• Erdem Ong

The ONLY CareShield Life upgrade article you'll ever need

Updated: Jul 21

How it all started

In my recent experience, Medisave balances people otherwise weren’t aware of are suddenly a point of contention when it comes to disability protection coverage.

Usually it's a simple 4-step process that begins like this:

  1. Hear about CareShield Life upgrade

  2. Decide to buy CareShield Life upgrade

  3. Oh wait hold up. Turns out I've got tens of thousands of dollars inside my Medisave Account. What if I don't spend this additional S$600 every year from my Medisave on this upgrade and instead let it compound, because afterall it's still money

  4. Yeah you know what, let's not get disability income insurance. YOLO.

And that’s only fair too. Afterall, if you stumbled upon a large lump sum of money in the tens of thousands, you’d probably spend some time discussing with your closest confidants how to best go about spending it wisely (I hope).

That also happens to be the reason why I have a job.

Alternatively, if your first thought is to throw the raddest party ever, please do send me an invite.

Moving on, here we have a screenshot, proudly delivered by the powers of Cmd + Shift + 4 on my Macbook:

This right here, is the maximum amount of Medisave balance you can hold as of 2021. As you can clearly witness with the powers of your observation, this amount has been increasing every year. Because the government loves us.

So how does this external entity’s love affect us financially?

Read on for the full breakdown.

Being able to max out your Medisave is an illusion

As David Deida wrote in his book, The Way of the Superior Man, one should never hope for a sense of completion in their life, because there will never be one.

“Most men make the error of thinking that one day it will be done. They think, ‘If I can work enough, then one day I could rest.’ Or, ‘One day my woman will understand something and then she will stop complaining.’ Or, ‘I’m only doing this now so that one day I can do what I really want with my life.’ The masculine error is to think that eventually things will be different in some fundamental way. They won’t. It never ends. As long as life continues, the creative challenge is to tussle, play, and make love with the present moment while giving your unique gift.”

There will always be something, or should I say, ALOT of things, left unfinished when we pass on.

Unsurprisingly, the same applies to your Medisave account balance.

Assuming you are currently 30 years old with the 2021 Medisave cap of S$63,000, and this cap continues to increase by S$3,000 every year till you are 65…

Arguably, there’s a decent chance you are looking at a maximum Medisave cap of S$168,000 by the time you turn 65!

And it’s not that the government has nothing better to do, because if anything, being able to turn a fishing village into the socio-economic hub of South-east Asia has demonstrated their sheer pragmatic capability.

The reason the Medisave cap increases every year is to account for inflation, especially medical inflation, which is significantly higher than core inflation in Singapore.

Core inflation has remained at an average of 1.9% the past 20 years from 1981 to 2010, and still hovers around that figure to this day. In 2020 before Co-Vid pulled a surprise party on us, it was at 1.7%

Medical inflation, on the other hand, has been growing at a whopping rate of 15%. That’s literally means that medical expenses are increasing 5-6x faster than everything else! Pretty insane if you think about it.

So if you are pontificating, wondering, confused or lost, about whether or not you should spend that extra wad of cash from your Medisave on the CareShield upgrade, worry no longer.

What it comes down to

The main argument against spending Medisave to upgrade your CareShield Life is only really this:

I want to max out my Medisave balance so that the excess flows into my Special Account, which will grow at a 4% rate and therefore help me get to my Full Retirement Sum (FRS) faster so I can withdraw the excess – a nice juicy lump sum from the murky prison known as CPF at Age 55.

However, as I have clearly demonstrated above, there is practically no hope of the contemplative 30 year old hitting their Medisave cap except for a couple of highly unusual circumstances:

1. You neglected to purchase a shield plan till you are about 40-50 years old and accrued a whole bunch of extra cha-ching in your Medisave, of which the risks of going uninsured for that long cannot be understated

2. Our government decides to increase the maximum yearly Medisave contribution limit to an obscenely high amount and you, for whatever reason, decide to dump in a whole bunch of cash to max it out.

