What to do with your CPF money before & after you turn 55?

For many Singaporeans alike, turning 55 years old can be an important milestone as it also marks the CPF retirement age when we can finally withdraw our hard–earned CPF monies and do something about it – be it paying off loans or simply investing in it. There is also the option of not withdrawing and continuing to earn attractive, risk–free interest, which was what 40 per cent of CPF members¹ did, according to a CPF Survey.

What about those who have yet to turn 55? Consider growing your CPF account with the CPF Investment Scheme (CPFIS). Just in Q1 2019 alone, funds under the CPFIS delivered positive returns of 7.82% on average¹, with average returns from CPFIS–included unit trusts rose by 8.48%², as reported by fund research firm Lipper.

With the many benefits and possibilities to be enjoyed with our CPF monies, it is time to pay more attention to what you can do with it (if you haven't). We give a lowdown on the top 3 smart hacks to consider for your CPF funds before and after you turn 55.

Before you turn 55

• 1. Top up your CPF Special Account (SA) for risk-free interest

  For a start, you should top up your CPFSA as early as you can. Why? To enjoy the risk-free interest that comes with it.

  CPF savings in your Ordinary Account (OA) earn guaranteed interest of 2.5% a year, while savings in your Special Account and Medisave Account earn 4% annually¹. You'll also earn an additional 1% interest on the first $60,0003 of your combined CPF balances (with up to $20,000 from the OA).

  What's more, you can get tax relief on up to $7,000 of cash top-ups³ to your CPFSA each year while the money you put in will also earn you interest of up to 5% per year³. So the earlier you start, the better, as interest is compounded annually. And start with any amount that you find is manageable for you, even if it means starting small. This is also good in helping you start building your CPF savings so that you have more income when you retire in future.

• 2. Top-up your CPF in January instead of December

  If you don't already know this, time to stop procrastinating and set a calendar reminder to do your CPF top–up in January every year to earn higher interest. It can even be a new year resolution to start the year right! If you top up every year in January instead of December, you could earn around 20% more interest³ on your CPF savings in just 10 years. See the illustration below for a gauge.

  
  (Image source: Moneysense)

• 3. Invest with your CPF

  The next obvious thing you can do to help grow your CPF funds, is to simply invest it! You can invest just part of it and not all of it. As with all investments, there is always a risk of loss and you should only do it if you have done the research and have the risk appetite for it.

  You can do that as early as you turn 18 years old with your CPFOA⁴ (at least minimum of $20,000 balance) and CPFSA⁴ (at least minimum of $40,000 balance) monies. Most important thing to note is that any returns you get from CPFIS will go back to your CPF accounts so you should invest with the future in mind.

  And given that the interest rates you earn are higher on the SA (4% annually) as compared to the 2.5% from your OA, it might be worth considering shifting some of your excess OA funds to your SA to enjoy better returns. However, you need to be careful when making this decision if you are currently or will need to use your CPFOA to fund for your property. Having all or excess OA funds in SA will mean that you do not have any buffer in event there is a change in your income or an upgrade in your property. If this is the case for you, we will suggest you consider investing your CPF OA monies instead of locking them in your SA account. As with any investment products, you should be aware of the potential risks that come with it and not put all your eggs in one basket. One good investment product to start with would be unit trusts, which can be found on dollarDEX. There are only selected funds that are handpicked by the government to be eligible for CPF investments as they are of lesser risk, see this complete list of UTs allowed under the CPFIS.

  You can find many of these CPF funds on our intuitive Fund Finder, and start a Regular Savings Plan easily with your CPF monies from both OA and SA! If fees are a concern to you, you will be relieved to know that you can invest your CPF with us affordably at no fees nor sales charges. As dollarDEX is owned by Navigator Investment Services Limited, which is a CPFIS-registered Investment Administrator, this means we can draw consolidated funds directly from your CPF agent bank account, saving you hefty bank charges.

  But before you start investing, make sure you know how to use your CPF savings for CPFIS⁴

  CPFIS-OA

  Open a CPF Investment Account with one of the following CPFIS agent banks with your CPF statement if you wish to invest your OA savings:

  — DBS Bank Ltd (DBS)
  — Overseas–Chinese Banking Corporation Ltd (OCBC)
  — United Overseas Bank Ltd (UOB)

  CPFIS-SA

  There is no need to open any CPF Investment Account if you wish to invest your SA savings.

  Thereafter, you can approach the product providers such as dollarDEX to buy or sell your investments directly.

After you turn 55

For many, the simplest way to manage your CPF savings once you turn 55 is not to withdraw them and let it continue to earn the risk-free interest. But if you do wish to withdraw them, make sure you set aside enough funds for your Retirement Account (RA). This is where your SA and OA savings up to the Full Retirement Sum (FRS) will be transferred to the RA to prepare for your monthly CPF LIFE payouts when you turn 65 years old.

If you are born in 1958 or after, and have at least $60,000 in your RA 6 months before your payout eligibility age, you will be automatically included in CPF LIFE, a life annuity scheme that provides monthly payouts to all Singaporeans during their retirement⁵.

• 1. Decide the CPF LIFE plan for your retirement needs

  If you do not have any retirement plans, your CPF LIFE payouts are going to be even more essential than ever. Here is also when you can enjoy the fruits of your labour in building up those CPF savings over the years. Here is an estimate of the monthly payout you will receive at retirement, based on the Retirement Sum set aside at age 55 and the different plan choices you have:

  
  Note: These monthly payouts are estimates and computed as of 2018. Payouts may also be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual. (Image source: Moneysense)

• 2. Defer your CPF LIFE payouts till later?

  Another thing worth considering is, do you really need your payouts at 65? Or can you afford to wait till you are 70? This is because the government offers the option to start your CPF LIFE payouts later, up to age 70. For every year you defer, your monthly payouts will increase by up to 7% per year⁶ when you start your payouts later. After all, this gives you more time to accumulate more interest in your RA to boost your retirement income, especially if you are still working or have other sources of income.

• 3. Continue building your alternative sources of passive income

  Of course, there is no one size–fit–all solution for everyone when it comes to retirement. So why not complement your CPF payouts and build a holistic retirement plan with other solutions and build other sources of passive income? Here are some alternative options you can consider:

  • Invest in dividend paying funds and use dividend payouts to offset various lifestyle costs (utility bills, car petrol costs, etc). Find out more about dividend paying funds.

  • Get attractive tax relief of up to $80,000⁷ per year and enjoy tax-free gains on your investments with the Supplementary Retirement Scheme (SRS).

  • Rent out spare rooms in your home if you don't mind living with others or rent out the whole flat if you can live elsewhere, this will be a good source of regular rental income⁸ for you to collect.

  • Get a Retirement Plan where you pay a certain amount of premiums in exchange of an income payout (monthly or lump sum) during your retirement years. There are many options out there available in the market for different needs. An example would be Aviva's suite of retirement plans tailored to fit your ideal retirement lifestyle.

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