We’ve probably said this a thousand times before and would say it again. When it comes to the CPF, you can either keep complaining about it (sometimes without even knowing why you are really complaining), or you can take active steps to manage your money and to make sure that you fully utilise what is available to you.
Different groups of Singaporeans would have differing financial needs at various stages of their lives, so here’s a breakdown of what these groups should look out for:
Young Working Singaporeans
For young Singaporeans, starting retirement planning at an early age is important in ensuring the success of it later on in life.
One of the key ways they can do so is simply by leveraging on your CPF Special Account (SA). Singaporeans can earn an additional 1% on the first $60,000 in their CPF accounts (with up to $20,000 from the OA), and utilising one’s SA is a great way to build up your retirement nest egg.
Unfortunately, not many Singaporeans consider using the SA to increase their returns on their CPF savings. You can use this simple calculator to find out how much more interest you can earn just by transferring some money from your Ordinary Account (OA) to your SA. Hint: The difference is 1.5% per annum, which adds up to A LOT over a long period of time.
The other key aspect of CPF that you should understand is just how your CPF contributions are broken down into the various accounts. This is particularly important if you intend to use your CPF monies for your housing loan payments.
Knowing how much money is being channelled to your OA will give you a better idea on how to manage your money when it comes to paying for your housing loans. Remember, you can only use money from your OA to pay for your housing loan. Here’s a simple illustration on how your monthly CPF contributions are distributed:
Image Credits: CPF Board
Middle Aged Workers
For Singaporeans who have been working for some time, the ideal scenario would have been to build up various foundations that will eventually form the base of your retirement fund, including things like adequate insurance coverage and passive income streams. From 1st January 2016, the CPF salary ceiling has also been raised to $6,000, helping Singaporeans to build a bigger base for their future retirement.
At the same time, it’s also important to start considering what sort of retirement sum you want to aim for. The last thing you want is to reach the finish line at retirement, only to realise that what you’ve saved up is not able to meet the lifestyle that you wish to upkeep during retirement.
Image Credits: CPF Board
One of the things that many Singaporeans tend to overlook is the lifestyle inflation that can occur if they are not wary of their own expenditure patterns. Things like eating out, travelling and spending on material goods are all fine if done within the context of proper budgeting and planning.
The issue arises when you reach a point where you can no longer sustain that sort of lifestyle, or find that your expenditure is so high that it would be hard to maintain that level if you were to retire.
Planning ahead for what you hope to be able to spend on a monthly basis when you retire is important, but factoring in other hidden costs that might derail your retirement planning and being aware of them is equally important as well.
Retirees
For retirees, the enhancements to CPF in 2016 are probably the most pertinent, and understanding these changes can help go a long way to making sure that retirement is an enjoyable phase of life, and not something filled with worry.
The introduction of more payout options from CPF LIFE allows retirees to let their money grow in a much safer environment, if they don’t need the money immediately. It also pays a much better return compared to taking your money out and putting it in a savings account.
As for the older folk who are approaching retirement, the increased CPF contributions introduced for those aged 50-65 is certainly good news. Here’s a breakdown of what those changes are:
The money from the increase in employer contribution rates will be channelled into the SA, which enjoys a higher interest rate. This would certainly go some way to helping people build up the retirement fund.
After you turn 55, you also earn an additional 1% interest on the first $30,000 of your combined CPF balances (with up to $20,000 from your Ordinary Account). This is on top of the 1% that you enjoy for the first $60,000. In other words, some of the monies in your CPF account is earning up to 6% per annum.
All in all, there are certainly different considerations you will need to make at different junctures of your life. By understanding the CPF system better, you can work it to your benefit and make your journey towards retirement less stressful.
If you need more food for thought on this, here’s something that might share with you more insights on how your financial journey would look like.
This article was written in collaboration with the CPF Board