If I voluntarily top up my CPF, won’t my money be stuck in there forever?
Well, not forever. Someone will get to enjoy it eventually. It just might not be you.
I. Another post so soon?
I got a lot of feedback after my last post. Some people were horrified that I was even suggesting doing a voluntary cash top-up into CPF. Here’s my quick view. I am not a financial planner, I am not an expert, but let’s have a chat if you disagree and I will be more than happy to have my mind changed.
II. So what’s the deal with CPF?
Before you turn 55, you have 3 separate CPF accounts: the Ordinary Account (OA), the Special Account (SA), and the MediSave Account (MA). Let’s do a table comparing them because tables rock.
III. I can withdraw cash at 55?
Yes. The $176,000 which goes into your RA is called the “Full Retirement Sum” (FRS). Everything else can be withdrawn and the Government won’t stop you from blowing it all on your Batam mistress. But I do not recommend doing so.
IV. But what if I don’t have $176,000?
You can still withdraw $5,000. Enough to go on a holiday!
V. What happens to that $176,000 that goes into the RA?
At 65, you use it to pay for something called CPF LIFE. Basically, you get money every month for the rest of your life.
VI. What if I drop dead at 65 years and 1 month? The Government is gonna eat up the entire $176,000 minus that 1 month’s payout!
Actually, no. Your CPF nominees get whatever is left. Find something else to complain about.
VII. But I wanna live fast, die young, and leave a beautiful corpse!
Don’t put an additional cent into CPF then. It’s cool.
VIII. So what does this mean for me if I expect to live beyond, say, 70?
- OA: if you’re going to use the money in here for property, it may make sense to do a voluntary cash top-up to reduce your tax burden. The money isn’t locked up forever and you pay less taxes (see my previous post). But do note that you cannot do a voluntary cash top-up into your OA only: it will be split between your OA, SA, and MA.
- SA: the only way you’re going to be able to withdraw anything from this account at 55 (apart from $5,000) is if you’ve managed to amass the FRS from your OA + SA. But if you’re confident that the money in your OA + SA will eventually exceed the FRS, you can do a voluntary cash top-up into your SA and expect to withdraw cash at 55, with the magic of 4% compounding interest.
- MA: you will never be able to withdraw cash from this account to pay for fun things. Either you use it to pay for approved medical stuff, or you die and there’s some left — in which case it goes to your CPF nominees. So think hard before doing a voluntary top-up into this account.
IX. Personal thoughts.
Until I started looking into these issues, I was firmly of the view that voluntarily topping up your CPF is locking up your money forever and a complete no-go. But now I’m not so sure.
My main bugbear was that the FRS and the MA are sitting there doing nothing once I turn 55. But what I didn’t factor in was that when I die, my CPF nominee(s) will get those sums in cash. I will probably want to leave something to my wife and/or children— why not the money in my CPF accounts?
X. A final word of caution.
This is meant for people who are around my age. If you’re already 55 and above, you won’t benefit from this post. Sorry! Maybe I’ll do an updated write-up when I’m 55, if you can wait that long! (Probably not.)
All the figures set out above are accurate as of 2018. By the time we reach 55, some figures (e.g. the FRS) will have increased— inflation! One day we will all eat $10 chye tow kuay regardless of whether we are high or low SES.
Also, this is not meant to be 100% super-comprehensive. You want comprehensive? Go to the CPF website and figure it out yourself. Good luck.
P.S. this is not legal advice, for general information only, etc etc, you know the drill.
