Invest & Grow Your Money With CPF [Chills 39 Sponsored by Endowus]

Welcome to another Chills with TFC session. In this series, we have to bring on interesting, relevant people to help us learn better from various perspectives. Life is not always about learning from people that you already agree with. Perspectives shape a rounder thinker. 

So in the pursuit of the life we love while managing our finances well, our guests for today have built their business around CPF investing. I would say they’re pretty synonymous with it. They don’t just do that, but they are very famous with it. I’m sure you’ve seen their ad. CPF, CPF. I always joke about this with them, but the idea is they have built along this path of CPF investment scheme to build low cost index funds. 

They are the sole provider. Today, they are the sole provider of low cost index funds through the CPF IS system. They’ve also built retirement calculator, CPF retirement calculator that fully embodies the whole process. From you are… 55, you’re 65, you can draw down CPF Life, accumulation, what have you. So they have built a model to envision how much you actually need for CPF. 

I think by now, you know who I’m talking about. CPF, CPF… so I’m very happy to welcome CIO, Samuel Rhee and personal finance lead Sheng Shi of Endowus. 

I know you guys are off to a good start, right? You’ve gotten your… crossed your $1 billion and all that jazz… AUM (Assets Under Management), and you’re rolling out a lot of stuff and that’s why we’re here today. But I think to roll it out and just get started, maybe just share with us a little bit why should we invest CPF? Because recently, there’s been a lot of discussion, whether it’s on papers or whether is it online and what have you that, people that invest CPF, they don’t really perform that well. But you guys are like champions for… “you must invest in CPF. You build portfolios around it.” So why? Why invest CPF? 

Samuel: There’s a whole complicated story around CPF. I’ll just boil it down to the most important piece, which is returns. You’ve highlighted the returns of people who invest their CPF versus those who keep it in CPF and don’t do anything with it. So we all know that CPF, the Ordinary Account gives you 2.5%, the bulk of it and as time goes by, more of it piles into that pot. And then, there’s the Special Account, which gives you 4%. 

Now, let’s look at those numbers and what they mean. 2.5% is barely above the rise in the cost of living that we have, right? Purchasing power, we call this… and you know, the official inflation rates are about 1.7% historically, but you and I, we all know that the cost of living is rising much faster than 1.7% honestly.

If it’s 2.5%, your cost of living is increasing at that rate. You set aside $10,000 now, every year the time passes, you’re going to still be left with $10,000. There’s no return. There’s no real return in that money. People compare that 2.5% and say “hey, but it’s risk-free. It’s guaranteed. You compare that to fixed deposits, you get so much more.” 

But fixed deposits, what are they? They give you less than one percent and it’s below inflation, which means that it’s a negative return. So why would you invest in anything that is negative and why would you compare your returns to a negative return? So it doesn’t make any sense. You should compare that 2.5% versus what you can get if you invest well and invest in the long-term. Financial markets historically have given you 7% plus minus 1- 2%, right? Anything is better than 2.5%. 

Now, that’s where it comes from. You need to use that OA (Ordinary Account) money to work harder for you. Don’t compare to fixed deposits because this is not a one year lock-up. This is a 30 year lock-up, a 50 year lock-up, or it can be even longer. If you invest that long in a monthly contribution scenario, the chances of you succeeding in investing in financial markets rises a lot. 

What’s holding us back is actually the lack of access to great products. It’s the huge cost of investing traditionally and it’s that we don’t get good advice about it. So where do people invest? That return number, that people don’t get 2.5%, most of them underperform, it’s because people put it into insurance-linked products, or they bought Singtel during IPO and it hasn’t done well in the past one year, because it was a one-year performance, ending… when was it? Ending March or September, whatever. It was an old number and it was… including the COVID crisis. 

Basically what I’m saying is that you can do much, much better with your OA. SA (Special Account) is very different and we’ll go into that, I think in much detail later. SA 4% risk-free is actually a decent number.

Reggie: Shots fired. Boom boom. 

Samuel: Bazookas coming later. 

Reggie: I mean, I totally get the part about how people… they don’t have access to good products. Okay…we, I shouldn’t price myself out of this. We don’t have access to very good products in the past and there’s a lot of details in terms of… you can only put how many percent here, you can only do how many percent there. It’s so complicated. Really, the man on the street just wants to live a life and, you know, just at the end of the day, have sufficient for pension and retirement and all that. 

Samuel: Absolutely. Yeah. 

Reggie: Yeah. But I know you guys… 

Samuel: We feel the same. 

Reggie: Yeah, yeah. That’s great. 

Samuel: Yeah. It’s all the same and that’s why we [indiscernible] to Endowus. 

Reggie: That’s a great place to start. But then, based on the survey… as an extension of the discussion. There’s a YouGov survey that it just came out. It shows that people are not really that confident about CPF going into the future. It may be because of complexity, it may because of what have you… it’s not giving them the assurance that “hey, I just ride on this thing and I will be able to retire” and all that jazz. What are your thoughts based on what has happened? 

Samuel: Yeah, Sheng Shi can jump in, but basically, I think it really is very complicated even for a financial professional and I’ve been in finance 27 years. I’ve done everything, but I realized that it’s actually really complicated, even for a financial professional. 

Sheng Shi: Comprehensive and complicated. 

Samuel: It’s actually… because it’s comprehensive, it’s complicated. 

Sheng Shi: It’s a good thing with caveats. 

Samuel: It’s comprehensive because it’s not just the pension plan. Many national pension schemes in other countries is just a pension plan. They have a separate medical plan. They have a separate… all this other stuff. But CPF is a total social security system. It includes everything in it. It includes retirement, medical, education, housing. It includes everything that most systems in other countries don’t have. 

