early on and live frugally (similar many personal finance bloggers suggestions)

• Being Rich vs Looking Rich (Rich people stay rich by living like they are broke. Broke people stay broke by living like they are rich.)
• Quality of life early on vs Quality of life later on 
• How far are you willing to secure your future (as the slide above shows)
• Working 2 jobs
• Rent out extra room
• Don't waste too much money on home renovation (another way would be a minimalist furnishing and slowly upgrading parts of your home, something my parents did for my own flat)
• Forgo annual holidays (he did go holidays nearby in the region in the past though, now being much better to do, he goes much further to Japan, Europe etc)
• Does SA and MA topups
• Using cash instead of the CPF
• OA to pay for house
• MA to pay for his hospitalisation plans and even medical bills 
• To take advantage of the spread between the low interest rates of cash vs CPF OA/MA/SA interest rates
• he performed OA to SA transfers to empty the OA account as well
• Perform voluntary contribution to his CPF, though he doesn't recommend it now due to 
• He is working so has contributions to his CPF
• Singapore Savings Bonds are available and potentially beat the CPF Ordinary Account returns of 2.5%
• He actually achieved the 1M65 at age 45
• He still lives in a HDB, drives a 1.5L Honda with 3 kids (his colleagues/subordinates at Singtel is quite surprised to see him living frugally when they visit his house) 

He feels that the CPF marketing message could be improved and policies could be simplified

• He actually gave a talk to the CPF corporate team and interestingly enough, the Deputy CEO seems to agree with his ideas
• In addition, he proposed that the CPF Board to promote the CPF as a "Get Rich" tool instead a retirement tool and using images of wealthy people instead of elderly (it is somewhat correct to use compounding interest to your advantage but I don't know if it is politically/socially correct or acceptable. Maybe a wealth building tool would be better.)

He feels that forgoing the Property Millionaire Dream is a wise choice

• Enslaved to huge property loans 
• Compounding debt works heavily against you
• Not expected to see the same level of rising housing prices as before due to slower population growth and reducing foreigner workers inflows (I think post 2008, our growth with China also gave us the growth spurt, now growth is stagnating in Singapore)
• Paying Property using Cash or CPF is
  

Tips on Stretching your CPF 

• Exercise discretion at Medisave accredited hospitals and clinics
• Paying Medical Insurance in Cash (I do personally feel that people should buy coverage they can afford at old age)
• Don't over commit to a large property purchase, which will drain all your CPF funds

Interestingly, he mentioned that CPF Life is not as interesting to him due to the large balance in his CPF accounts. I would think that actually makes sense. Considering CPF LIFE Standard Plan yield is only about 2.2% to 3.6%, it only goes 4% and above about age 90 and above (Basic Plan is around 4%), the excess funds in the CPF accounts would generate interest (2.5-5%) to help fund your retirement if you drawdown as required could potentially generate interest to cover living expenses similar to the Drawdown method preached by FIRE bloggers. Might actually be something I can look into optimising.

He also feels that policy risks and default risks for CPF should not be a large impact due to potential backlash (reduction of CPF interest rates, CPF is AAA SGS bond etc).

I'm quite impressed that he goes around trying to preach the message that CPF is a good tool to build wealth and he's doing it for free.

Note that he doesn't really support FIRE, in fact he is kinda surprised that youths nowadays are into the FIRE movement, then again he's working in something he enjoys.

Phew, I didn't expect some short notes would become a post so long.

Hope you enjoyed it.