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Old 25-05-2016, 07:49 AM
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Default Don't look down on CPF as a source of passive income

As a young man I used to think of ways to utilize my CPF savings, not treating it as my own money if I wasn't able to touch it. When we bought our first home, we quickly emptied our OA to pay for the purchase, and we would plan to use all our monthly CPF contribution to pay for the monthly installment. We were disappointed that we were unable to utilize our SA and MA money.

Now at 56, we are glad we didn't "squander" our CPF savings. With the current weak economy and low interest rate environment, the CPF is still giving out relatively decent returns on our money : 2.5% for OA, 4% for SA, MA & RA.

It gets sweeter when you turn 55. It means you can withdraw money from your CPF, first from your SA and then from your OA - after you have set aside the minimum sum required in your RA. Now there is no minimum sum required for the MA but they will still keep aside some money in it. This year, the MA limit is $49.8k

You are allowed to withdraw all of your "excess" OA & SA money in one go or you could choose to withdraw an amount of your choosing once a year (if you are still working) or monthly if you are retired. I like the monthly withdrawal option, although we are not touching our CPF just yet as we are still working.

Withdrawing a monthly fixed amount from the CPF would give you a sense that you are still receiving a monthly pay check and helps you control your expenses.

For our case, when we retire, we are planning to withdraw just the yearly interest earned by CPF OA & SA savings as passive income. Currently we are looking at an interest of $35 a year. By next year, the yearly interest earned will be more than $36k pa or $3k per month.

At 65, we will see the amount supplemented by RA payout of another $36k pa combined for the two of us giving us a total of $72k pa just from CPF alone - without drawing down on the principal savings amount in the OA.

As you can see, the CPF can be a good and steady source of passive income in your retirement years. Don't look down on its "low" interest rate. It makes up for it with steady and compounding returns over many years.

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