Thursday, September 18, 2014

Not irrational to withdraw CPF funds at 55

The Straits Times published a piece by NUS economists entitled "Puzzling Behaviour of Singaporeans at 55" as part of their monthly "Ask NUS" series. 

The gist of the piece is that it is irrational for people to withdraw their CPF funds at age 55, because there is no alternative in the market that earns the same or higher interest rate.

Withdrawing one’s CPF funds is not as irrational as it may seem. 

Analysing an investment is fundamentally about risk versus reward. I made the decision to withdraw my CPF funds for the simple reason that the risk is too high to leave them with CPF. 

I am not concerned about the financial stability of the government or the Fund itself, but I am concerned about the constant changes to the rules governing CPF.  What started out as a simple and effective provident fund has become an overly complicated vehicle for whatever social policy is the hot topic of the day. 

I cannot treat as risk free the possibility that the Ordinary Account minimum sum, the Medisave account, the Retirement account, or any other account is going to be subjected to new minimum balances or restrictions on withdrawal. 

Unlike my deposits with a bank which are governed by contract and law, a government can, and has, done whatever it wants with the CPF rules. 

Fundamentally, this is my money – I have worked long and hard to ensure that I have sufficient funds to support my family, and I cannot risk that some new rule change is going to affect my ability to access those funds when I choose to use them. 

My rational decision is to avoid the risk and forgo some immediate income in order to gain control over my funds.

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