(Currently the yearly contributable limit for 35 year olds and under stands at $5,760 annually as seen on the IRAS website )

And even then, you need to consider if it is even worth it to NOT spend money on a relatively affordable insurance upgrade because of the opportunity cost – the risk that you might become permanently disabled – because life happens.

Think about it – the only reason anyone would want to save that money is so that they can have more money in the future. That future, if you are a 30 year old, lies 25 years away, and there isn’t a lot of evidence to support that saving money is the way to get rich.

In fact, the corollary is true – nobody gets rich by saving money. People get rich with 2 simple steps:

  1. Increase your income

  2. Use increased income to create multiple income streams

And I'm not sure if it's just me, but as far as I can tell, "Saving money" isn't any one of the above 2 steps.

Let's time travel...

For argument’s sake, however, let’s assume that you start off your working life in our highly competitive Singaporean society with highly ideal circumstances.

Forget everything you are and all your experiences up to this point.

By the powers vested in you by your rich, vivid imagination...

You are now a 24-year old guy earning S$60k/year gross right off the bat as a software engineer at Grab because you graduated with first-class honors, have had numerous software engineering achievements during your university years and networked effectively and successfully.

Assuming everything goes smoothly, you’d have S$63k in your Medisave Account (CPF-MA) in 11 years time, thereby maxing it out (assuming you get no pay increments & nothing goes wrong)

Here is how I got the above duration of 11 years:

So basically, you just take 8% multiplied by your gross income of S$6,000 = S$480 monthly contribution to your Medisave Account (MA)

Every year, you would be contributing S$480 x 12 = S$5,760

(S$63,000 / S$5,760) = 10.9375 years

Bear in mind that this assumes you did not:

- Get any Shield Plans whatsoever

- Did not use your MA to buy Shield Plans for loved ones

- Spend your medisave on hospital bills for loved ones that don’t have insurance because they are uninsurable

- Get married and bought a HDB flat using your CPF-OA cha-ching for down-payment

- Blah blah blah, blah blah blah, the list goes on. You get the idea.

That being said, let’s get into the opportunity cost:

This plan provides your everyday 30 year old, non-smoker male in Singapore an upgrade of an additional $1900/monthto the base coverage of $600/month for the rest of their life in the event of disability.

That puts the yearly income payouts in the event of a claim to be S$2500/month, or S$30,000/year for the rest of your life.

Typically, if you're claiming for a plan like this, you can imagine yourself in your 70s-80s, with your CPF payouts on its last legs, and you crapping in a diaper.

Not pretty, but that's just how it be sometimes.

So that being said, it would be nice to have an additional $2500/month, or $30,000/year as an income stream to support yourself in making that future less… crappy.

But despite that, let's explore a scenario where you decide AGAINST getting such a plan

Let’s assume you don’t purchase this plan and your CPF-MA is maxed out at $63,000.

What then happens is this money spills over into your Special Account instead and grows at a 4% rate every year.

You’re really only looking at $25k extra by the time you are 55 years of age and reach your first point of liquidity for your CPF-SA, where you can withdraw anything in excess of the Full Retirement Sum (FRS)

For more information about points of liquidity, here’s an article by big daddy CPF

(I may or may not release an article on it in the future condensing the information, but for now, because it still remains one of the driest topics in the universe, I shall avoid dying of thirst in the process of writing an article on it. It will come though. Trust. Have faith.)

But let’s also assume you don’t withdraw it at 55 and let it compound till say… 80, where the reality of permanent disability sometimes hits people quite... literally.

You get 95k by the end of that duration assuming you save on it till 80 years of age.

On top of that, you also are disabled and crapping in your diaper for the last 5 years of your life.

If only there was a plan that would have paid you 30k/year for the duration you are disabled… Oh wait.

Let’s say you end up claiming for the last 5 years of your life, from 80-85, because 85 years old is the average maximum lifespan for Singaporeans.

That would have been 30k x 5 = 150k

You, my dear reader, would have literally made back that money either way.

Except at 85, money doesn't mean anything anymore.

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