I Should Start Doing Voluntary Top-Up to Medisave

-

Central Provident Fund (CPF) is a compulsory comprehensive savings and pension plan for working Singaporeans and Permanent Residents primarily to fund their retirement, healthcare and housing needs in Singapore.  In an earlier post at the beginning of this year, I gave reasons why as a self-employed, despite having a choice, I still religiously contribute 37% of my income into my CPF accounts.  In 2022 (yes, I am probably 15 years too late), to boost the growth of my CPF balances, I started transferring accumulated amount in my Ordinary Account (OA) to my Special Account (SA) to earn the higher interest in SA compared to in OA so as to build up my retirement savings.

At the beginning of the year, I started to ponder if I should also do cash top-ups to CPF to further increase my savings in CPF for retirement.  There are 2 ways to go about doing that.  One, I can top up cash to CPF SA, and hope that with compounding, I can hit Full Retirement Sum (FRS) by the time I reach 65.  Two, I can top up cash to CPF MA, and hope that with compounding, I can first hit Basic Healthcare Sum (BHS), and from then on, all CPF contributions to MA will flow to SA instead to compound in SA.  In my mind, mathematically, I believe both ways result in the same numbers in the end, as both accounts are paying 4% interest (correct me if I am wrong).  The difference lies with which account does the monies reside in.  Personally, I lean towards topping up MA instead of SA.

Earlier this month, YouTuber Kelvin posted a video to discuss this issue.  I do not know if this happens to others out there but sometimes for me, even though I have all the valid points, I am unable to make a decision till someone out there "convinced" me with the same reasonings.  So here I am, decided and ready to start slow with an additional cash top-up of SGD 100 per month, or SGD 1.2K a year to my Medisave.  This is definitely a very small amount, but it is better than not doing anything!

So what are my reasons for topping up MA instead of SA?

1)    Psychological Barrier

In 2023, the BHS in MA is set at SGD 68.5K, while the FRS is set at SGD 198.8K.  Personally, the BHS is more achievable than FRS, and this positive psychological effect is more motivating for me to push myself to hit BHS as soon as I can (both FRS and BHS increases every year).  On the flip side, FRS is just way too far from my current CPF balance.  It is rather demoralizing and depressing to see how much more I need to hit the FRS, thus it will be better for myself to try to aim for the achievable first.  Once BHS is hit, all contributions towards MA will be channeled to SA and that will help to propel the SA balances further till retirement, but the reverse does not occur, because generally BHS is attained before FRS.

2)    Ability to Tap into MA

Since SA balance is strictly meant for retirement, it will not be possible for me to tap into the balances until 65.  However, for MA, in case of any form of medical emergencies, I will be able to tap into MA balance for treatment both in Singapore and selected hospitals in Johor, Malaysia.  This can serve as an alternative form of savings which can become a useful helpline instead of having to tap into cash reserves in such times.  More importantly, it can also be tapped not just for myself, and also for my immediate family members, so that is another plus point to consider.

3)    Building Up My "Bond" Portfolio

As mentioned in my previous CPF post, I treat my monies in CPF as the "bond" component in my portfolio.  So I believe upon hitting BHS, the flow of my monthly contributions towards SA can speed up.  This will help to boost my CPF balances, so that I can enjoy the fruits via CPF Life when I am 65.  

One small step will eventually compound and result in big moves in future.  I believe the additional small contribution towards Medisave will help to build up my BHS safety net in the near term, and flowing towards SA to target FRS in the longer term.  In addition, it can also help me to enjoy more tax relief!  As a proponent of CPF, I believe this will be beneficial to me in my journey.  Barista FIRE, here I come...!

Comments

  1. Anonymous19 January 2023 at 16:35

    Put in your SA. The first $60k in SA has a 5% interest.

    ReplyDelete
    Replies
    1. BFIRE19 January 2023 at 17:07

      For SA, I will do transfer from OA. Hence for MA, I am contemplating cash top up

      Delete

Post a Comment

Popular posts from this blog

My First Trip To Japan Together With My Mum!

-
Image
This is my first trip travelling out of ASEAN region, where I have to plan every bit of the itinerary myself.  For previous family trips to Sydney and Perth, I am generally tagging along, being a follower.  However this time, it is going to be a duo trip with just my mum and myself, which I am both looking forward to, while at the same time worried about how things will turn out there and then.  Nonetheless, the decision has been made by late last year, and I booked the flights for 2, flying with Scoot to Kansai Airport for our 9 days 8 nights trip.  Feels good that a goal set early this year is materialized! Without further ado, I will share the travel journey below: Day 1 Arrived at Kansai Airport in the afternoon, and we grabbed a quick snack at the famous 551 Horai outlet.  Then after much complications with the Haruka Limited Express, we are finally able to board the Hello Kitty's train direct to Kyoto!   Haruka Limited Express We reached Hearton Hot...
Read more

Incorporating The Idea of Safe Withdrawal Rate to Living Off Dividend Income

-
Image
Recently in a Telegram group, I come across a debate between Kyith from Investment Moats and a reader, where the reader claims that as long as his portfolio is made up dividend stocks with good dividend growth through the years, he can just live off the dividends with the total capital left intact, while Kyith on the other hand, supports the idea of Safe Withdrawal Rate (SWR).  The reader claims that he would not want to sell any part of his portfolio, and just having to live off the dividends makes dividend investing superior to the withdrawal method, while Kyith explains that the reader's perspectives show a lack of understanding of how the SWR method actually works. After reading the long string of exchanges in the telegram group, I decided to pen this post.  Personally, I am definitely a supporter of the dividend investing group, and I also believe, and strives towards just living off dividend income upon FIRE.  From a dividend income investor perspective, the idealis...
Read more

Coping With The 32% Decline In Dividends

-
Image
As a dividend investor, I have been slowly accumulating shares in REITs and dividend shares to grow the annual dividend income since late 2017.  I am blessed and contented with the performance thus far, as the total dividends received annually continues to grow, despite hiccups along the way.  First major hiccup along the way is in 2020, where the strike of the pandemic and the circuit breaker hit businesses and some REITs in a huge way, resulting in cuts in dividends.  The second major hiccup recently will be in 2022 where the FED suddenly hike interest rates at rocket speed, and that created financial stress on REITs, which inevitably resulted in the drop in distributions by most REITs to varying degree.  Thankfully, with the slight diversification into other dividend-paying shares, they helped to mitigate the decline, and allowed my portfolio to experience dividend growth year-on-year. This year, on 23rd February 2024, Hong Leong Finance (HLF) reported their earni...
Read more