But that’s why it’s actually a good system because it has flexibility. The most important thing about CPF… I realized more as time goes by is the flexibility is amazing. There’s so much you can do to enhance your returns and achieve better outcomes for yourself and your loved ones because of that flexibility.

Sheng Shi: Yeah. So I think Sam mentioned about the flexibility of CPF and how it’s very comprehensive and complicated. What happens is that if you have finesse in managing your finances…

Reggie: Finesse!

Sheng Shi: If you know all the tricks… 

Samuel: You know the finesse system. 

Sheng Shi: Yeah, exactly. If you know the hacks, if you know how to navigate around all the transfers, the tax hacks, whatever, then you would do a fantastic job with it. Because there’s so many great things about it: the higher interest rate, the tax reliefs, the opportunity to invest. There’s a lot of things that you can do with CPF.

I think CPF has done a very great job of educating people about what broadly CPF can be used for. Our survey showed that 90+% of people are aware they can use for retirement, health care, housing, whatever. CPF has a huge marketing budget and I think they used it well.

Reggie: Yeah, they should use it on us too. 

Sheng Shi: Yeah, just invite them. Do it. 

Reggie: Yeah, we are talking to them. CPF, right? Shoutout to… which camera to look at? 

Samuel: Everywhere…

Reggie: Just come, right? Come on our show. Yes, yes, continue. 

Sheng Shi: So 90+% are aware of how to use it, but only 50+% actually actively plan to use it or are using it for retirement or for housing or medical. I think people know what’s going on but they are not very sure how it melds into their financial plans. They probably not so willing to use it because again, like what Sam said, they love the high interest rate but they don’t have a plan to decumulate from CPF and that becomes a problem because you tend to… it gives you the anxiety around how am I going to manage my finances?

If my cash money is going to go to my kids’ tuition, it’s going into housing, there’s a big pool of money that I somehow don’t know how to access so it becomes a very big cause of concern for retirement, especially. 

Reggie: You said this would decumulate. What is that?

Sheng Shi: Basically to draw down or withdraw from CPF.

Reggie: Okay. So you think Singaporeans can save a lot in CPF, but they don’t know how to use it. Is that what I’m hearing? 

Sheng Shi: Yeah. Even the ex Manpower Minister, Mr Lim Swee Say actually said this thing: every month when he received paper statements from CPF back in the days, he says that he feels very rich. He actually said that. It’s quite an interesting comment, but it’s actually true. Many of us accumulated a lot of money in CPF. We don’t know how to use it and when we look at our CPF balances, we feel we are very rich, but in the end we don’t know how best to use it. So that’s an issue that I think can only be addressed if people have finesse in how they manage CPF. 

Samuel: We are using a lot of generalizations because it’s very difficult. Because CPF, there are people like the ex minister… he is ex minister, right? Current minister, but I called him ex. Like the ministers, obviously they’re going to have a lot more piled up, and people… white collar professionals who end up in well paying jobs are going to have a lot saved up. But there’s a lot of Singaporeans who are not going to have as much, especially if they use their OA for their housing etc. 

It’s a wide spectrum because CPF is for everybody and everybody has a different situation that they’re in and different use for CPF. That’s where the flexibility comes in because no matter where you sit and how much money you have, you can use the CPF to your benefit and so I think it’s worth people spending time. 

Previously, it was convoluted. It was complex. We didn’t have as much information. We didn’t know how to use it and many people had mistrust in the system as well. But I think now, wonderful financial bloggers like Reggie here, other great guys also out there somewhere… 

CPF board has also done a lot more. I think they’ve improved is what I would say. They’ve improved a lot from where they used to be and so I think with all those resources out there, people can self-teach themselves, learn from other. There’s this wonderful movement called 1M65 ($1 million in your CPF by 65) movement that our friend Loo is doing and he has a chat group where people share information with each other. I think there’s a lot more resources where you can find out more all the hacks and tax hacks and shields and finesse-ing the system to improve your outcomes. 

Reggie: I think 1M65 went a little too far when they go for 4M65 and there’s like 6 and 8M and whatever. 

Samuel: Have you had Loo on the show? 

Reggie: I have not. 

Samuel: But you should because Loo is actually interesting because that 1M65 began with a target of $1 million for him and his wife. People don’t realize it’s actually for a couple, married couple maximizing their thing. He’s actually going to hit one 1 million and he’s only my age, 49. He’s hitting 1 million already. 

Reggie: I thought you were 39. 

Samuel: I look 39 Reggie… but at this pace, he’s going to hit 4 million or 5 million by the time he gets to 65 and the reason is because of this effect of compounding, right? Compounding for those that are less familiar is if you have $100, you get 10% return. That’s $10. But the next year you have $110. So with the same 10%, you’re getting $11 back. That keeps adding to your returns so that within seven years, you’ve doubled your money. But within eight years, you’re actually getting twice the return, 20% return on the original $100 and it keeps going that within 30 years, you’re actually like… 10X the amount. It keeps growing exponentially.

That’s compounding because you’re adding on to the returns that you’ve already generated historically as long as you don’t take the money out and that’s CPF. You’re not taking your money out. Let it compound and that money is for the long-term and that’s going to have a tremendous effect when you hit late 40s and 50s and 60s. 

Reggie: But yes, I saw your face. You were agonizing over that 1M65 thing because I think 1M65… although I have not talked to Loo. Loo, feel free to come. I don’t even know which camera to look… so shout out to Loo, feel free to email us, hello@thefinancialcoconut.com. Welcome you to come on the show. 

But their main idea is to put OA to SA and that’s it. That’s why it’s simple, easy strategy. People can subscribe to them. Very simple. From 2.5%, you max out to become 4% and that’s it. But you guys are not peddling that idea. You’re not pushing that.

