Topping up your CPF to grow your retirement funds
Topping up the Central Provident Fund (CPF) accounts is a simple but powerful way of building retirement savings for Singaporeans and Permanent Residents (PRs). In 2021, 220,000 CPF members made account top-ups under the CPF Retirement Sum Topping-Up (RSTU) scheme, 57% more than the year before.
Why top-up your CPF Accounts?
The CPF is a social security system funded by contributions from both employees and employers for working Singaporeans and PRs to set aside funds for retirement, housing and healthcare.
The RSTU scheme helps Singaporeans and PRs build their retirement savings by contributing to their Special Account (SA) or Retirement Account (RA), or that of their family members and loved ones. Due to the relatively attractive interest rates of the accounts, leaving spare cash to compound in the CPF can grow your savings exponentially in the long-term.
With this scheme, you can top up your own or loved ones’ CPF SA up to the prevailing Full Retirement Sum (FRS) if you are below age 55, or Retirement Account (RA) if you are 55 years and above, up to the prevailing Enhanced Retirement Sum (ERS).
Benefits of CPF Top-ups
Besides potentially enjoying personal income tax savings, the main benefit of topping up your CPF accounts is the interest you will earn:
- 4% per year for your savings in SA, MediSave Account and RA
- The first $60,000 of your combined CPF balances of which up to $20,000 comes from your OA, earns an additional 1% interest per year*.
- For members 55 and above, you get 2% more on the first $30k and 1% more on the next $30k.
*Terms and conditions apply
Our CPF monies are invested by the CPF Board in Special Singapore Government Securities (SSGS) issued and guaranteed by the Singapore Government. They are thus considered very safe.
The interest rates are very attractive as they are risk-free. Let’s see an illustration of how much your savings can grow with the compound interest in your CPF accounts.
In 2021, the median income of a full-time employee in Singapore is $4,680.
Here’s a breakdown of how it looks like for the amounts going into the different CPF accounts:
To keep things simple, let’s assume:
- No salary increment, bonuses or inflation
- Interest rate for OA stays at 2.5%
- Interest rate for SA stays at 4%
- Interest rate for MA stays at 4%
- Your birthday is on 1 January
Do note that depending on your age and account balance, the actual interest rates are between 2.5% and 3.5% for OA, and between 4% and 6% for SA, RA and MA savings.
Assuming you start working at age 23, you would accumulate the following amount (rounded down to the nearest $100) when you turn 30 years old**.
** The amounts in the table are calculated based on these conditions:
- Contributions are based on allocate rates that are applicable
- Contribution received in the current month will start earning interest in the following month
- Extra interest earned in OA is credited to SA for those below 55 years old.
This brings your total CPF balances to $161,000 when you turn 30 years old. This amount excludes CPF contribution to be credited in the month that you turn 30.
Let’s assume you top up your SA with $7,000 in January over 7 years, which works out to $49,000. You will have an additional SA savings of about $57,300, assuming these top-up earns 4% annual interest only.
On top of being a great way for you to earn compound interest, you also get to enjoy tax reliefs on your CPF cash top-ups.
If you are making cash top-ups to your own CPF accounts, you can enjoy tax relief of up to $8,000 per year. If you are making cash top-ups for your family members - parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings, you can enjoy additional tax relief of up to $8,000 per calendar year.
How to be a CPF Millionaire
For those who start topping up their CPF accounts early in their lives, there is a real chance to become a “CPF Millionaire”. In fact, there is an ongoing personal finance movement that advocates the use of CPF top-ups to help a couple achieve $1 million in their CPF (calculated together with spouse’s CPF) by age 65 (1M65).
Briefly, the strategy capitalises on using CPF top-ups and allowing the compound interest to work its magic over the years, much like the illustration above. However, there are some assumptions for this strategy to work:
Key requirements for 1M65
- Use CPF top-ups to build up $130,000 in your combined balances of CPF SA and MA by your early 30s
- Easier to achieve as a couple (e.g. $500k by age 65 per person)
- Both husband and wife are assumed to earn at least $6,000 per month each until retirement
- Not over-spending on your property
For example, Mr and Mrs Tan are both 30 and aim to have $1 million in CPF savings by age 65. Let’s say they manage to accumulate $130,000 each in their SA and MA at age 30 via CPF top-ups. Using the SA 4% annual interest, , they would have $1 million in total by the end of 35 years.
$130,000 x (4% interest)^35 years x 2 = $1.025 million
Reaching $1 million at age 65 is a big deal to many CPF members. Still, the key lesson here is understanding the magic of compounding, starting to save early, and making full use of your CPF accounts.
Cons of CPF Top-ups
Like other financial schemes, there are some caveats to take note of with CPF top-ups.
1. Restrictions to CPF monies
Unlike a savings account, our CPF monies can only be used for specific purposes, such as buying a house, certain investments or paying for certain healthcare bills. Since the funds in your CPF accounts are meant for retirement, they can only be withdrawn in the form of payouts upon the payout eligibility age.
2. Irreversible transfer
Even if you had voluntarily contributed to your CPF accounts, you cannot reverse the transfer or top-ups as such these are meant for your golden years. This can be a risk if you do not have adequate emergency cash to tide over rainy days. This can cause financial stress during challenging times such as when you encounter a retrenchment, a pandemic or an unfortunate health crisis.
3. Retirement age may change
While the current CPF payout eligibility age is 65, we cannot be certain that the age limit will remain the same in the future. This could mean a risk in not being able to withdraw the funds according to your initial retirement plan. In such a scenario, investing the money meant for CPF top-ups in more liquid assets would be more advantageous.
Nevertheless, topping up your CPF accounts does not need to be an all-or-nothing approach. You can choose to top up with spare cash from your bonuses and skip certain years or contribute less if you are cash strapped.
Should you want to go ahead to top-up your CPF and work the compound interest magic, here’s how you can get started!
How to top up your CPF account
There are 2 ways to top up your own or your loved ones’ CPF account – by cash or by CPF transfers.
Visit the CPF website or download the CPF Mobile App. You can choose to top up the CPF accounts of different recipients
- Top up for yourself
- Top up for spouse, parents, parents-in-law, grandparents, grandparents-in-law and siblings
- Top up for children
Do note that unlike cash top-ups to other loved ones like spouses, parents and siblings, you do not receive any tax benefit for topping up your child or grandchild's CPF accounts.
• CPF Transfers
You can transfer your OA savings to your SA to build up your retirement savings if you are:
- below age 55, and
- have less than the prevailing FRS in your SA, which includes net savings withdrawn under the CPF Investment Scheme - Special Account (CPFIS-SA) for investments that have not been disposed of.
Here’s a step-by-step guide to topping up your CPF via the CPF website:
1. Login to your CPF and go to My request on the left column
2. Select Building Up My / My Recipient’s CPF savings
3. Select “Top Up Your Own SA Account Under the Retirement Sum Top Up Scheme in the drop-down menu
4. Input your CPF account number in the highlighted field
5. Key in the amount you want to top up to your SA
6. Confirm your payment request and click “Make Payment”
And viola! You are now on your way to growing your retirement nest egg! Note that the FRS is $192,000 in 2022.
Ultimately, no matter how much or little you top up, it’s all about starting early in growing your retirement funds. There are of course other ways to maximise and grow your CPF savings, as well as building up your investment portfolio. Boost your personal finance knowledge by reading up on NAV.sg and start your financial planning with the DBS NAV Planner today!
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