Finance Smiths

Personal finance apprentices-in-training

CPF SA Cash Top Up and Last Day of 2019

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Last night, my wife and I topped up our CPF SA with S$1,000 of cash each. Both of us should have no problems with getting the CPF Cash Top-up Tax Relief. With the birth of our child this year 2019, my wife can qualify for the Working Mother’s Child Relief (WMCR) at 15% of her earned income since this is our 1st child.

When we add this WMCR with the other tax reliefs my wife qualifies for, the personal income tax relief cap of S$80,000 becomes a consideration. Which means she can’t do a big CPF SA cash top-up to get the tax relief anymore. It has to be a small amount to still qualify. So we figured S$1,000 should be safe for her.

I’m no where close to the personal income tax relief cap of S$80,000 but decided to do a same amount CPF SA cash top-up of S$1,000 to get the tax relief too. Besides, we have built up sufficient cash liquidity for the year 2019 so might as well utilise some of it.

Our CPF balances are growing slowly and steadily so I don’t see a point in accelerating the growth rate by making big cash contributions to them. As long as we remain employed, our jobs should sustain the current CPF balances growth rate. If we are retrenched, the situation changes and we may have to re-evaluate this.

Being jobless could have other implications too. We just sent in a whole bunch of medical expenses claims for my wife and baby to our respective corporate insurers for reimbursements. Didn’t realise how dependent we are on our jobs for the medical, dental and flex benefits. They add up to quite a bit.

Anyway, it’s the last day of the year 2019. I worked a half day and got an early release from the office since it’s New Year Eve. Same as last Tues 24 Dec when it was Christmas Eve. And tomorrow is a public holiday too. These 2 weeks continue to be my favourite time to work. Don’t do much in the office but still get paid.

That’s about to change as we gear up for the new year 2020. I have discussed the workplans with my manager extensively and we will have a lot of stuff on. Our job scopes continue to expand as we grapple with the challenges faced by and demands of our stakeholders, clients and industry.

This is the time for us to push for promotions, pay increases and bonuses together while our team still has a high enough profile to ask for it. We will know in Mar 2020 whether we have been adequately rewarded for the hard work and effort we have put in.

That’s about the same time my wife’s bank is expected to go through another round of restructuring. While there are information flows to her on what has been happening in the office, it’s better if the restructuring happens when she’s back at work. It would help if she’s actually there to fight for the interests of her team. Let’s hope the restructuring is delayed to Apr 2020 when she finishes her maternity leave and goes back to the office.

Which is why I have to step up a lot more in the next few years to cover for my wife’s career adjustment as a new working mum. It’s getting more difficult for her to find a new job role or be promoted at her bank. Conversely, the target on her back grows bigger as her salary increases. Drawing a higher pay means more justification of her value proposition. Interesting times. Happy New Year 2020 everyone!

Getting to Day 15 and CPF Medisave deduction

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I just finished my first full week of work since going back to the office last Fri after taking almost 2 weeks of annual leave to spend time with my wife and the baby. I noticed myself making more of an effort now to get off work on time by 6.30pm to take the train and bus home. I usually reach home by 7.15pm, which gives me a few hours every night to be with my family.

I still try to carve out time to exercise and keep myself active but I now have to squeeze out pockets of time to do this. While in the midst of helping out with my wife and the baby. Most noticeably, I was setting up the stroller, adapters and car seat with my wife. It was a true test of patience as we tried to follow online video instructions to set something up that was apparently not supposed to be so difficult.

We also had to assemble new household items that we bought online during the 11.11 Singles Day Sales. As we try to transform our 2-bedroom apartment into a more baby and family friendly home. All of these pre, actual and post delivery expenses are causing our monthly spending to spike. However, we have also been receiving contributions from the Government, family and friends.

So our cashflow these few months is going to be all over the place. Which is expected given the major life event we just went through. We are going to give it some time to stabilise before we start to look for a pattern of spending to work on and reduce.

Anyway, the good news is that we got to Day 15 since our baby’s birth without him having to make a trip back to the hospital. Given that he is a slightly premature baby (born at the 36th week of pregnancy), there is always a concern that he is at a higher risk of developing medical problems.

While the baby is covered under MediShield Life from birth, it’s only a basic health insurance. On a separate note, he has not received his Medisave grant of $4,000 from the Government yet. It would be useful to help defray the healthcare costs of the baby.

We don’t think private medical insurance would cover the baby from Day 0 to Day 14. Although this gap might have been addressed by my corporate maternity insurance. It’s still better not to risk it. Now that we have gone past Day 15, we have added the baby as a dependent to our corporate medical insurance so that he gets coverage.