Samuel: 1M65 has two main things. One is maximizing your SA return with the 4%. So you shift it over and get more than the 2.5%. But the other piece is you have to invest your OA. That is actually critical to achieving the large numbers that you want to get to because 4% is not gonna get you there. 4% is great. 4% is risk-free. That’s the most amazing… 4% is not amazing. 4%, you can get it everywhere. You get like income funds, fixed income funds, equity funds doing much better. Many of them returning 25% in a year… 

Reggie: Really? Many of them returning 25%? 

Samuel: In the last 12 months.

Reggie: Okay, okay.

Samuel: Yeah, we gotta be careful. 

Reggie: We gotta be careful. Last year was crazy. 

Samuel: But over the long term, markets will give you 7%, 10% and that’s empirical, historical delivered performance over decades and that’s better than 4%. It’s not the 4% that’s amazing. It’s 4% risk free, no volatility. That’s the most amazing part.

So SA plays an important role of stability, zero volatility, dampening the volatility of your returns. You have that SA anyway. There’s a minimum SA you have to have for your retirement RA (Retirement Account), your MA (Medisave Account) and everything. You have that anyway so your OA, you can take risk in financial markets to generate the higher returns.

What it ends up looking like is your OA looks like your equities portion and your SA ends up being your fixed income portion so it becomes a balanced portfolio, no matter what you do. Your CPF is an amazing balanced portfolio with your SA. 

The final decision you need to make is what is your risk appetite? What is your personal needs? Can I take this risk on the OA or am I going to buy a house or I need education, whatever it is? You can just tweak the numbers so that… does it become 60-40 or 70-30 or 80-20 or does it become 50-50 or 40-60? SA is a bigger portion and you have a little bit of equity. That’s the only real asset allocation decision you need to make for your CPF. I know Sheng Shi has a lot to add. 

Sheng Shi: Yeah. 

Reggie: I can feel it, I can feel it. It’s like “I actually don’t agree”. So tell me. 

Sheng Shi: Not really. Maybe just add on one more point. 

Samuel: Say Sam is right first. 

Sheng Shi: Sam is definitely right.

Reggie: Yeah. It’s all part of media. 

Sheng Shi: It’s okay… so what happens is that for Special Account, there is a limit to how much you can transfer from OA to SA.

Samuel: Yes. 

Sheng Shi: So that it’s the existing FR… the prevailing FRS (Full Retirement Sum) rate which is in this year is $186,000. For many of us Singaporeans, we have so much of our money that’s contributed to CPF, right? 37% of our gross salary up to $6,000 goes into CPF. Over a long period of time, most people would have half a million, a million or whatever that is inside their CPF account so there’s a limit to how much of this OA to SA transfer that you can do.

Because of all of these limits… because the government, GIC is not printing money. There’s only so much 4% that they can give out. You know, it’s very… that’s why Loo also have that plan. Maybe you want to get that safety net, financial safety net of 4% first, then later on, you should be looking towards investing your CPF OA because you would have accumulated more money in your CPF OA over a longer period of time. Just to add that point. 

Reggie: You talked a little bit about the whole… Singaporeans have a lot of money in CPF and I think you rightfully point out that it’s 37%. Too many Singaporeans think “we’re only contributing 17%”, but no, your whole income is actually a lot more in CPF. With that idea, we’re not trying to critique whether is this a good policy and whatnot, but with that idea, I think it gives people the clarity and understanding that hey, actually a lot of money is in the CPF. You should spend more effort on it. Don’t just keep looking at whatever that’s remaining in your disposable and all that jazz. I think that is a very good point. 

Samuel: Also Reggie… that’s a good point but also, I think I would add on that you are going to continue to contribute to that. While the balance right now in your 20s and 30s look small, it’s going to only grow so you have to be ready with the strategy when you’re young. Because it’s such an important piece and it’s going to be an even more important piece in the future. So it’s really worth spending the time and the effort to sort this out, figure it out and develop a plan that works for you and is suitable for you because it’s such a big piece in the future.

Reggie: So what is the magic number? A lot of people… it’s always this question, right? There’s always this question and I tell people… never mind, I’ll leave you guys to say it.

Samuel: Reggie, what would you… if you retire at 60 or 65, how much money on a monthly basis do you think you need to live a comfortable life in retirement, thinking that you’re going to be living until maybe 90. Typically, that’s the number. 

Reggie: Wow. 

Samuel: That’s the one number that I think is the most important number. What is your monthly income that you need to sustain a decent quality of life in your retirement in old age? Once you get that number, then you can work everything else out backward. 

Reggie: What is your assumption then? Because I think a lot of people when they plan for retirement or at least a lot of people in the 30s, which is where most of our listeners are, when they talk about retirement or when they work with a financial planner or what have you about retirement, they’re always benchmarking where they are today.

It is like “oh, we’re spending $5,000 a month today and we’ll continue to spend more into the future”. But in my head it’s nah, you cannot have mala everyday when you’re 80. It’s probably gonna look a little bit like that. Your consumption curve is going to come down later in your life. I’m curious… that’s what I think. So educate me.

Sheng Shi: It’s a very individualized… it’s a very personal issue. For example, my parents could be line dancing at a community centre or my parents could be going to do voluntary trips overseas, doing charitable work overseas so the retirement lifestyle is totally different. One could be spending $10,000 a month. One could just be spending $500 a month, going line dancing at the community centre. 

It really differs because some people, they want to have a very drastic change in lifestyle at retirement so I think what Sam talked about, which is to have an understanding of how much money you want to spend at retirement. That’s the first important number that we look at. After that, we need to work backwards to calculate how much wealth we need to have. 

