Carpe Diem wrote:sundaymorningstaple wrote:Oh yeah, Wham, as the average westerner (engineer or better) makes between 6 - 9K USD/year. Let's relook at the percentages.
Lets us 7K USD x 1.60 = $11,200. (Employer will not pay CPF contributions so his portion which you end up paying is $585/mo (Total is $1485/mo CPF).
We'll just use 1500/mo CPF contributions for round numbers.
Now, instead of 33% of your income it is now 1500/11,200 = 13.4% of your income. It makes the total withholdings a bit better and has you automatically saving almost 18K/year as a good interest rate.
Can you please elaborate more? I find your calculations not clear.
(thinking about PR too, after 4 years on EP
)
Sorry CD,
This ole farmboy was using ears of corn strewn about the house trying to do the calculations......will try again.
Will modify somewhat.
Data:
1. Basic salary = USD $7000/month
2. Approximate current exchange rate = SG 1.60:US 1.00
3. Bonus = 3 month salary (max allowed for contributions to CPF)
Facts:
1. CPF Contributions are based on a maximum salary cap of 4,500/month
2. Contribution rate third year onwards = 13% Employers & 20% Employees contribution based on salary cap of $4,500/month. (1st year is 5% Employee & 4% Employer; 2nd years is I believe 9% Employee & 7% Employer) This is to allow a new PR to get used to it easier instead of a massive jump in the first year.
Calculations:
Income: US $7,000 x 1.60 + SG 11,200/month.
CPF Contribution (by Employee) = 11,200 (subject to cap) = 4,500 x 20% = 900.00/mo
CPF Contribution (by Employer) = 11,200 (subject to cap) = 4,500 x 13% = 585.00/mo.
CPF Total for the month (both parties) = 1485.00/mo
Senario:
Assume that your employer is already locked into a 401K plan (as in Wham's case - using the same example here) or other pension scheme possibly linked to the home office/country due to being a MNC.
If, due to the above case, you employer doesn't want to contribute to the CPF when you become a PR, they may tell you that you can pay their share out of your salary (accounting headache - but not your problem as long as they go with it).
Conclusions:
Instead of your contribution rate being a maximum of 20% or 33% in this case, it effectively become only $1485/11,200 or 13.25% of your salary (if the employer pays their share then it is effectively only 8%. (4,500 x 20% = 900.00) 900/11,200 = 8%.
The higher your income is the smaller the effective percentage is due to the salary cap for contributions. The cap has been reduced over the past 4 or 5 years from 6,000/mo.
As you also get the salary cap on your bonus separately it is effectively 15 months x 1485 = or a savings of $22,275 per year of which the minimum interest rate is 2.61% up to 4%.
Additionally, the amount of "your" contributions (the 20% amount) is also deductible from you income tax as an "income" deduction (as opposed to a "tax" deduction). It is also Tax Free upon withdrawal whether due to reaching 55 or giving up your PR to return to your country of origin. Depending on your actual income this can be nice as well as there are so few tax deductions here for personal income tax (rates damn low to begin with
)
Now, got to get the broom out and clean up all the corn all over the house a'fore the missus comes home!
) 4.5K/mo is maximum contribution amount. 4.5K x 12 = 17,820 year x 10 years = 178,200 plus interest. Seems a pity not to be able to invest it somewhere else for a higher return (albiet riskier - the apples & oranges I was talking about in my earlier post). So people baulk at that though. The normal argument I hear on these forums is "we could get higher returns investing elsewhere". My answer to that is "Sure you can!" Providing which you have a lot of experience in investment instruments and the time to babysit those investments. (Don't forget, we're working stiffs and not retired punters). And frankly speaking, the professionals haven't got the most impressive track records over the past 8 years either. How is average Joe supposed to do it? Anyway, that's why I try to keep it as apples with apples.
