By Lorna Tan
It is never too early to start preparing for retirement - think of it as a lifelong journey, one that in Singapore is inevitably linked to our Central Provident Fund (CPF) savings.
Whether you're starting work, about to buy a home, raising a family or nearing retirement, small steps like CPF transfers and cash top-ups can help build up your nest egg and secure a desired future lifestyle.
The CPF Board has been organising the CPF Retirement Planning Roadshow series in the past few years to raise awareness on how the system helps retirement planning.
Last year, more than 80,000 CPF members visited the five roadshows held islandwide.
The first one this year kicked off in August at the Toa Payoh HDB Hub and featured a wide range of interactive exhibits, including an augmented reality experience booth.
Not to be left out, young CPF members are encouraged to try out a mobile game app called Ready, Get Set, Grow. The app encourages them to take action today via CPF-related messages based on the three basic needs of retirement - housing, healthcare and income.
The Sunday Times highlights 10 hacks to "game" the CPF system.
USING THE CPF VOLUNTARY CONTRIBUTION SCHEME TO TOP UP YOUR CPF SPECIAL ACCOUNT
Let's assume you have maxed out your CPF savings by topping up to the current Full Retirement Sum (FRS) of $166,000 in your Special Account (if you are under 55) or the Enhanced Retirement Sum (ERS) of $249,000 in your Retirement Account (if you are 55 and above).
To enjoy the attractive risk-free CPF interest rates, you can consider the CPF voluntary contribution (VC) scheme - the "VC-3A" scheme - to top up monies to your three CPF accounts (Ordinary, Special and Medisave Accounts) subject to an annual limit known as the CPF Annual Limit. This annual limit takes into account both mandatory and voluntary contributions.
The maximum amount of voluntary contribution to the three CPF accounts that you can make this year is the difference between the CPF Annual Limit ($37,740) and the amount of mandatory contribution received for the year.
Mandatory contribution made by employers takes precedence over voluntary contribution when determining any excess made above the CPF Annual Limit. The excess contribution above the CPF Annual Limit will be refunded without interest from your voluntary contribution payment.
If you have ongoing mandatory contributions for the rest of the year, you would need to take this into account and take note of the total mandatory amount that you would receive for the year, when computing the amount of voluntary contribution you can make. The voluntary contribution to the three CPF accounts is non-tax deductible.
Use the Voluntary Allocation Contribution Calculator on the CPF Board's website to find out how much is allocated to each of the three CPF accounts.
Any Medisave contributions in excess of the member's Basic Healthcare Sum (BHS) will be transferred to the Special Account for members below 55 if they do not have the Full Retirement Sum, and to the Retirement Account for members 55 and above. Otherwise, the excess CPF contribution will be transferred to the Ordinary Account.
The BHS is the estimated savings that you need for your basic subsidised healthcare needs in old age. The prevailing BHS is $52,000 from the start of this year for all CPF members who are 65 years old and below this year.
MAKING USE OF CPF VOLUNTARY CONTRIBUTION SCHEME TO GROW YOUR ORDINARY ACCOUNT SAVINGS
If you have just started working, your CPF mandatory contributions are unlikely to hit the CPF Annual Limit.
You can consider making as many voluntary contributions as possible to grow your three CPF accounts which include your Ordinary Account savings, with compounding interest.
By the time you need it for housing, you will have more Ordinary Account savings and so will not need as big a mortgage.
TOPPING UP TO YOUR ERS TO MAXIMISE INTEREST AND GET HIGHER PAYOUTS
When you turn 55, CPF savings from your Special Account and Ordinary Account up to the prevailing FRS will be swept to your Retirement Account (RA) to form the Retirement Sum.
If you want to get higher payouts, why not quickly top up to ERS - with either CPF savings or cash - to maximise the interest once you turn 55. This will result in higher payouts later as the compounding would have started earlier.
If you have sufficient money in your Special Account, you could leave it there to earn the CPF interest rate, instead of using your Special Account savings to top up your RA to the prevailing ERS.
Take the opportunity to inject cash by topping up to the prevailing ERS in your RA to maximise the interest and get higher payouts when you reach your payout eligibility age.
The prevailing ERS is $249,000. Assuming you are now 55, with this amount in your RA, you will get a monthly payout of $1,860 to $2,000 under the national annuity scheme CPF Life. And you can continue to top up to the prevailing ERS of subsequent years to get higher monthly payouts later.
TOPPING UP PARENTS' CPF ACCOUNTS AND GETTING TAX RELIEFS
If you are giving your parents cash, why not channel the cash to their CPF accounts via top-ups? Not only do you get tax relief of up to $7,000, they stand to earn attractive risk-free CPF interest too. Do note that there is no tax relief for top-ups beyond the prevailing FRS, and tax relief is capped at the $80,000 personal income tax relief cap.