I think one method that… one way of looking at it that a lot of people use is the 4% safe withdrawal rule. For example, if you line dance at a community centre, we spend $500 a month. That will in the end equate to $6,000 a year. If you take that $6,000 a year, which is what you withdraw from your wealth every year, so you take the $6,000 divide by that 4%, you’ll get a number and that number will be basically how much you need to accumulate for your wealth. 

This is a very big assumption because there’s a lot of things built behind the model. It assumes that your retirement span is going to be 30 years. We know that now people are always talking about FIRE. I want to reach financial independence, retire early. I hate my job, I want to quit. 

Reggie: If you hate your job, change your job. 

Samuel: Do something meaningful. 

Sheng Shi: Join Endowus. 

Samuel: Or The Financial Coconut. 

Reggie: That’s a recruitment plug. Saving ourselves $5000 for Linkedin spend. 

Sheng Shi: Exactly… yeah, find a new job. But people want to spend more time doing things that they love at an earlier stage of their life. So that’s one thing, right? You may be retiring. You may be drawing down on your wealth across 40 years or 50 years. That’s one big change in assumption. 

The other change in assumption was that the Trinity study was done in… the simulations that they are doing is between 1920 to 1990. During that period of time, fixed income were returning 3-4% a year. Now, if you look at it, even higher.

Reggie: … for people that don’t know, the Trinity study is the one that backed the 4% draw down research. 

Sheng Shi: Exactly, exactly. So that… doing 4%, 5% a year but now if you look at the fixed income returns… Sam, what is it like? 2- 3% at best?

Samuel: Could be, could be higher depending on where you invest actually within fixed income.

Reggie: It depends on how you play with this. Fixed income is like way more complex. 

Samuel: It’s a such a big market and good investors could generate 3%, 4%, 5%. 

Reggie: Even more, maybe. 

Samuel: If you take less risks, then you’re going to only end up with 2% or less. 

Sheng Shi: Government bonds or corporates, those will be yielding a lot lower. A lot of the assumptions have changed, so when you talk about magic number, what should you do to get better prepared for retirement, I think we need to look at it from a very local context. 

My tip or hack would be that you need to focus on your CPF because you get 4%… as the baseline, you get an annuity product. Even for the existing Enhanced Retirement Sum, you’re getting around $2,000 per month. 

Reggie: Yeah. I think those are strategies. I think strategy, there are a lot of things that are out there and CPF is great and I mean, you guys are building a product on CPF and all that jazz. But I do think for a lot of people, the problem is the model, not the solution. 

How do I envision what retirement is going to be like? Do you have some best practices or how do I decide how much do I really need? Because everybody tells me “oh, it depends on your lifestyle, depends on…” and all that jazz. I get that but how do I model it? 

Samuel: Let me add on, because I think one important... we use the word decumulation earlier. 

Reggie: Yes. 

Samuel: That’s the period post retirement when you’re drawing down on your savings. The period before that is accumulation. Most important contribution to accumulation is your income. Everybody has a different income cycle. If you’re a white collar professional, when you start off in your 20s, then it’s the lowest point in your life in terms of your monthly income, but it keeps rising and rising quite fast. It normally peaks at around your 40s, into your late 40s, into your 40s. During your 40s, it peaks, it comes off, but it comes off maybe 20%, 30% by the time you retire if you keep working, that is. 

But if you’re in the retail business and you’re working at a restaurant or in a service industry, you start from your 20s, it goes up, but it peaks much earlier in your 30s and then it comes down by the time you retire in your 60s, you’re actually earning less than your 20s.

The income cycle, depending on which industry you’re in, which service sector you’re in and how good you are, which level you’re at is going to determine what your future income cycle looks like. That’s the most important piece because it’s income times a percentage that’s going to be your savings. Savings is only going to be… if you’re saving 37% and you’re putting aside another 10%, that’s less than half of your income.

If you’re just living off of your savings in the future and the cost of living is doubled, then you’re going to have a quarter of your money… you’re going to have 25% of your income to live with so it doesn’t make any sense and that’s why you need to invest. That’s why CPF has a return and that return should overcome any kind of cost of living increases and it should be at a level that is a certain level of percentage of your final income. 

At the point of retirement, Sheng Shi was sharing that, maybe it’s about 80% of your income that should be maintained into your future. But these days, actual studies show the level of income remains at 100%. That level of expenditure remains 100% of your retirement point. 

Reggie: Really?

Samuel: Yeah, so people are actually… after they retire, they have more time so they start spending more money and travel, buy new golf sets, go visit their children when they’re not wanted and all of that stuff that you do and go to dance classes and stuff that they wouldn’t have done.

Therefore, they actually spend more so that the only cost that goes down in retirement normally is housing and rent and other… maybe we eat less, but it’s not going to make a difference. But everything else actually stays relatively high or goes up in fact, because of your leisure activities.

As a result, I think there is a… and that’s personal. Some people don’t need to, they start going to nice restaurants in their 40s and 50s and then they start going back to the hawker food centres in your 50s and 60s and retirement. I don’t know, everybody’s different and they go back to mala, but you know, everybody’s different, but I think the income cycle, you need to track. That’s your accumulation. How much goes into CPF, how much you save and then in your decumulation, you need to figure out how much income you really need. Those are the two key determinants because everything else is pretty constant: inflation rates, level of returns and the only thing that you can determine and change is where you invest and how much return you generate.

There, the level of risk you take and the level of return is going to be correlated. You take less risk, you’re going to have less return. You’re going to have less money in the future. If you take a little bit more risk, you have higher returns. You’re going to have more money in the future and that’s it.

Reggie: Yeah, okay. Fair. 

Samuel: Let’s put it simple, Reggie. So it’s just like CPF. 

Reggie: So what I’m hearing is we don’t try to over model the expenses. We just assume some basic things which is if we’re going to retire and you’re going to spend $5,000 a month and we assume that you continue to spend $5,000. Don’t try too hard to model that. 

