Planning for retirement starts from the day you start working. The Special Account is specifically a saving for your retirement. Approaching the age of 55, you wonder how the CPF retirement account will provide for all your needs post-retirement. At this age of 55, A Retirement Account is created by using the savings from the specific Special Account which is followed by the Ordinary Account. This forms the retirement sum. This sum provides you an income on a monthly basis for all your needs. Under the CPF LIFE (CPF Lifelong Income for the Elderly) you are able to receive payouts on a monthly basis for your lifetime. This is a life annuity scheme.
The Working of the CPF:
CPF supports your retirement in the following ways.
*During the working life the CPF contributions are accumulated.
*The interest earned on the CPF savings is free of any risks and higher as compared to the banks. You also earn interest on the interest, which means, compound interest which helps your savings grow fast.
*At the age of 55, savings from the Special Account and Ordinary Account are transferred to the Retirement Account. After setting aside the FRS (Full Retirement Sum) you can plan on withdrawing the rest.
*If you are born anytime after 1958 or even in the year 1958, and have a sum of $60,000 in the account 6 months before the PEA, you are included in CPF LIFE automatically.
*From the PEA you can choose to receive the payouts on a monthly basis for a life time from the CPF LIFE.
Tips on CPF Savings:
As mentioned, you can withdraw from the CPF savings only at the age of 55. It is advisable to consider specific tips to ensure you can maximize these savings and enjoy the many benefits after you retire. The CPF retirement account interest and the savings can help you lead a comfortable life once you retire.
Transfer to Special Account from the Ordinary Account:
The CPF Special account pays you an interest of 4% annually, while the CPF Ordinary account pays only 2.5% annually. Understanding this positive you can transfer the savings from the Ordinary account to the Special account. The additional 1.5% of the interest can make a whole lot of difference compounded over a period of time.
This works well only if you have not planned on major expense for the future, like buying a home or planning a wedding. This is because once the money is transferred to the Special Account you cannot transfer it back to the Ordinary Account. In short, your money is blocked till you retire.
Hence it is more advisable to invest using your CPF-Ordinary account to earn above the 2.5%p.a before you lock your money up in the CPF-Special account. With a fairly decent return and investing through us with the right strategy(See below), you can get an annualized return of 7.25%p.a(since 23rd September 2015 till 31st August 2019) for CPF-Ordinary account portfolio investing. (After factoring an upfront fee of 3%)
Even CPF-Special account can be used for investment(see below), as reflected, you can receive annualized return of 6.07%p.a (After factoring an upfront fee of 3%) Note that this upfront fee has been reduced to 1.5%(max capped) since 1st October 2018 and subsequently reduce to 0% from 1st October 2020 onwards. Source
Feel free to message us below if you are open to looking at investing through your CPF-Ordinary Account or CPF-Special Account. Here’s a source from straits times citing that CPF Investment Scheme funds deliver 7.82% returns for Q1. Source
Pay Cash for Mortgage:
It is advisable to pay your monthly mortgage using cash instead of using the funds of the CPF Ordinary account(OA) for this. The down payment can be made using the savings from the OA. You need to ensure that the funds in the OA are only used for emergencies. These funds can compound at 2.5% interest and buffer the funds of retirement.
Topping up the Special Account:
If you have been unable to reach the goal of the Full Retirement Sum and do not wish to transfer the money from the Ordinary Account you have the choice of voluntary top-up of cash. With this top-up, you are benefitted with the tax relief.
It is advisable to add the top-up in the beginning of a given year. This leads an additional benefit of CPF retirement account interest over a period of 10 years.
If you intend going for the voluntary top-up to the SA, it is advisable to contribute to the MA (Medisave Account) first. This Medisave earns the same 4% interest annually but offers you the freedom to use these funds for hospitalization and medical expenses.
Though maximizing the CPF retirement account is beneficial in the long run. It is important to take the current financial situation into view before making any decisions.
Different CPF LIFE Plans:
There are three types of CPF LIFE Plans, The Standard Plan, The Basic Plan and The Escalating Plan.
- With the Standard Plan you receive a higher payout on a monthly basis which can maximize the CPF LIFE Contributions.
- With the Basic Plan you receive a lower payout on a monthly basis, leaving a huge part to the family when you pass off.
- With the Escalating Plan, You start off with a low amount which then increases by 2% on a yearly basis. This can tackle inflation and also cater to the lifestyle changes.
The CPF Retirement Sum:
The amount received as monthly payouts post retirement depends on which Retirement Sum you are able to meet. For those reaching the age of 55 in 2018 you can get the following amount depending on the Retirement Sum.
Basic retirement Sum is $85,000, the payout on a monthly basis works out to $720 to $770
Full retirement Sum is $171,000, the monthly payout works out to $1,320 to $1,410
Enhanced Retirement Sum is $256,500, the monthly payout works out to 1,910 to $2,060.
Withdrawal of funds till the Basic Retirement Sum is in the account, you need to own a property and place a pledge on the property.
In case you have funds which exceed the Enhanced retirement Sum at the age of 55, you can choose the Retirement Sum you want these funds in.
Benefits of CPF Retirement Accounts:
The Public Housing Scheme (PHS) enables the members of the CPF to use the Ordinary Account of the CPF to buy flats from the Housing and Development Board (HDB).The Private Medical Insurance scheme allows the members of the CPF to make use of the Medisave savings to buy the Integrated Shield Plans for not only themselves, but also for their dependents.
With the CPF nomination you can specify who will receive the CPF savings and the amount each of the nominees should receive in case of your demise.
Understanding the CPF Retirement account is important before you plan on this.