Why I chose to top up my CPF-SA with cash?

Most can agree that the extra 1% interest from CPF savings is a low hanging fruit that most young Singaporeans should be reaching for. What they disagree on, is how to achieve this. 

Should we be depositing cash or transferring from OA-SA? Having already met my CPF-SA Target. I would like to pencil down my thoughts on this.

1. Bring down mortgage payments to a healthy level

Reducing liability and making loans work for you is always a smart move. I know some would advocate stretching out home loans to maximize the low interest rates on a housing mortgage. But that makes sense only if your mortgage is at a comfortable level. By comfortable, I mean when the monthly OA contribution from your salary is able to cover 80-100% of the mortgage payment.

As I had bought a place with a convenient location, (i.e. expensive), the mortgage payment was high relative to my OA contribution. If I had transferred from the OA to the SA, this would mean I was less able to reduce the principal on the loan, which translates into a higher monthly mortgage payable. This would be like saving water when the bush is burning. A mortgage which takes only 80-100% of your current OA contributions means future salary growth would automatically improve your cash position.

So Yes, not transferring from the OA-SA meant I was potentially losing the 1% free interest from the CPF board per month. So here was what I did next…

2. Setting aside a retirement account apart from investments

I do recommend setting aside a separate retirement fund from your investment fund. First, we will never be certain if our investments will always make money. Second, my intention for my investment fund is to generate a continuous cash flow in the future. This means, I hope never to draw down on this fund.

Not transferring from the OA to the SA meant that I did not have a free ticket to boost my SA quickly. I did this step by step over a 3 year period. I did so while investing and reducing my tax payable

Being a little older than my peers and due to outstanding loans, I decided to prioritize contributions to my SA before my investment portfolio. Only towards the third year did I put in more into my investment fund as compared to SA.

CPF vs Investment fund contribution.png

Started work for half a year in 2015, paid down my loans in 2016, full force in 2017

Looking back I would advise to start with increasing your monthly SA contribution via monthly top ups rather than what I did. Investing is something that takes time to pick up and I see the above graph as me not learning anything in 2015.

In conclusion

Anyone who is into FI would be driven by their own motivations. I chose the top up route as I wanted financial security in retirement, while paying down the house. It was a conservative choice, but my own nonetheless.

At the end of the day should you not use cash to top up your SA, be sure that the alternate use of it would be in assets of other kind which can generate you a positive return. 

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