Sheng Shi: We don’t over engineer it on behalf of other people. 

Reggie: Okay. 

Samuel: And the CPF calculator that’s come out is an amazing tool, but we give flexibility in there so people can plug in different numbers so that they can play around with what the outcome is, and that flexibility in CPF but calculating your future outcome is really important. 

I would say be conservative. If you think you can live on $3,000, think again. Cost of living is going to be higher. You’re going to spend more than you think always and raise it up a little bit more and then work backwards. You’ll probably run out of money faster than you think. That’s the biggest concern.

Reggie: Yeah, and talking about the calculator. I played around with the calculator and all that and I see that there are a few major milestones in the calculator, because if it’s a gradual change, then okay, this is not the interesting part. Because that means the solution is playing out, there’s no big differences. 

But at 55 and 65, in your model, which is also an extension of the country’s policy and CPF, there are big changes in that graph that shows. Could you walk us through a little bit on how should we envision that part, which is the prevailing Minimum Sum and then posts off there and all that jazz?

Sheng Shi: Yeah, exactly. Like you rightly pointed out, the 55 year old, 65 year old, how the calculator plays out is actually based on the CPF policies. At 55 years old, what happens to your CPF account is that the CPF would withdraw… transfer part of your Special Account to the Retirement Account. If you have the Full Retirement Sum already just from Special Account then they wouldn’t transfer from OA. But if you don’t have enough in your SA, they will transfer your OA as well to form the Retirement Account and that will be later on, your CPF Life premium.

What happens is effectively, your CPF withdrawable balance would decrease and of course, there’s a lot of other things that are happening at the same point of time. Your contribution rate from your employers and for yourself it’s lower so you have a bit more money to spend from your salary. Of course, you also have access to the additional 1% interest on the first $30,000 from your government giving out goodies, making sure that you have enough money for retirement. 

So yeah, there’s a quite few things going on over there. We model in everything that’s very complicated about and comprehensive about CPF into the model so that it gives people that assurance that this is a good tool that can use to comprehensively project where their wealth would be. That’s for the 55 year old milestone. 

The 65 year old milestone, what happens is that you will be able to get an annuity payout from CPF Life. We model in the CPF Life standard plan at FRS (Full Retirement Sum), not at the Enhanced Retirement Sum, not at the smaller amount, because that’s what’s most Singaporeans actually… that’s the default option. That’s what most Singaporeans choose to have anyway. So CPF, they don’t project so far ahead with the FRS or the retirement payout, because I think they also understand that when you drag the spreadsheets, Excel models, there’s a lot of assumptions behind it. 

But we take that step and we take the risk and say “you know what? We’ll just make an assumption for you so that you can at least do some planning around it.” So we do that. We make an assumption, the FRS would grow by 3%, the payout will increase by 3%. Again, people can understand that after taking into account inflation and other complicated things, how my retirement life… retirement payout I can get from CPF. Those are the things that we built into the model. Yeah. 

Reggie: Okay, yeah. You want to add something? 

Samuel: No, no, no, just that it is a pretty comprehensive calculator. Many people have created CPF calculators but it hasn’t been comprehensive enough to give you the full picture. This is the first one of its kind. We’re all about financial education and improving literacy. It’s not… we don’t make any money off of it. There’s no like model or that’s… and we’re not selling through it. It’s actually just a calculator for people to just use so that they can better understand where they are and where they’re headed. 

But the other thing is importantly… like the 55, 65 are important milestones because of the policies that have been set in place. But I would like to suggest… okay, everybody’s waiting for 55 to take out all their money. Most of the people who have taken out their money have not done better is the way I would put it. I think CPF is great because you have these safeguards in place and it’s probably the right decision beyond 55, even beyond 65 to keep most of your money in CPF that you’ve accumulated and do better with it.

So you continue to receive those good interest rates on your Retirement Sum, on your OA even. The 2.5%, you can get forever if you keep it in there. Most people think oh, the 2.5% is only for a while and then it disappears, but you can keep it and not only that, you can even like… in the future if Endowus does well and CPF does well and everybody does well, then we’ll have even better options at lower cost, at investing it well too. 

What I’m saying is that CPF investment scheme, it began with SingTel IPO and single stocks and then it opened up to mutual funds (which was really expensive) and then insurance-linked product because then the insurance guys screwed us and took all our money, but… no, I’m just kidding. 

Reggie: It’s all recorded. Controversial but I get it. 

Samuel: I mean not all, but I’m saying is they over sold it, and then the other stuff like single stocks and ETFs and everything. There’s a lot of options and you can do a lot with it and so I would suggest that despite all those things, there is a piece which is an investment piece and you can do much better with it if you just keep it there because the options are only going to improve over time. 

Sheng Shi: Use it as a savings account after 55 or 65…

Samuel: Savings account, investment account, retirement account. You can do all. Yeah. 

Sheng Shi: Yeah. I mean, the money, you just… basically it’s just a PayNow transfer. It’s like a bank account so don’t take out the money, don’t go to Batam or whatever.

Reggie: That’s like all the stereotypes pumped into one. 

Samuel: I know. So bad. Cut this out please. But my point is that 55 is when it’s unlocked. 

Sheng Shi: Unlocked. 

Samuel: It’s not 55, you take out. I think that’s the equation that needs to change. Everybody thinks 55. I can take out. No, 55 is when it’s unlocked. After that, you can take it out at any time that you want. So keep it in there. When you need it, take it out but keep it in there just like any savings account, long-term savings account or any investment account. You don’t suddenly reach 65 and take all your money out in retirement. You’re going to have to continue to invest in your retirement. 

