Are Your CPF Savings Enough For Retirement?

Alright, so we always hear that message about how savings for retirement is so important. Saving and investing ourselves is a crucial part of that whole process. 

Yet in Singapore, we’re also super fortunate that we have the Central Provident Fund (CPF) to help with the retirement savings headache.

That’s because CPF helps us by forcing any Singaporean or PR, who earns over $750 a month, to put away 20% of their monthly salary. Admittedly, that’s a lot but it also goes to a variety of various expenses over our lifetimes.

But wait, it’s not only you who has to contribute! Your employer also adds 17% of your monthly wage into the CPF pot so in reality you’re getting 37% of your monthly wage going towards retirement savings.

Yet not all that money is going to be there waiting for you at retirement. Let’s take a look at the various CPF accounts and how you can enhance those strategies for maximising your CPF retirement savings.

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ALSO READ: CPF Guide Singapore: CPF Contribution Rates, Ceilings, Retirement Sum and More (2024)

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Understanding Your CPF Savings

We can understand the CPF by looking at the three different accounts. These are the CPF Ordinary Account (OA), CPF Special Account (SA) and CPF MediSave Account (MA).

CPF OA

This is typically where most of your CPF contributions go in your prime earning years as the OA supports your ability to purchase a home. The annual interest rate on CPF OA savings is currently set at 2.5% per annum (p.a.). 

You can invest any excess CPF OA funds (above S$20,000) via the CPF Investment Scheme (CPFIS) although there are certain limits on what you can invest in. You can also use the funds here for insurance and education expenses.

CPF SA

As the name suggests, this is more of a “special” account because the interest rate earned on your money in here is higher at 4.08% p.a.

Given it’s so special, the money in here is meant for retirement expenses although you can use the funds in here to invest via the CPFIS given the super long time horizon you have. The SA later turns into a Retirement Account (RA) when you reach 55.

CPF MA

Your MediSave Account is for – you guessed it! – medical expenses, such as any hospitalisation fees, outpatient fees and general care in old age.

With that, here’s the breakdown of where you’re CPF contributions are going at different age brackets.

CPF LIFE and Payouts

When you get to 65 you’re eligible for CPF Lifelong Income For the Elderly (CPF LIFE) payouts–see what they did there? The CPF love their acronyms!

What this basically means is that you can receive a lifelong income as it’s a national longevity insurance annuity scheme.

It’s a mouthful, yes, but it’s just important to remember that it’s an insurance product and NOT an investment product. 

The amount in your RA will determine how high your eventual monthly payout is so that’s something to keep in mind.

Beyond that, there are three levels of payouts:

1. Escalating Plan: These payouts grow by 2% per year to protect you against rising costs
2. Steady Plan: This is a standard monthly payout and they won’t grow every year
3. Basic Plan: This is the bare bones plan and you’ll receive progressively lower payouts in the future

 

Assessing Your Retirement Needs

When you’re looking to calculate your expenses in retirement, it makes sense to actual run the numbers instead of just dreaming about being able to go on all those super atas holidays every year.

If you think about your daily expenses and extrapolate that out to monthly and yearly, then you’ll get a good idea of your outgoings.

Remember, we need to include all those things that we think we’ll spend on in retirement. Whether that’s eating out more, travelling, or taking up new activities – we need to factor in costs.

It’s better to be conservative with your estimates as we’d rather have too much than too little when we retire. Also remember to factor in inflation into these costs because it’s back!

Again, being conservative with inflation will help. Right now, inflation in Singapore is around 2.5% but I’d be more comfortable factoring in a rate of 3.5% to 5%.

Remember, it’s not all about enjoying ourselves in retirement. We also have to think about healthcare costs and if anything happens to us. 

Healthcare is crazy expensive relatively (compared to other things in Singapore anyway) and healthcare inflation is generally going to be higher than the headline number for the economy that we see in the news. 

Want to really see how retirement costs look in practice? Just head over to the CPF site to check out their variety of retirement calculators. 

 

Strategies to Enhance Your Retirement Savings

Ok, so now we’ve kind of got a handle on what our retirement might look like and how much it’ll cost. The next step is to actually start putting that into practice.

Contributing to the CPF isn’t exactly “fun” but it’s the only way we can get to those #RetirementGoals so what are the best ways to go about saving and how do they rank?

Maximising Your CPF Contributions

Getting those numbers up on the CPF board – your own scoreboard, not the actual CPF board – means ensuring that you’re smart with maximising your contributions. There are a few ways to do this. 

1. Voluntary Top-Ups (4*) – This means you can voluntarily top-up your CPF beyond those mandatory payments that you have to make. The upside? You get sweet tax incentives and you can even top up for family members. Remember to do it as early in the year as possible as you want those contributions to compound over time (with that higher interest rate) in your SA or MA accounts. There are annual limits on voluntary top-ups so make sure you don’t go over those.
2. CPF Transfers (3*) – Now you can also transfer funds from within your own various CPF accounts. So, if you have more than you need in your OA, you can transfer that your SA for a higher interest rate. Do be aware, though, that CPF transfers are irreversible.
3. Invest Through the CPFIS (5*) – Finally, you can also invest your CPF OA and CPF SA funds by using the CPFIS. While a 4.05% interest rate (on your SA funds) might be appealing in the short run, remember that global stocks – on average – return around 8-9% p.a. over the long term. So, if you’re thinking 20-30 years ahead, allocating some of your CPF funds to investing through the CPFIS makes sense. You have to have certain minimum balances for both your OA and SA before you can invest but beyond that we should be aiming to make use of low-cost and globally-diversified investment products to help us meet those long-term goals.

 

What Other Sources of Income Are There for Retirement?

Ok so this is more of an easy one to figure out. We have certain stashes of cash that we can put in various places.

Savings & Investments

First off, our own personal cash savings and investments. Remember, cash now actually earns something (yay!) so we can put that away into a higher-yielding money market fund or even higher interest account.

Some of these can yield close to 4%, which isn’t bad. But just be on guard because once interest rates in the US fall (and they will) then we won’t get as much in interest from those accounts. Of course, there’s also the investing aspect of things.

We can open a brokerage account and put money towards low-cost exchange-traded funds (ETFs) or use one of the many robo-advisory platforms—like Endowus, Syfe or Stashaway—in Singapore to outsource the job of building a long-term and diversified portfolio.

Property and Rental Income

Of course, property is always going to be there as an investment option given the crazy house price increases we see in Singapore.

However, it’s not all uniformly an “easy win” by buying property for rental income. Remember, we need to factor in total costs like interest on loans, maintenance, condo fees and other random associated costs.

Additionally, your rental income from an investment property is income that can be taxed – not ideal but if doing the numbers means it makes sense then it could definitely be a viable option.

Annuities

You can also purchase an annuity, which means making monthly or annual payments in order for you to get monthly cash payouts when you retire—kind of similar to CPF LIFE.

Big insurers, such as Income and Manulife, will offer these sorts of plans but—tbh—if you’re contributing enough to your SA (which then becomes your RA), then additional annuities aren’t exactly an ideal use of your disposable cash to enhance your retirement savings.