CPF has been a much talked about topic in recent years. However,
most discussions has centred on how it works, why it’s good etc. Little has
been discussed on how best to work with it to optimise savings for retirement
or for monthly expenditures.
Our CPF savings comprises of three accounts: ordinary
account (OA), medisave account (MA) & special account (SA). It is funded by
us and our employers’ monthly contributions. For different age groups, a
certain percentage of our salary goes to the respective accounts. The table
below shows the allocation rates.
In my opinion, the CPF OA should never figure prominently
for retirement. It should be utilised almost fully for our housing purchase. This
means we should purchase homes where the loan’s monthly instalment is
approximately 20% of our salary. This is so that our mortgage instalments are
funded by the OA with a bit leftover being able to enjoy a 3.5% interest and
can be used for later loan repayment.
Paying our mortgage entirely through CPF means we can use
our take home salary for other purposes such as equity or bond investing or
provide comfort to the family. It makes our life easier as no cash form our
pocket is needed. Lastly, HDB housing loan is a strategic debt.
The CPF MA should be used for retirement, pay hospital bills
and meet the stipulated minimum sums at 55. As it yields a 4% annual interest,
it is strongly advised not to draw down for insurance premiums unless you are a
pretty good investor. Otherwise, please do not touch it as it makes a good
“long term bond”.
The CPF SA is your retirement and bond fund. To buy into
this statement, it is important to accept this point.
We can meet the minimum sums
In my analysis, I painted a scenario where an individual starts off with a pay of $3,000
(inclusive of one month bonus), works from age 25 to 55 with a 3% annual increment.
Eventually he will accumulate $360,077 in his CPF SA and MA accounts. This
figure is higher than the current Basic
healthcare sum and retirement sum set at $48,900 and $80,500 respectively. Adjusting
for 3% inflation and 30 years period, the figures is only $314,087. Regardless,
you would have accumulated more than the minimum sums.
Furthermore, my assumption is simplistic because
for females, they are likely to start work at 23. Hence, accumulating slightly
more than the $360,077 projection. For males, it is important to note we will
receive $3,000 to $9,000 more in our CPF SA due to completion of national service
and reservist cycles. This was not factored in my analysis; hence it is likely
we can meet the minimum sums.
Having established we can meet the minimum sums. It
can then be said: Voluntary contribution to our SA account is a “bond
investment fund”. This is because whatever is voluntarily topped up into SA can
be withdrawn in full at the age of 55 since the minimum sums are met.
With the ability to tap on a “CPF bond” yielding a
4% return (CPF SA’s interest) and AAA rated, it is a great bond to be invested
in. Due to the low risk but decent returns, we can use the CPF SA to create a
product better than insurance products sold by banks. I will advise for individuals
to top up into the CPF SA preferably between the ages of 30-35 to capitalise on
After 55, we can opt for our “bond investment” to
be converted into an annuity plan through CPF Life. Alternatively we can withdraw
and enjoy its fruits during retirement. It is important to note as we get
older, our portfolio should not just be chasing returns but focus on income
stability. This is why annuity plans are catered for older folks.
Click here to learn more
about voluntary contributions to CPF SA.
So there you have it. CPF OA for housing expenses,
MA for medical expenses and retirement; while the CPF SA for our