How you invest in your retirement is actually more important than how you invest prior to retirement. Because prior to retirement, you’re going to have monthly savings, income. You’re going to keep adding to it and even if markets fall, you’re going to keep dollar cost averaging for the next 20 years in your 30s or 40s. In your 40s, 65 is 25 years away. That’s a long time to invest, right?

You’re going to have incomes. You’re going to invest monthly throughout that time. How you invested previously… and this is the whole “do we invest lump sum or is it dollar cost averaging?” It doesn’t matter in the long term because at 30 or 40, you still have so much in the future that you’re going to be investing and you’re going to be investing for so much longer. It actually doesn’t make a meaningful difference over time. 

But the lump sum always wins over the long term versus dollar cost averaging because you’re getting in earlier in the market and markets tend to do well. So that’s really important to understand. Because you have such a long runway, you need to continue to invest well in your retirement because when you retire at 65 and you live to 90, that’s another 25 years. That’s a long time. 

Reggie: I don’t know. Can I live at 90? I’m like, what was I going to do? 

Samuel: The average life expectancy in Singapore is already 84, but more importantly, that’s at birth, right? If you reach 65 and if you’re talking about CPF, you’re expected to live to 65. But at 65, the life expectancy extends by more than two years so you are actually living to 88 now if you are 65 this year. But if we get to 65, we’ll definitely be beyond 90. We may even be heading to 100. That is only extending so it’s a long time, guys. 

Seriously, we really need to think this through. Prepare for your retirement well and I love that 20 and 30 year olds are really thinking about retirement much more. These kinds of YouGov surveys that we’ve done, more education on CPF… all of this is so important because it’s going to really determine the future of Singapore, the shape of society in the future. It really is the most critically important thing. 

Reggie: But all that being said, the CPF IS is still very complicated at this point in time and now with more options, they’re not… So it’s this thing between do we want to just centralize everything and just give everybody these few solutions, or do we want to continue to open up options? CPF IS, the investment scheme is still going down the path of opening more options and you guys are one of the options. They’re not eliminating the other stuff. Essentially, that’s kinda what’s happening with the investment scheme of CPF IS. 

What are your thoughts then in terms of putting money with all these different products and what is your solution? 

Samuel: CPF Investment Scheme was created to allow people flexibility. It wasn’t a grand design from the beginning. I think it evolved… 

Reggie: It’s a patchwork. 

Samuel: It was a patchwork and the CPF admits that and it was great because if you got in at SingTel or Singpost IPO, then it did well for you. It was an opportunity for the average Singaporean to start investing, invest in public nationalizations and IPOs and get goingand it’s great. 

But I think that many things have evolved since then. When it opened up, I think many financial institutions took advantage of it and instead of being a low cost kind of solution to prepare for retirement, it became many things, a quick fire solution to get rich quick. I think when you enter investing with that mindset, you’re always going to fail.

Sheng Shi: Samuel, do you want to share about the insane charges that were charged previously? 

Samuel: Yeah. When we took this, when we came into CPF, we really looked at the system and how we can improve the investment scheme. There were many things that we could improve on. First of all, the experience. Creating an account just took two weeks or more, like forever. You had to go to a physical bank and all those things. So we had to move to the digital age and make this whole shift from offline to online. Now at Endowus, which is the first and only digital advisor for CPF, you can get on board and open an account and get going within minutes. That’s a massive change. The experience and the barrier to start investing has been lowered. 

The second thing is that the cost of investing. It was as high as like 6 to 8% is what we calculated and now it’s down. CPF board has done a fantastic job, lowering the sales charge… of front sales charge and the annual charges on the funds because they were charging higher than what they were selling in a bank or a broker. So CPF did the right thing, which is lower the cap… continued to lower the cap and now I think is much more reasonable. It’s still high, but it’s at least reasonable, right?

Sheng Shi: They started with 3% sales charges.

Samuel: The cap was 2.5% on the fund every year, which is… that’s 5.5% right there and then if you package it into an insurance-linked product, they used to charge like 8 to 10% upfront. It was just ridiculous because if you’re starting with a -10%, to dig yourself out of that hole is really tough. That’s why insurance modeling products, especially sold through CPF over 10 years during the the biggest bull market is generating like 1% or something. Really stupid. It just really pains me whenever I see that. They were kind of duped into buying it because they said “oh, we have great insurance coverage and you get returns.” 

Reggie: Oh I hate… sorry. 

Samuel: No, I hate it. Really, I do. You might not be able to say it but I can say it. I really hate it because you get neither. You don’t get the coverage. Singaporeans buy the most insurance in the world per capita. Definitely in Asia, for sure, and they’re, under-covered in insurance. How is that possible? And they get crappy returns, which is… yeah. Anyway, so all these things needed to be changed. Access to better products, don’t punt on like stupid stocks, like short term speculation. 

Sheng Shi: Hyflux, for example. 

Reggie: Hyflux is a whole different discussion. Perpetual bonds are not the same as other investment grade bonds. It’s complicated.

Samuel: You could have bought equities as well, but anyway. That’s a whole different discussion. Exposing yourself to risk, that is unnecessary… buying products that are unsuitable and then exposing yourself to cost that you’re never going to get out of. Those are the reasons why the 2.5%, those guys underperform. 

If you do it right, if you have a globally diversified portfolio that balances risks and returns, if you approach it with a low cost solution below 1% all in… I don’t know who does that, but there’s guys who can do 1% less. 

Reggie: I thought you guys are doing that.

Samuel: Oh do we? Are we the only ones? 

Reggie: Yes, you are the only ones.

Samuel: We can lower it from 5% to 1% guys. Come on, that’s… you know, and we’ll keep lowering it because it’s possible. It’s possible to lower it and generate good returns for customers and still do well as a business because being digital makes it possible to do a low cost solution for a much bigger audience. That’s the key and that’s what CPF is really excited about and that’s what CPF actually wants to do. 

