On CPF contribution and personal taxes

Posted May 18, 2008
Filed under: Chronicles, Investments, Personal Planning | Tags: , , |

I just thought about this, while checking up on CPF and personal tax.

Imagine you are earning 3,000 a month, so that’s about 36,000 per annum.

You have to make a contribution of 600 per month to CPF, 7200 annually. At 2.5% interest rate (the bank rate for Singapore), at the end of the year, your balance is about 7380.

Then, you have to pay your taxes. First 30,000 is taxed at a gross rate of $350. The next 6,000 is taxed at 5.5%, which means your personal tax expense is $680 per annum. So that’s roughly about 1.89% of your income.

Considering that you have no other savings, your CPF contribution yields roughly… 0.61%? That’s quite miserable isn’t it? In case you cannot see the percentage figure in decimals, it’s 0.0061.

I admit that this reasoning has many flaws and loopholes. For example, you can actually get a higher return of 4.5% if you lock your money into your SA account, instead of OA. (Capped at the first $60,000, i think. Need to research more.) But If your money is in SA account, it’ll be locked and you can’t use it for property.

The point is… this makes me realise how important it is to invest your money and get a decent amount of return.

What do you think? I’m on my way to getting more opinions from fellow friends that I respect :)

3 comments so far

  1. frivolousfinance on May 18, 2008

    test test.

  2. kheetat on May 18, 2008

    To start invest your money in CPF, you need to have a minimum balance of $20 000. Only the amount that exceeds the minimum sum can be invested in the different funds under CPFIS.

    So i guess you can’t do anything with the money if you just start making contributions in CPF.

    Based on your figure, it takes about 4 years before you can start your first $10 000 investment.

  3. kheetat on May 19, 2008

    Yes, the minimum interest provided by CPF is 2.5%
    until 30 September 2008 and will be adjusted quarterly with the interest given local banks.

    The interest rate for Special account, MediSave and Retirement account is at 4% currently.

    There will be and additional 1% if the combined balance is more than $60 000, with up to $20 000 from the Ordinary Account.

    The below CPF link will show you more information.

    http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_12May2008.htm


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