I’ve been reading a number of blog posts by AK71 on whether we should be accelerating the topping up process or transferring the money from the Ordinary Account (OA) to a Special Account (SA) which obviously yield direct advantage as the money is compounded in higher return. He also talked about this in the previous “meet the readers” session which prompted me to think about this issue.
If you have been reading my blog from the start, you’ve noticed that I seldom discussed anything regarding the social security (CPF) scheme we have in Singapore for financial planning purpose. For years I have not kept a passive interest in the subject matter and only recently I started to take more notice of it.
Anyway, I have been recently pondering on whether I should top up my special account with some of of my liquid cash right now which could give me two advantages at once.
The first advantage is the top up relief deduction of up to $7,000 against my chargeable income for my income tax next year for YA 2016. I understand that it’s still early days but I like to plan ahead. The Singapore progressive tax rate has always been very welcoming in the sense that they are structured favorably low compared to other countries so no any genuine complaints coming from me. Even so, my earned income has been increasing over the years so it’s about time I did something to trim the absolute tax amount down a little bit to my advantage.
The second advantage is the relatively attractive high rate of 4% the Special Account is currently offering which will then be compounded over time until I turn 55 to meet the required Minimum Sum (MS). The thing about starting early is the advantage of compounding can work its magic that allows people like us to meet the required MS as soon as possible.
Many people have complained regarding the ever increasing MS required but to be honest, the faster you reach those figure, the harder the compounding effect is going to work for you that will cover the incremental difference over time. At least, that’s what I think.
It struck to me when I started out the path to this financial freedom journey that I was never going to be dependent upon the social security scheme for an alternative income, which is the reason why I have not been paying too much attention on the issues all along. After all, the goal to reach financial freedom was never going to include any contributions from the social security scheme so I am seeing that as a bonus for my case.
I guess that this is something which I have been learning from peer bloggers and friends over time that this is after all our money which I needed to take care of. Too many people are taking the scheme for granted, though I would agree that there seems to be a couple of grey areas about the scheme which causes resentments amongst the members around.
In any case, that’s done and over with and that’s $7k liquid cash gone away from my war chest for the moment. I’ll be looking to explore the possible areas for improvement to accelerate the compounding effect but we’ll see how it goes for next year.