Now, CPF can do this themselves but it’s difficult because there’s political issues, there’s systemic issues, there’s regulatory issues. CPF can’t give advice. That’s not why it was set up. It was to manage the pool of assets well. It’s up to the private sector to do well and it’s unfortunate that no one had done it before, because if we had started 10 years ago, 20 years ago, we would have had a fantastic run of returns for CPF members and that would have set them up for success in the future. That return would have set them up so that they can take less risk in the future. All of these are all valid but you really need to think about what CPF Investment Scheme is and how important it is to achieve that long-term outcome and fit that into your CPF strategy. 

Reggie: So I get the whole part about solving the experience because it really suck… waiting for time to set up their account and all that jazz. I also get the part about low cost because essentially, dude, come on. 

Samuel: It’s an easy win. 

Reggie: Easy win. Just bring down the cost, you have a bigger profit return. But what is the composites if I invest with you? Because it’s very different if I’m just building a portfolio absent of SA. None of that 4% risk free and that’s a very different way to build a portfolio. But if I’m investing CPF money with you guys, how are you guys going to build my portfolio knowing that a portion of the money will be with SA?

Samuel: We actually actively say don’t invest your SA because if you want to beat 4%, the only way to do it is to have a high equity exposure with 100% equity fund, which is not allowed by the CPF. Therefore, the options are limited. OA options are better, still limited versus cash investing. There’s only less than a hundred funds available within CPF. Only 35% can be allocated to stocks etc. So there’s limitations within CPF IS. 

It’s really important to understand what’s available, how to build a great portfolio that works for you in the long term and so we say, leave your SA. That’s fine. That’s your bond portion, as I said earlier. So how do you build this well? 

We had to work with the CPF board and our partner fund management companies to bring in products that were previously not available. For example, passive index funds. Really sad, but it wasn’t available when we launched our service. 

Reggie: Really? 

Samuel: Yeah, there’s none available, no passive index funds. So we worked with Vanguard, which is the largest in the world in doing passive index investing and LionGlobal, a local partner to convert them into a Sing dollar denominated local passive index fund. For example, the S&P 500 or the Global Equity Index, and we brought that into CPF. 

But what Endowus does uniquely is we give 100% trailer fee rebates. All of these funds that are sold in Singapore has a portion of their fees that you, the customer pays and that is given to the distributor. Even guys like… obviously DBS and private banks and everybody gets paid this for distributing funds, but even guys like iFAST, Fundsupermart or dollarDEX or POEMs, the guys who are supposed to be low cost and no sales charge, it’s actually taking a huge back commission for selling a single fund. That’s why retail funds are so expensive. 

So we removed that by accessing institutional funds or we give 100% trailer fee rebates which is giving back that portion and that’s significant. But because we’re the only ones that do that, the passive index funds that should be available to everybody… and we brought it into CPF so that everybody can invest is only unfortunately, exclusively available on the Endowus platform. Not because we wanted it, but because we’re the only ones rebating the trailer fees, which is… yeah. 

It’s good for us as a business. We’re okay with it. We’re happy as a business, but as an individual, who’s trying to make really meaningful changes in the industry and the CPF system so people can actually succeed, from that angle, it’s actually really sad and disappointing that other guys are not making this available because they cannot make money off of it even though it’s the best product for the customer. 

So we build a portfolio based on these two passive index funds and other funds that are available. We try to build a globally diversified portfolio so it matches a passive long-term index strategy that’s very closely tracking the benchmark. We don’t make any tactical choices… “oh, China’s struggling. We should sell down China” or “we should buy gold” or all this stuff that some robos do. We basically are not tactical but strategic, passive asset allocators. We make it globally passive, globally diversified in terms of geography, globally diversified in terms of the sector so you get exposed to the broad market so that you can generate the long term returns that broad market indexes will return for you without taking exceptional risk. 

Sheng Shi: Yeah, I think Reggie, just now you were asking the CPF IS opening up, but if you look at the past two years, since we have launched, there isn’t any real competitors or alternative to Endowus and that’s the state we are at. It’s really just shows how groundbreaking our work is actually, right? Because this is not terribly… 

Samuel: Rocket science. 

Sheng Shi: It’s not rocket science. It’s very intuitive. 

Samuel: We’ve made the effort to actually make the effort to solve the problem. 

Reggie: “CPF? CPF?” Your advertisement, I was like “that guy ah, act blur ah”. Whoever that guy is, shout out to you for being on the ad. But anyway, I just want to put it out there to the listeners that we did approach you guys to sponsor the series. It’s not the other way around. It’s not like you guys come to us and you have a product that you want to funnel, right?

I think this is very important because why? I didn’t want to talk about CPF for a very long time because it’s very political, it’s too complex and wherever position you take, you get all sorts of angles and whatnot. But I think our platform has grown to a point where we need to talk about social policy. We need to talk about it. And then I went to do the study and the research and I was like “oh, you guys are the only one.” 

Samuel: Unfortunately, it’s not like we want to be the only ones. We hope that other guys will join us. But the other thing is whether you like Loo and 1M65 or not, he has this great line when he does his talks. He says “you don’t have to like the government. If the government wants to give you money, would you take it or not? You take it, right?” 

So the CPF system is not about politics, it’s not about whether you like the PAP or not, it’s not about whether the CPF is good or not. It’s not about anything like that. It’s about what can you do with what you have and everybody has CPF. So for your sake, can you do more with CPF? That’s what this is about. 

So we are sponsoring it because we spend money on financial education and literacy, not because we’re selling our product, but because… we are selling our product a little bit but… I’m being honest and transparent. We’re all about transparency. So yeah, we are selling our product, but because it’s good and we have confidence in what we do, but most importantly, we want more people to know the options and you don’t have to go with us. You can go with other options, but we just think that people can do so much more with CPF.

