Maximising your CPF money

 Maximising your CPF money after  closure of Special Account.

When the CPF Special Account for those aged 55 and older closes from the later  part of January 2025, those with higher savings should consider using the extra cash to boost their CPF Life scheme.

After all, you now have the opportunity to receive higher payouts up to $3,300 a month from age 65 if you increase your savings to the new enhanced retirement sum (ERS) of $426,000.

The new ERS is a big jump of $27,300 from the sum in 2024 ($308,700), which enabled members to receive about $2,400 a month.

As the top-up is a hefty one — more for older members who have not kept up to date with their maximum retirement sums — the extra balance from the closure of the Special Account (SA) will  come in handy.

For those who have met their full  retirement sums, the balance from this account will be transferred to the Ordinary Account (OA) and members can either withdraw the funds or use them to top up their Retirement Account for higher CPF Life payouts.

If you have used some of the money for external investments, you can still hold them until the products mature or are sold. When this happens the proceeds will either go to your Retirement Account ( if you have not met the full retirement   sum for your cohort) or back to your OA.

WHY SOME MEMBERS HAVE HIGH SA BALANCES 

Before the announcement of the SA closure, some savvy members had used 'shielding' as a way to keep more money in the account, instead of letting a big  portion of it go to the Retirement Account at age 55.

They did so by investing most of the funds in their SA hefore their birthday so that when the time comes for meeting the compulsory full retirement sum, money in the OA, which earn 2.5 per cent interest, would be used instead. 

 So after their birthday, they would cash    out their investments to allow the proceeds to go back to their SA.

  Some of those who did so would probably have between $300,000 and $400,000 now. So it makes sense for them to consider topping up to the new  ERS since their original intent of  "shielding" was to enable them to have more money to spend in old age.  

SEEING CPF ANEW FROM 55

All die-hard older CPF fans have this problem — they baulk (hesitate or be unwilling to) at withdrawing any money because such withdrawal would come from the SA  first.

This is  especially true for fans of "shielding" since they took great pains in keeping more money there and constant withdrawals mean SA funds would be depleted faster.

  But with the clesure of SA, you can take a fresh look at CPf without this psychological barrier, as money saved for retirement is meant to be spent, and  not saved indefinitely. 

 Without the SA, diehard fans who are still working will see their monthy contributions go to the Ordinary Account  (OA) after they meet the maximum limit  of MediSave Account, which is $75,000 in year 2025.

  There are benefits to reap after you have hit this sum — the MediSave Account also earn a minimum 4 per cent interest and the maximum sum would yield about $3,000 in interest, which  comes in handy to pay the annual  premiums for MediShield Life, CareShield Life and Intergrated Shield plans. 

   Also, when you receive the occasional Medi-Save top-ups from the Government, such amounts will flow to the OA if the limit has been reached. 

More importantly, just like receiving work bonuses, you can now eagerly wait for your annual CPF interest to be deposited at the start at every year. 

Unlike in the past, when you might hesitate to withdraw any amount, you can now choose to withdraw the interest for OA annually without impacting future returns. 

Take a person with higher 0A savings. Just withdrawing $2,000 at such interest annually would mean an extra $2,000 to spend every month. 

If you are receiving the ERS payout of about $3,000 a month, this means you would be getting about $4,000 from CPF alone, or $5,000 a month for couples.

Ultimately, this is how you can make the most of your CPF money for your retirement — getting a decent amount of money to spend month after month and for as long as you live.

Why does it pay to plan for retirement income of up to $3,300 from CPF

Bank estimates show that such a monthly income may enable a person to run a mid-range car and enjoy short yearly holidays.

If you are looking for a useful New Year resolution, make retirement planning a priority so you can take advantage of a new and important change to CPF that kicked in on Jan 1, 2025

Those turning 55 now have the option of doubling their retirement savings, from the mandatory full retirement sum $213,000 to the new Enhanced Retirement Sum (ERS) of $426,000 CPF Life.

If you make such voluntary top-ups, you will receive higher monthly payouts of about $3,300 from age 65, almost double the $1,700 payout for those who choose not to do so.

The chance to have a higher fixed monthly income in retirement is also open to folk over 55 if they make top-ups to their CPF Retirement Accounts to hit the new ERS with either cash or funds already in their CPF account. 

People in this group can log into myCPF portal to check the estimated payout they could get with the top ups as they will hit 65 years old earlier and so receive payouts sooner. 

The new ERS is a major boost to our  retirement planning effort because the higher payout of over $3,000 a month means many of us can now rely on our CPF alone to have a fairly comfortable retirement.

Estimates by banks such as OCBC show that people who can get more than $3,000 in retirement income a mouth may even be keep a mid-range car and enjoy short overseas holidays every year. 

