Being a property agent, I have seen many of my clients’ CPF statements. In fact, I am so busy doing calculations for them that I forget to do my own calculations.
So today, for the first time, I am going to show you my own CPF statement account.
For my current property which is a HDB flat, I have already used over $100K to pay for the flat. Take note, this doesn’t include my wife’s contribution.
Simply using $100K from my CPF has already resulted in an accrued payable interest of $21K. That is about 20% of the amount used.
(Again, this doesn’t include the accrued interest for my wife’s contribution)
Can you imagine the accrued CPF interest if you have fully paid off your HDB flat eg $400k?
And this accrued CPF interest continues to grow even if you have FULLY paid off – as long as you are still holding on to the HDB flat.
This is because CPF is meant for retirement and that’s why the interest to continues to grow.
Yes, it all goes back into your own account.
So what is the purpose of me showing my own CPF statement?
For me, I just have lost $21,000 cash. How?
Because in the event if I sell my flat today (6 Feb 2017), $21,000 from my cash proceeds will have to be returned back to my CPF account.
Of course, some might be questioning – isn’t this $21,000 still my money as it is returned back to my CPF account?
Yes it’s true – it is still my money.
But technically speaking – you must understand this fact.
Right now, the $21,000 is interest is actually coming at my own expense – which is the cash proceeds when I sell the flat.
But if the $100K was left alone in my CPF account, it would actually have earned this $21,000 by itself. (2.5% OA interest)
It is a fine distinction and a lot of people are unaware about this.
(the feeling you get when you suddenly see your CPF Accrued interest)
Here comes the next question:
Let’s say I put back this $100K back to my CPF OA account to earn the 2.5% interest.
Wouldn’t I have to bear more interest to the bank/HDB loan side – as I could have used this $100K to reduce the loan amount?
On the surface, this is what everyone thinks and would have done exactly the same – wouldn’t you?
If you actually try to understand at a deeper level, you are actually paying for interest for both sides – first to HDB and then to CPF.
(The emphasis is YOU)
- The first interest you must pay is based on the 2.6% HDB/bank loan you received.
- The 2nd interest is based on the 2.5% CPF accrued interest – which will only be payable upon the sale of the flat.
Next question: How will this affect me, my assets and my future retirement plans?
Take note, we are only just talking about using $100K.
What if you have already used and paid $400K from your CPF to fully pay off your flat?
The longer you hold on to your HDB after paying off….the larger the accrued CPF interest. The impact of simple compounding 2.5% interest rates.
Over a period of 30 years, the accrued CPF interest payable will be $439K — if you had used $400K to pay off your HDB flat.
(Essentially you would have experienced a $439K opportunity cost)
Some of you might think – it’s ok.
By then, I am old enough to withdraw from my CPF account. Right?
But the truth is we have no idea what the CPF Minimum Sum will be in 30 years’ time.
What the government is doing is really to make sure we have enough for retirement – which is a good thing to take care of.
But the main issue is this – did you effectively use your CPF funds to maximize the growth of your assets?
Everyone has to obey and live with the same rules & regulations.
Almost everyone starts off the same – with a HDB flat that is affordable to them.
But everyone ends up differently.
Some end up with a single HDB flat (there is no right or wrong here). And there will be some who end up with multiple properties.
The difference is the choices and the decisions made during this process.
And your decisions are highly dependent on your knowledge and the people you seek advice from.
It is ok if you do not fully understand the intricacies of interest rates and CPF rules – I have been in your shoes before.
Personally for me, I have already planned and taken my next few steps to maximise my asset growth.
If you would like to understand more on what you can do and other options available, please contact me. I have assisted many clients to get clarity on what they can do next.