Reggie: Yup, for sure. That’s why I wanted to say that we reached out because we were like “what are the solutions out there?” It’s just very simple stuff based on low cost, broadly diversified, dah, dah, dah. And I was like “oh, there’s only one provider at this point in time.” Going forward, I think everybody hope that there’ll be more providers and different stuff. 

Just to clarify, broadly diversified, it’s mostly in the US, right? US equity, more broadly diversified, S&P 500 index. You’re trying to copy that part. 

Samuel: We have everything. We have developed markets. We have emerging markets. We have US, but all the other markets. So when we say broadly diversified, benchmark agnostic is the official… benchmark tracking. Sorry, not agnostic. Benchmark tracking, we mean that we’re tracking the most commonly used broad market index, which is the MSCI All Country World Index.

We have a similar set-up as that index in terms of the geographic set-up and the sectorial set-up. The US is the biggest market in the world whichever index you use, so we track it from that perspective. It’s not like we’re making an active bet that we want to be over with US. It’s just that the global stock market has a lot of US. That’s because US has great companies that… you know, using stuff like Apple iPhones and we’re watching Netflix and it’s all… Amazon. Basically, they have… 

Reggie: The whole set up is from the US. 

Samuel: You know, we are exposing like… Singaporeans use US products and companies and that’s where we’re exposing ourselves to the best companies in the world. 

Reggie: I just want you to put it out there. What are some of the interesting features that are coming out? What are your plans? What’s the future? So do your sell. Yeah, this is your moment. 

Samuel: As I said, we’re not here to sell, but since you gave us the opportunity, I will take the opportunity. 

Reggie: Do it, do it. 

Samuel: I mean, Endowus is not just the robo-advisor. It’s the first thing I would say. There’s a lot of robos out there and we get compared to it. But what we want to be is a total wealth platform where you can manage all of your money and that’s why CPF is such an important component because it’s such a big piece of Singaporean asset, right?

And so, being the first and only to do CPF, we can actually do CPF cash savings and SRS (Supplementary Retirement Scheme) all of your money that’s available here in Singapore. And don’t get us wrong, CPF is important, but it’s not all of our business. So people think that Endowus only does CPF, but it’s not. 

Actually, our cash savings and our investment part, cash is actually much bigger than CPF which is bigger than SRS. What we have coming is we launched the CPF calculator. We just excitingly lowered the cost for buying a single fund on the Endowus platform. We got some concerns and questions about why am I buying a single fund on the Endowus Fund Smart platform and paying an access fee for it.

Reggie: Great, cool stuff. Thank you. 

Samuel: Thanks Reggie! Great to be here man.

Reggie: Hey, I hope you learnt something useful today and truly appreciate that you took time out to better your life with The Financial Coconut. Knowledge is that much more powerful and interesting when shared, debated and discussed. Join our community Telegram group. Sign up for our weekly newsletter. Follow us on our socials. Everything is in the description below.

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Okay. So since Sam has already answered these questions before in the last interview, I’m just going to ask you some questions that we ask every single guest that comes on the show. The first thing is what is a core life principle that you hold closely to? 

Sheng Shi: I think for me, the thing that I modeled my life around, the saying, the quote or the thing that I model my life around is you either be the disruptor or you get disrupted. So I think for many of us, when we are brought up in a family, which the golden generation of Singaporeans… they have a very stable income. The whole spew around buying a property, growing your investment through property and retiring through rental income. I think that is something that is going to be challenged. How we assume our salary is going to safely increase across the years is going to be challenged.

So to me, I feel that we need to… I always try to make sure that I’m learning something new. I am also understanding what other countries, what other people are doing so that I have that sense of knowing, learning something. Getting disrupted, joining a startup is something very exciting for me. Previously, I was doing real estate private equity. Now, I’m doing content marketing so it’s very interesting.

Reggie: Nice, good stuff. I think there are a lot of advice out there in personal finance. So what is one that you feel needs to be further propagated? All the low cost, all a lot of people say already. What is something that you think should be further propagated? 

Sheng Shi: I think personal finance should be very personal. 

Reggie: Tell me more. 

Sheng Shi: Yeah it’s a no shit Sherlock kind of comment, but I feel that when we read content out there, what happens is that it’s actually shared from someone’s perspective and if you were to look at the financial blogging space, 99% of them are huge savers. 90% of them I would say are fairly well paid and because of that, the kind of recommendations or the kind of strategies they put out there is very skewed towards a very specific group of the population.

I think when we look at how people… all these different CPF hacks, OA to SA transfers, don’t use CPF on your housing, never touch your CPF. Those kind of comments are really… strategies are really shred from an angle of someone who is a bit more privileged in terms of their personal finances.

I think, before we read any content, we have to be very self-aware. We need to know where we stand in terms of finances and then when we read some of these more skewed perspectives, we will be very aware that maybe this is just one side of the story. Should I go and look out for other perspectives? Should I look out something that’s more relevant for me and where I am in the stage of my life? So keep personal finance personal. Rather than just consuming content out there, also be very careful about keeping stock of where you are in terms of your finances.

Reggie: Nice. Which part of your life are you giving additional focus on now? 

Sheng Shi: Family, definitely. There’s nothing stronger than family. 

Reggie: Wah you got a lot of tag lines. 

Sheng Shi: Famous man called Vin Diesel said that. During COVID, we realized that family ties, family support is so important. We are going through very hard times especially for many of us working out there. We realize that work gets tougher, we don’t have as much social interaction. We don’t get to travel and have some time off. So being able to chill out with family, get the emotional support. Even though work is really tough, I think that’s really important. 

Reggie: Okay, cool. Thank you. 

Sheng Shi: Thank you.