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How much is your CPF worth in real dollars?

Christopher Ng
Christopher Ng

A thought experiment (or a gendanken-experiment) is a structured process of intellectual deliberation to consider the consequences and effects of adopting an idea or theory into a problem domain. Thought experiments are responsible for many powerful ideas like Shrodinger’s Cat or Maxwell’s Demon that shaped the development of physical sciences.

As ordinary Singaporeans, we can conduct thought experiments of our own.

Consider this:

If there is a market for you to convert your real dollars into money in your CPF-OA, CPF-SA or CPF-MA, how much money would you pay for $1 in your CPF accounts?

Imagine you are a Millenial, you are unlikely to see your CPF Ordinary Account until you are 55 or when you buy an HDB flat. I would imagine that you will not be willing to trade $1 in your wallet for $1 in any of your CPF accounts. The simple reason is that a bird in your hand is worth two in the bush. For a 50-something citizen, you would be willing to pay much more because you will see your money quite soon.

Intuitively, I would ordinarily expect Singaporeans to trade more favourably for the CPF-OA followed by CPF-SA. CPF-OA is more flexible than CPF-SA as it can pay mortgages and fund children’s education. I expect the conversion rate to CPF Medisave account to be the lowest as folks would only be willing to give up $1 to for much more dollars in CPF-MA than CPF-OA or CPF-SA.

To see whether I am right about the exchange rate, I conducted a survey which saw about 60 participants respond to this question. It turns out in practice I was wrong.

The following diagram shows what preview participants were willing to pay:

In this exercise, preview participants would pay $0.53 for $1 in their CPF-OA, $0.70 for $1 in their CPF-SA and $0.42 in their CPF-MA. More interesting is that the answers cluster at three different points for each question, so it is tri-modal. I suspect that separating the audience to different age groups may result in different valuations.

I suspect that CPF-SA had the best rates because it compounds at 4% and can be converted to real money if the person has more than BRS in his CPF account at age 55.

As it turns out, the government does have two schemes that will allow a company employee to trade his dollars for CPF money on a one to one basis. But these are programs that are slanted for high paying employees because they are tax-deductible.

  • CPF Retirement-Sum Topping Up Scheme (RSTU). This scheme allows a CPF member to top up into his CPF-SA provided that he has not hit his threshold Full Retirement Sum yet. Up to $7,000 can be injected into you CPF-SA every year.
  • Medisave Contribution. This scheme allows a CPF member to top up into his CPF-MA up to the Basic Healthcare Sum of $60,000. 

Suppose you have an income that exceeds $80,000. According to your income tax rate, you belong to the 11.5% tax bracket. So for every $1 you push into the schemes, you can save 11.5 cents. The exchange rate is, therefore, $0.885 for $1.

If your income tax bracket is a whopping 22% because you earn a hefty $320,000 annually, your exchange rate gets better, and it becomes $0.78 for $1.

The survey also suggests which account to prioritise, if you have extra funds, always contribute to the RSTU up to the maximum limit of $7,000 before committing to Medisave.

This survey may even have policy ramifications. The Singapore population may also welcome a merger of CPF-SA and CPF-MA given the possibility that the combined account may have a better “exchange rate” than keeping them in two separate buckets.

Christopher Ng
Christopher Ng
    Juris Doctor(Cum Laude) Bachelor in Engineering from NUS (1st Class Honours) Masters in Applied Finance also from NUS. CAIA, FRM qualifications and passed all three CFA examinations. I have recently completed my Juris Doctor and have been called to the Singapore Bar. For the past 15 years I was an IT manager and I have worked in multinationals, financial exchanges, trade unions and even a government agency. I started my career as an AS/400 administrator and moved on to manage IT projects and operations. Through my personal savings and investments, I earned my financial independence at age 39 after my investment income started to exceed my monthly take home pay. One of my first acts upon retirement is to go back to Law School to reinvent myself as a legal professional. I am likely to be in the practice of corporate litigation. My three books on Personal Finance explain the processes by which I attained my financial independence. Growing your Tree of Prosperity was a local Straits Times bestseller in 2005. I was featured in Me and My Money sections in the Sunday Times twice. I also play the role of a husband and a father.
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5 thoughts on “How much is your CPF worth in real dollars?”

  1. Why contribute to RSTU before Medisave? They are both tax deductible, both earn the same rate, but Medisave is a lot more useful than the Special Account.

  2. Banana, for people who have never been to hospital or have any major illness, the medisave account really isn’t that useful. Even upon retirement age, one cannot withdraw medisave

  3. With interest rate likely to stay low for many years (Spore may/already is negative interest rate), does it make sense to top up Retirement Account to the max $270K to get guaranteed CPF Life annuities payment each month after 65 years old? I am 60 now and investing in Stocks is too risky (geopolitic conflicts, very high stock prices) in these volatile times for me, so max out RA is a better and “risk-free” option? What’s your opinion? Thanks.

    • When you are closer to your retirement age, you will have to reduce risky investment, and focus on preserving your capital instead of growing them.

      Topping up RA is a better choice than getting into stock market when you are 60 years old, try to reduce your exposure to stock and increase your investment in bonds / risk free investment vehicle.

      And please don’t get yourself into MLM, money game, scam, etc.


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