6 ways to optimise your CPF for retirement

6 ways to optimise your CPF for retirement

By Lorna Tan

If you’ve only got a minute:

  • Top up to a higher retirement sum and get higher payouts when you retire.
  • Make a cash top-up your loved ones’ CPF accounts and enjoy up to S$8,000 per year of tax relief.
  • Save for your children by maximising their Child Development Account (CDA) and topping up their Special Account (SA).

For most of us, our Central Provident Fund (CPF) is an important foundation of our retirement plan. Not only do CPF accounts offer risk-free attractive interest rates, the schemes provide predictable cash payouts during our golden years.

It is prudent to periodically take stock of our CPF savings and consider options to grow and optimise them. Some alternatives include performing top-ups to our accounts and that of our loved ones. The earlier we do these top-ups, the faster our savings can be compounded to secure our retirement and we do not risk forgetting to act before the year-end deadline.

Do note that the CPF Retirement Sums increase annually to keep up with inflation and improvements in standard of living. In 2024, the prevailing Basic Retirement Sum (BRS) is S$102,900, the Full Retirement Sum (FRS) is S$205,800 and the Enhanced Retirement Sum (ERS) is S$308,700. The FRS is set at two times the BRS, while the ERS is three times the BRS.

Top up to a higher retirement sum and get higher payouts during retirement

When you turn 55, a Retirement Account (RA) will be created. CPF savings from your Special Account (SA) and Ordinary Account (OA) will be swept to form your Retirement Sum in your RA.

Consider topping up with cash or CPF savings to a higher retirement sum to get higher payouts later. By doing so, you get to maximize the interest in your RA and receive higher payouts when you reach your payout eligibility age (PEA).

For instance, I opted to top-up my RA to the ERS of S$264,000 when I turned 55 in 2019. In January 2020, I topped up my RA by S$7,500 to meet the prevailing ERS of S$271,500. And I plan to perform this top-up annually till I reach my Payout Eligibility Age of 65. By then, my monthly cash payout from the national annuity CPF LIFE scheme will likely be about S$2,300 for the rest of my life.

Comparing CPF Retirement Sums

Age 55 in 2024
  RA savings required at 55 (S$) Monthly payout from 65 (S$)
Scenario 1:
You own a property and choose to withdraw your RA savings above BRS (subject to sufficient CPF charge/pledge)
102,900 820 - 880
Scenario 2:
You do not own a property or choose not to withdraw your RA savings above BRS
(FRS is BRS x 2)
1,540 - 1,650
Scenario 3:
You wish to put more savings in CPF LIFE
(ERS is BRS x 3)
2,260 - 2,430

Note: Payouts are estimates based on CPF LIFE Standard Plan computed as of Jan 2024.

Make a cash top-up to your loved ones’ or your spouse’s SA or RA (if they are aged 55 and above) to enjoy up to S$8,000 per year of tax relief.

You can do a cash top-up to your SA or RA as well and enjoy up to S$8,000 per year of tax relief. That’s up to S$16,000 of tax savings which can lower your chargeable income and result in potential tax savings!

For instance, I made a cash top-up of more than S$8,000 to my father’s RA at the start of this year, so I stand to enjoy a tax saving of S$8,000 next year. And by doing the top-up early rather than later this year, my father’s RA savings will enjoy the compounding earlier and grow faster. After all, RA savings attract 6% interest rate for the first S$30,000, 5% for the next S$30,000 and 4% for the remaining balance. That’s not to be sniffed at.

You can top up via CPF transfer or cash to your own and/or your loved ones’ Special Accounts (SA), for recipients below age 55, up to the current FRS. If your recipients are aged 55 and above, you can top up their RA up to the current ERS. CPF transfers are limited to spouse, parents, parents-in-law, grandparents, grandparents-in-law and siblings while cash top-ups can be done for any CPF member.

This is a good avenue to help your spouse build his or her retirement savings, by transferring savings above your cohort’s BRS.

Do your CPF top-ups in small amounts

You can make small top-ups to your SA or RA (if you are aged 55 and above) anytime. One way to do it is via GIRO which splits the amount into a monthly regular contribution.

Received your bonus and wish to do a one-time top-up? A tip is to do it in January every year instead of December. This is because CPF members can enjoy more interest by topping up earlier in the year than later. In fact, topping up your CPF accounts in January rather than December could earn you 20% more interest over 10 years.

Ensure there is S$60,000 of combined CPF balances in your OA and SA

Maximise your OA and SA interest by an additional 1%. Get an additional 1% interest on your OA and SA, by ensuring you have S$60,000 of combined balances in your OA and SA, with up to S$20,000 coming from your OA account.

Voluntary contribution to your OA, SA and Medisave accounts

By topping up monies to your three CPF accounts, subject to the CPF Annual Limit, you can enjoy attractive risk-free CPF interest rates.

The maximum amount you can contribute to your three CPF accounts is the difference between the CPF Annual Limit (S$2,500 to my MA so that I can enjoy tax savings of the same amount next year.)

Save for your children by maximizing their Development Account and topping up their SA 

You can start saving for your children and plan for their retirement as well by topping up your child’s SA. This allows your child to enjoy the risk-free interest rates and the power of compounding interest from an early age. Assuming you top-up for your child since the day he or she is born (the top-up is subject to a cap of S$205,800 as of 2024), and based on an annual interest of 4%, the amount in the SA will grow to at least S$1.7 million when your child turns 55!

You can also top-up your child’s CDA to maximize the use of it. The CDA account earns an interest of up to 2% p.a. The government will match dollar-for-dollar any savings made to your child’s CDA. The monies in the CDA will be rolled to your child’s Post-Secondary Education Account (PSEA) when he or she turns 13. The PSEA account earns an interest of 2.5% p.a. At age 30, unused monies will be moved your child’s CPF Ordinary Account which earns an interest of up to 3.5%.

Now that you have read the tips and tricks, you can start planning for your retirement!

Consider your circumstances before deciding

These are the 6 simple things you can do right now to maximise and grow your CPF savings for retirement. As good as it sounds, remember to always evaluate your personal financial situation before making any decision.

For example, voluntarily topping up your SA may be a great idea if you have excess cash that you won’t need in the near term, but may not work if you’re facing a tight financial situation right now and need the money for more pressing things.

Just like any other financial instrument, the CPF can be a great tool to help you achieve your retirement goals if you use it right.

Now that you have read the tips and tricks, you can start planning for your retirement!

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

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