Most developed countries have some social security or retirement account for their citizens.
We have CPF.
Our love-hate relationship with CPF is like our love-hate relationship about saving money.
As a self-employed, I do have flexibility on my CPF contributions.
While some might view this flexibility as an advantage, it’s not all rainbows and unicorns.
For one, becoming a millionaire is just a matter of time.
Last week, we discussed the missed opportunity if we decided to pay our homes with CPF in full.
For this week, we will go a little bit further by discussing the concept called 1m65.
What is 1m65?
1M65 is a CPF investment strategy that Mr Loo Cheng Chuan first coined.
He believes that CPF can help Singaporean couples become millionaires by retirement.
To have a million by 65 years old.
1M65 is a concept that comes from understanding compound interest and forced savings.
The growth to $1 million starts with you and your spouse.
$130,000 x (1+0.04)^ 35years x 2 = $1,000,000
This strategy dictates that both you and your spouse should have at least $130,000 each in your CPF Special Account (SA) and Medisave Account (MA) combined.
The interest rate of 4% will grow over time and grow both your CPF balances to $1 million by the time you reach 65 years old.
So as the interest grows for the both of you, so does the total amount in your CPF.
To summarise, you will need to transfer your CPF funds from your Ordinary Account to your Special Account and wait for 35 years.
The downside of the strategy
- You need to transfer money from your CPF Ordinary Account to top up your SA quickly. Therefore, this transfer is irreversible and cannot be withdrawn for housing purposes, as it is meant for retirement.
- Both individuals must earn a monthly salary of at least $3,651 each when they are 23 years old. This is so you and your wife can reach $130,000 by the 7th year. I don’t think many of us earn that much just after finishing school.
- Usage of CPF is strictly prohibited. Some of us will need to use our CPF to pay back our parents for funding our education needs. Some would be planning to get married and start a life.
1m65 simplify a goal into a simple and easy to follow strategy.
Using CPF to accumulate $1 million is viable for self-employed like me, as CPF money is protected from creditors.
For self-employed, we do not have a system that forces us to save, and thus, many of us would squander the extra money away.
If you are an employee, you should consider this strategy as part of your retirement planning.
Interestingly, 1m65 requires the shared commitment of the married couple to see it through.
While this might pose some risk and discomfort to many, the $1 million waiting for you in your golden years is one motivating factor.