First things first, let’s take a look at the base interest rates that the savings in our various CPF accounts attract (figures correct as of March 2020).
Ordinary Account — 2.5% per annum
Special Account — 4% per annum
MediSave Account — 4% per annum
Retirement Account — 4% per annum
Extra Interests:
- Additional 1% interest per annum on the first $60,000 of a CPF member’s combined balances
- Additional extra 1% interest per annum on the first $30,000 of the combined balances for CPF members aged 55 and above, on top of the additional 1% interest on the first $60,000
Here are some ways that can help you set aside your desired retirement sum earlier, be it the BRS, FRS, or even ERS:
1. Consider using more cash instead of CPF to pay for your house
If you can afford it, instead of obliterating your CPF savings, try using more cash to pay for your property. You can also consider turning to the bank for your home loan and refinancing your mortgage every few years for a better interest rate. You’ll also get to keep more money in your OA, which can attract up to 3.5% interest per annum.
And if you plan to buy a condominium or upgrade your property, hold off from using all your OA. These are savings meant for your retirement, and wiping out your OA could mean you land up with a much lower retirement sum — and as a result, lower monthly payouts — when you retire.
2. Make partial capital repayments on your housing loan, using cash
Many of us (me included) think that because we ain’t using our CPF monies now, we can just use it to pay off our monthly housing loan. I’m going to banish that thought. If you can afford it, use cash, or half-cash, half-CPF instead. In the long run, you would have set aside more savings for your retirement. Remember, your OA attracts up to 3.5% interest per year!
3. Transfer money from your OA to your SA
Since I’ve already bought my HDB flat and I don’t intend to use my OA savings for housing in the future, I really should be transferring my extra OA monies to my SA. This is because the SA attracts up to 5% interest per annum, which can really speed up how soon I can reach my FRS. Be right back, gonna log in to my CPF with my Singpass to do it NOW.
Do note that once you make the transfer from your OA to your SA, it is irreversible. So be certain that you’re not going to use your OA anytime soon.
4. Retirement Sum Topping-Up Scheme
You can also do a cash top-up to your SA (for members below age 55), up to the prevailing FRS.
Instead of seeing it as you need to have a huge sum of money before you can do this, you can do small and regular top-ups. For just $100 a month at interest rates of up to 5% p.a. in your SA, your retirement nest egg can grow by more than $24,000 in 15 years!
You’ll also get to enjoy tax relief of up to $7,000 per calendar year (only for cash top-ups up to the prevailing FRS).
5. You don’t need to retire immediately
Who’s forcing you to retire if you still want to remain active and continue being a productive member of the workforce? Unless I’m swimming in money like Scrooge McDuck, I’ll continue working so that I can keep enjoying the employer’s contribution to my CPF accounts.
If I’m still working after age 65 and do not need extra income, I can choose to delay the start of my monthly payouts (the latest you can defer your payouts is till age 70), so that I can receive a higher amount every month in future.
Plus, there is a 7% increase in your payouts for every year that you delay the start of your CPF LIFE payouts!
Let’s use the example of John in Scenario #2, who has set aside $200,000 in his RA.
- John starts his monthly CPF LIFE payouts at age 65 — $1,640month*
- John delays his monthly CPF LIFE payouts till age 70 — $2,190month*
*Based on the CPF LIFE Standard Plan payouts of a Singaporean male, computed as of 2020
That’s an increase of $550/month!