Who wants to be a millionaire?

Well, it seems like it has been getting easier for people to become a millionaire nowadays. For instance, a Singaporean by the name of Mr Loo, presented the idea of 1m65. 

What is 1m65?

Basically, it is the idea of reaching a million dollars in the combined CPF account of a couple before the age of 65. Since it is a combined effort of the couple, each person just have to contribute $500,000 in their CPF account. The $500,000 is the total sum from the Ordinary, Special and Medisave account.

How does it work sia?

1m65 works by making using of the guaranteed high interest rate of 4% for special accounts. Therefore, the trick is to transfer the funds in your ordinary to special account. This is because the ordinary account only offers 2.5% compared to the 4% for special account.

“If you wish to gain a million dollars even faster, you can even voluntarily top up your special account using cash.”

Is it good?

Well, for one, there is tax relief for voluntarily topping up your special account with cash. Secondly, the 4% interest rate earned in special account is almost a sure way of fighting yearly inflation rate which is around 3-4%. Most importantly, the principal sum and the interest rate in CPF are guaranteed by the Singapore government. You can therefore consider calling this a risk-free instrument.

“If you ask me, this is actually a pretty good deal for wealth protection purposes.”

But CPF safe meh? Gahmen anyhow take our money spend! 

You can actually research more and find out that there are clear laws to prohibit the government from anyhow spending the funds. None of the CPF monies in your accounts are used to finance government expenditure. Generally, CPF funds are invested through GIC, which acts as an independent fund manger for CPF investments. 

What’s the catch?

Well, the thing is that the money in special account is purely for retirement only. Unlike the ordinary account, the money in a special account cannot be spent on housing and cannot be withdrawn before the retirement age. 

“Hence, the money that is in there can see, but cannot touch. You get the drift.”

It is really “can see, cannot touch” if you further top up using cash. Apparently, there are 3 tiers of withdrawal at 55 years old that makes it hard to withdraw a lump sum out. More information can be found here.

Will SG Finance Guy approve?

Well, I can see how this 1m65 can be helpful for people who generally are risk-averse and wishes to just protect their wealth from inflation. Honestly speaking, the irreversible process of topping up the special account also helps people from their occasional itchy fingers. Most importantly, I think it also instills in stocks investors a good sense of financial security. Having a million dollars as a back up retirement plan would make them less likely to panic sell at times of financial woes. 

Personally, I find that this is just an ‘okay’ kind of investment. I can see why people will feel rich when they have a million dollars in their possession. However, I would like to point out that this can probably contribute to a false sense of financial security. This is because due to the yearly inflation rate of around 4%, the real value of the CPF funds do not actually increase but stagnate.

“This means that reaching a million dollars 10 years later will be way easier than hitting it now as the real value of money decreases with time.”

Having said that, I do consider treating my CPF funds as my bond allocation. Hence, I will probably take up more concentrated positions in stocks when I start working in the future. 

“1m65 is definitely an exciting goal to strive for, but being a millionaire gets easier over time due to inflation.

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