Money and Me: CPF’s 4% Floor - Should You Top Up or Invest Your Spare Cash?

SPEAKER_1 (0:01)

Best of Live Well with Michelle.

It's not just about money, it's about you. Money And Me, where wealth meets self-awareness. Only on Money FM, 89.3.

Michelle Martin (0:19)

One of my favorite guests on my final show with you for the next three months, that is Elijah Lee, Senior Financial Services Manager, Phillip Securities, joining me live. How are you, Elijah?

Elijah Lee (0:30)

I'm good. I'm good.

Michelle Martin (0:31)

Yeah, I hear you're just recovering from a flu.

Elijah Lee (0:33)

Is that right? It's going around. Yeah, I think the haze got to me, and I have a pretty sensitive nose, so I did lose my voice for a while, but I think you can hear it's pretty much back already.

Michelle Martin (0:43)

You got it back for the final show with me. I feel so privileged.

Elijah Lee (0:50)

Wonderful.

Michelle Martin (0:50)

Yeah, the haze is really getting a lot of people down, I think.

Elijah Lee (0:53)

Yep, it is.

Michelle Martin (0:54)

Oh boy. Well, glad to hear that you are better and in tip top shape because we, as usual, are going to pick your brain. We're talking today about what you can do to take more risk with your money. So everybody knows our CPF earnings is earning a portion of it, 4% a year, and the government has extended the 4% interest rate floor on special Medisave and Retirement Account savings till the end of 2027

Yay for us! But for investors, if we have spare cash, what do we do? Put it in CPF, invest it, or do a little bit of both in terms of maximizing those floor rates. So let's start with that 4%, Elijah. How attractive is this 4% rate across the special Medisave, Retirement account for our CPFs compared to what we can get elsewhere in the equity market?

Elijah Lee (1:44)

Okay, so if you ask me, I think that 4% is actually very attractive. You probably will not find anything that gives this kind of return elsewhere, anywhere in Singapore. 4% guaranteed, well, at least up to the end of 2027, like you mentioned.

4% is really very hard to find. I think if you recall when they closed CPF SA accounts after age 55, I think a lot of people were sad because I believe a number of them had done CPF SA shooting and they were just riding on the 4% interest that SA was giving them. And since they were above 55, it's freely reprobable. And then it's gone after they closed the SA account after 55 And so you can see that people really like that 4% because I would say that compared to what you can get in the equity market, the question is not can the equity markets make more, which potentially it can. But I would say that are we comparing it with the same basis because you cannot compare something guaranteed against something that has risk. Sure, the equity markets in the long run, they probably give you decent high single digit returns if you are, let's say, looking at a globally diversified portfolio. But this is risk free.

Michelle Martin (2:54)

Yeah.

Elijah Lee (2:55)

Yes, this is risk free. If I could maximize my risk free first, I would want to do that.

Michelle Martin (3:00)

Right.

Elijah Lee (3:00)

So I think 4% risk free is super attractive.

I think that first. Yeah, that's me. I mean, I guess that's me, but I'll take that first. Take it. Take it with all you got.

Michelle Martin (3:11)

If you have spent cash today, though, what would you say to the person out there listening in? They have spare cash and they're trying to decide, should I do a CPF top up or should I invest that money?

What do you say to them?

Elijah Lee (3:22)

Okay, I think this is going to differ from individual to individual. Personally, what I did with spare cash, especially when I had not hit the full retirement sum yet, okay, was that I took a portion of my spare cash and actually just topped it up to my CPF SA. So two reasons, first thing is of course, I wanted to have a portion of my money maximizing that 4% risk-free. And the second reason was actually for tax savings. So it kills two birds with one stone, right? So I take a bit of that spare cash and I get tax savings, I get a decent 4% return. I just need to accept that whatever I top up into my SA is really for retirement, I won't be able to access it until retirement. And then of course, after that, after I did that, then with my extra spare cash and yeah, I'll take that money and go and look for, I'll probably go and invest that which is what I did. But of course, every individual is different. Admittedly, if you invest your spare cash directly, you have that freedom to, let's say you make profits, you did make decent profits, you want to cash it out and spend it on some necessity like house renovations or something. But whatever it is, you have that freedom, right? Because if you're investing, you just need to be able to accept the market value investments, you can cash out anytime you want. But you top up into CPF, you know it's a one way street. So that's why I say it depends on the individual.