CPF savings in the Ordinary Account earn guaranteed interest rates of 2.5 per cent a year, while savings in the Special Account, Medisave Account and Retirement Account earn 4 per cent.
The first $60,000 of your combined CPF balances, of which up to $20,000 comes from your Ordinary Account, earns an extra 1 per cent interest a year. And from last year, an additional 1 per cent interest is paid on the first $30,000 of combined CPF balances for all members aged 55 and above.
TOPPING UP YOUR SPOUSE'S CPF ACCOUNTS TO ENHANCE FUTURE FINANCIAL SECURITY
You can perform a cash or CPF top-up to your spouse subject to conditions. It benefits non-working spouses who have low CPF balances. Only cash top-ups qualify for tax relief.
Before the changes on Jan 1 last year, only CPF savings above your FRS could be transferred to your spouse. There is now a lower threshold so members can transfer their net CPF money after setting aside the BRS in their own CPF accounts to top up their spouse's CPF account up to the ERS.
Both will benefit from the extra interest that will be paid in the respective accounts and there is peace of mind as the spouse will have his or her own source of retirement payouts.
DOING CPF TOP-UPS IN JANUARY TO BENEFIT FROM EARNING INTEREST EARLIER
If you already intend to top up every year, why not do it in January instead of December? This is because CPF members can earn more interest by topping up earlier in the year. So don't procrastinate.
Let's assume you regularly top up your Special Account by $2,000 a year for 10 years, a total sum of $20,000. If you had performed the top-up in January, the total interest earned (4 per cent per year) over 20 years of $16,800 is higher than the $15,500 interest from topping up in December.
DOING CPF TOP-UPS IN SMALL BITE SIZES
Topping up does not have to be one lump sum. You can still make small but regular top-ups. Through Giro, you can consider allocating a small amount from your monthly salary to your CPF account.
For example, you need not add $7,000 to your Special Account or Retirement Account at one time.
Use Giro and split it into 12 payments over a year and avoid the year-end rush.
ENSURING THERE IS AT LEAST $60,000 SAVINGS IN YOUR ORDINARY AND SPECIAL ACCOUNTS
Even if you are using your Ordinary Account for housing, make sure your Ordinary Account and Special Account savings add up to at least $60,000 to maximise earning the extra 1 per cent interest.
CPF members 55 and above enjoy an additional 1 per cent interest (up to 6 per cent) for the first $30,000 of their combined CPF balances, so the gains are even higher.
MAXIMISING YOUR CHILD'S CHILD DEVELOPMENT ACCOUNT (CDA)
Financial experts say it is prudent to maximise your child's CDA - which earns an interest of 2 per cent a year - as unused CDA savings will eventually be channelled to their CPF Ordinary Account.
This is how it works: Unused CDA savings will be transferred to a Post-Secondary Education Account (PSEA), and unused PSEA savings will be transferred to your child's Ordinary Account (OA).
"These OA savings give your child the head start in growing their CPF savings and can be used to finance your child's first home," said the CPF Board.
The CDA is part of the Government's Baby Bonus scheme. Children born from March 24 last year will receive an upfront grant of $3,000. The Government will match any savings made to your child's CDA on a dollar-for-dollar basis.
Money in the CDA can be rolled over to your child's PSEA when he or she turns 13. Funds that are not used by December of the year that the child turns 12 will get transferred to the PSEA.
The PSEA money also earns an interest of 2.5 per cent. At age 30, those funds will go into the CPF Ordinary Account, which earns an interest rate of up to 3.5 per cent.
TOPPING UP YOUR CHILD'S SPECIAL ACCOUNT
If your retirement needs are well catered for, and you have plenty of surplus cash or just won the lottery, you can consider topping up your child's Special Account to leverage attractive interest rates and compounding.
Assuming the child has zero Special Account balance, the top-up is subject to a cap of $166,000 for this year. Assuming an annual interest rate of 4 per cent, the amount will grow to $1.5 million over 55 years.
Of course, this is assuming there is no change in CPF policies and interest rates.
There is no tax relief for top-ups to your child's CPF accounts.
The next CPF Retirement Planning Roadshow will be held next Saturday and Sunday at Suntec City West Atrium. Learn how you can plan for a better retirement through a range of talks, interactive exhibits and fun activities. Invest editor Lorna Tan will be moderating a panel discussion on the topic of "Maximising Your Money" at the roadshow next Sunday. The talk will be from 3.30pm to 6pm. To register, visit www.cpf.gov.sg/memberevents
Impact of extra interest over time