The Central Provident Fund (CPF) is the retirement savings plan for citizens in Singapore. This is open to both Singapore Citizens as well as those that have Permanent Residency (PR) here. There have been many questions surrounding CPF lately so I’ve highlighted below the 6 key facts that you need to know.
1. You’ll earn an additional 1% on the first S$60,000
There are base interest rates set for your CPF accounts, which are 2.5% for your Ordinary Account (OA) and 4% for your Special Account (SA) and Medisave (MA). On the first $60,000, you’ll therefore earn 3.5% in your OA (up to $20,000) and 5% in your SA. This is reasonable for a conservative investor, however it’s important that you ensure this level of expected risk and return is appropriate for your risk profile and financial goals.
2. Your contribution allocations will change as you become older
Your contributions at 35 years old and below will be 37% of your income (up to the mandatory cap) with 23% going to your OA and just 6% going to your SA. This climbs to 11.5% between ages 50 – 55 as greater emphasis is placed on your retirement. For many, this won’t be sufficient to allow you to live the retirement lifestyle you desire, so be sure to crunch your retirement numbers and save additional funds where necessary.
3. Reduce your taxable income with SA contributions
Even though tax rates in Singapore are substantially lower than many other developed countries, you can still reduce your taxable income even further by making additional contributions to your SA. This will allow you to both increase your retirement portfolio while also reducing your tax bill.
4. The primary purpose of your CPF is retirement
CPF, unlike many other retirement savings vehicles across the globe, allows citizens to use a portion of their savings to purchase their property. It’s vital that you keep front of mind that CPF is designed to provide for your retirement. If you’re planning to use your CPF for a property purchase, it’s important that you calculate how much you need to save to meet your retirement goals.
5. You can invest your CPF funds
2.5% and 4% is certainly better than you will generate in most savings accounts in Singapore, however it may not be sufficient for you to achieve your retirement goals. Speak to a qualified adviser to discuss how you can invest your CPF funds with the goal of increasing your return over time.
6. There are minimum required balances in your OA and SA accounts
It’s important when exploring your investment options with your CPF, you need to maintain a minimum balance in your OA of $20,000 and $60,000 in your SA. Beyond this, you can invest your CPF funds with the aim of achieving a higher return over time putting you in a better position at your retirement.
Start making the most of your CPF today and discuss how we can design and implement a CPF investment strategy for you.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Adviser with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to international and local professionals in Singapore.
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