The aspiration certainly achievable for couples who plan for the new ERS together became it means that they can receive two sets of payouts from the national annuity scheme, or over $6,000 a month.  

Such an amount is not something to scoff at because it means that in just 10 years, or by age 75, a  couple would have received over $720,000, and $1.44 million by age 85.

  These sums are just payments from CPF Life alone, and do not include other income sources you may have, such as interest earned from the remaining CPF balances as well as your bank savings and other investments.

Younger Singaporeans should not baulk* (*unwilling and reluctant) at the $426,000 needed for the ERS because this sum is achievable if they are diligent in contributing to their CPF accounts as they continue working over the next decade or two.

Even those hitting 55 years old who are short of this amount should not Iose heart became retirement planning is not a competition and does not have a cut- off date. 

 So long as you are keen to tap the   scheme to boost your retirement income, you can continue to make gradual top-ups to your Retirement Account even your as you work.

 If you aim to save more, you will still get higher pay-outs. For instance, those who can set aside $300,000 instead of $420,000 can receive about $2,400 a month which is still a decent retirement  income.

 Here are three other important points that you should know about CPF Life.

CASH PROTECTION FOR FUTURE

Your savings in the CPF account are protected from even lawsuits and can act as your personal reserve that can provide stable income even if the global economy is in a tailspin.

The non-profit CPF Life scheme is backed by the Government, so its monthly payout will remain stable, unlike payouts from private schemes which can be affected by fund performance, management costs and interest rates

So you should always aim to hit the maximum for CPF Life to reap its guaranteed returns first, before you invest in other private retirement products.

In the past three years alone, close to 1,000 people have sought at the Financial Industry Disputes Resolution Center after they bought unsuitable financial products that resulted in losses.

It is fair to say that most of them were not aware of the benefits of CPF Life and so ended up buying private investment products which failed to deliver. 

For instance, a retired senior executive told Invest recently that he bought an annuity of close to $2 million as he hoped to get monthly income of a few thousand dollars.

 He had to pay $500,000 and borrowed about $1.5 million from the bank. While the scheme was viable when interest rates were low a few years ago, it fell apart when his borrowing costs shot up. So instead of receiving his retirement income, he ended up having to pay the bank tens of thousands dollars for his loan.

Ironically, if he had used the $500,000 to top up the Retirement Accounts for himself and his wife, they could have received up to $5,000 a month for as long as they live, with no strings attached.

So do yourself a favor before you sign up for a fresh financial product for your retirement, visit the CPF office to find out how its risk-free and cost-free scheme can benefit you more

YOUR OWN RETIREMENT MATTERS MORE

Some people refrain from saving more for CPF Life because they have the wrong idea that they will be short-changed and their savings will be "gone" if they die early. 

If the national scheme does not make money from you when you are alive, it will certainly not take advantage of you when you are no longer around. 

 The CPF Board states on its website that if a member dies after ...

So long as you are keen to tap the scheme to boost your retirement income, you can continue to make gradual top-ups to your Retirement Account even as you work.

If you aim to save more, you will still get higher payouts. For instance, those who can set aside $300,000 instead of $426,000 can receive about $2,400 a month, which is still a decent retirement income.

.. receiving a certain amount of monthly payouts, any unpaid portion from his CPF Life scheme plus the remaining balance in other CPF accounts will be paid in his nominated beneficiaries. 

It is noble for parents to worry about their children but they should put equal emphasis on their own retirement needs too.

Recently an elderly divorced couple had to go to court to fight over $600 of monthly maintenance because both sides ended up cash-strapped in old age, after splurging over $600,000 on their kids' education.

They would likely not end up this way if both of them had planned for decent monthly payouts from CPF Life.

You should view CPF Life as your own retirement scheme, and not a legacy scheme for your beneficiaries. 

If you are keen to give more to your children, you will do them a bigger favor if you make regular top-ups to their Special Accounts even when they are kids. This will give them a chance of having a lot more money when it is their turn to reap the benefits of CPF Life.

CASH IS KING IN RETIREMENT

There is a reason why financial advisors always tell their clients to diversify their investments because this could save you from being insolvent in a downturn.

By all means, if you have plenty of spare cash, you can focus on higher risk investments, such as investing in some US stocks that have delivered impressive capital gains for their investors.

But it still pays to have a solid fixed income back up, such as CPF Life, so that you will always have enough money in your old age, regardless of how your other investments fare.

Some people think it is better to use up all their CPF and cash savings to buy a second property so that they can rely on rental income in retirement. This will not come cheap as there are mortgage payments, income and property taxes as well as maintenance cots to consider.

More importantly, could you bear these extra costs if you can't find tenants?

Finally, we invest to live, and not live to invest. And if we have done adequate planning, our retirement should be fun, without having to worry about money because a decent deposit will just appear in our bank account every month.