The next step would be to purchase an integrated shield plan for the baby. Either the AIA HealthShield Gold Max that my wife has or the NTUC Enhanced IncomeShield – Preferred that I have. Have to check whether one has better coverage relative to the insurance premium for the baby or it’s about the same.

Lastly, the MediSave Maternity Package drawdown of $5,750 has been deducted from my wife’s CPF MediSave account. It has helped to reduce our cash outlay on the delivery expenses. We are happy to find utilising our CPF MediSave account for medical expenses proving to be just as useful as utilising our CPF Ordinary Account for housing expenses.

No CPF Investment Scheme and Margin Loan for us

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This is likely to be my last daily post in this series for a while as I prepare for my return to work tomorrow. It’s been a good experience and as I spend the day resting at home today, I realised it’s time for me to head back to the office. My wife and confinement nanny have settled into a daily routine with the baby that requires less and less of my involvement.

Which should be the case since they will be managing the household more now that I’m going back to work. While I enjoy the time spent with my wife and the baby, I like having my own activities as well. And my job is a big part of that. I like the work that I do. It’s knowledge-based, requires analytical skills & critical thinking and I get to deal with interesting stakeholders.

Always remember, the test for whether your job is knowledge-based is how long it takes for a new person to replicate what you can do and how well he/she can do it.

While I was in a toxic work environment in my previous job, my current job’s work environment is much better. Something my wife appreciates a lot since I was complaining to her so much about the problems & issues I was facing in my previous job.

I know my wife enjoys aspects of her job too. She is starting to get bored just being at home with the baby and confinement nanny. I reckon she will start to head out soon to catch up with colleagues and friends. Social and professional engagement is important to her too.

My wife’s job is less knowledge-based and requires less analytical skills & critical thinking. However, it requires a specialised skill set, which explains why she can draw a much higher pay than me. But over the long term, knowledge-based jobs are less likely to be outsourced and as I accumulate more knowledge, the pay is more likely to climb faster than my wife’s.

While my wife is aware that her job is at a higher risk of being outsourced, it’s possible for her to pivot into a more knowledge-based job. The only thing is that it is difficult for her to pull this off when she just had the baby. A lateral move in her company makes the most sense since another company will not pay her the same salary to learn new skills.

It becomes a race against time. Understanding our limitations & capabilities, the job risks we face and balancing that against making career moves that pay off. Our ability to manage this trade-off will decide how well or badly we do in our career.

Anyway, I got side-tracked by the discussion on jobs. It always happens because there’s so many things to be aware of, careful about and to do with them. As we try to accelerate the growth of our retirement funds and investments, my attention turned to these common things that people do.

  1. Invest CPF savings
  2. Use margin loan to invest

CPF Investment Scheme

Even after setting aside $20,000 in our CPF-OA and $40,000 in our CPF-SA separately, we have about a combined $60,000 of CPF-OA and CPF-SA each to invest under the CPF Investment Scheme. That’s about $120,000 in total for the both of us.

When we looked through the investment products available (different for CPF-OA and CPF-SA), the CPF-SA investment products don’t appeal to us. Might as well leave the balances inside CPF to get the 5% interest on the first $40,000 and 4% interest on the remaining balance.

The CPF-OA investment products are good and long-term investing in stocks, REITs & stock ETFs could potentially yield higher returns than the 3.5% interest on the first $20,000 and 2.5% interest on the remaining balance. As tempting as it is, we are inclined to leave our CPF-OA and CPF-SA balances as is for now.

They grow slowly but steadily every year and it’s nice to know we have retirement funds that are not share market performance driven. As long as there are monthly CPF contributions, the risk of it not growing is minimal. Speeding up its growth has risks and just not worth the reward at this time. There’s something about being sure, slow and steady that appeals to us.

Margin Loan

This involves borrowing money to invest in shares and using the shares as security. Honestly, when I first heard about this type of loan facility, I was shell-shocked by it. Great for banks and brokerages to earn profits from but very bad for investors. Because a margin loan is incredibly difficult to be utilised well by an average investor in the long run.

While a margin loan can multiply gains if the market goes in your favour, it can also amplify losses if the market goes against you. Unless you are so consistent at making profits from the market and adept at managing your investing psychology, an average investor is going to be burnt badly by a margin loan. Yet it does not seem to stop people from drawing on them.

It doesn’t matter how much we want to achieve financial independence. We refuse to accelerate our investments growth by using high-risk financial tools. Impatience can cost us so much more than the reward from being patient. We are going to take our time with this and enjoy the process.