What you should know about CPF before hitting 55 years old

There are a few key milestones that all CPF members go through in their financial planning journey around CPF. The first milestone would be using CPF for housing, and the next milestone would be retirement.

While housing decisions are top of mind for most people simply because it occurs first, retirement decisions deserve just as much attention and consideration, if not more.

There are major decision points at retirement, with opportunities to better utilise favourable CPF policies to manage your wealth better. This would require an understanding of what happens during CPF Retirement Account (CPF RA) formation, how CPF contribution changes, and withdrawals after 55.

Formation of Retirement Account at age 55

How CPF RA is normally formed

When you reach 55 years old, your CPF Special Account (SA) and/or Ordinary Account (OA) monies will be transferred to your newly formed CPF RA. If you have sufficient balance in your CPF SA and OA, the CPF Full Retirement Sum (FRS) will be transferred to your RA. Note that you do not have to top up your CPF RA in cash if your savings are lower than your Full Retirement Sum.

Prioritisation of CPF accounts for CPF RA formation

To form the CPF Retirement Account, your CPF SA balances from Retirement Sum Top-up Scheme, your other SA balances, and your OA balances will be used to form the FRS.

One common CPF hack is CPF shielding. Since CPF is unable to liquidate your CPFIS investments that you have made in your SA or OA, by “shielding” our CPF monies through investing it, you can allow lower interest OA monies or even cash to be used to form your CPF RA. After meeting your FRS using OA monies or cash, you can then liquidate your CPF investments so that they enjoy the higher interest rates of 4.08% p.a. or 2.5% p.a. for CPF SA and OA, respectively. Do take note that from 1 April to 30 June 2024, the interest rates for the Special, MediSave, and Retirement Accounts will be 4.05% p.a..

CPF contribution after age 55

Lowered CPF contribution after 55

If you choose to work beyond the age of 55, your CPF contribution rate as an employee would decrease from 20% to 16%, capped at the Ordinary Wage and Additional Wage ceiling. This means your take home salary will be larger, as less will be transferred into your CPF account. Unfortunately, your employer CPF contribution will also be lowered from 17% to 15%.

Opportunity to top up CPF voluntarily after 55

After you reach 55 years old, your CPF SA and OA effectively act as a high interest savings accounts that you are free to withdraw as and when you like.

The current CPF Annual Limit, which is the maximum amount of mandatory and voluntary contributions you can make into CPF, is $37,740 based on the Ordinary and Additional Wage Ceiling on CPF.

Take the example of someone with a monthly gross salary of $5,500, with no bonus, nearing the age of 55. When he reaches 55 years old, his mandatory CPF contribution from both employer and employee CPF contribution decreases from 37% to 31%. This allows him to make more voluntary contributions into CPF.

‍

Additionally, because of his age, he will be free to withdraw any CPF contributions into his CPF OA and SA, if he meets his CPF FRS requirements. This essentially means that any voluntary contributions into CPF is like a deposit into a high interest savings account that yields 2.5%-4.08%, with free and immediate withdrawals. Note that from 1 April to 30 June 2024, the interest rates for the Special, MediSave, and Retirement Accounts will be 4.05% p.a..

This hack is especially useful for older CPF members as capital preservation is a priority for their retirement planning.

As any voluntary contribution will be subjected to CPF allocation rates across OA, SA and MA, this hack is especially helpful for CPF members that have reached the Basic Healthcare Sum (BHS), since any CPF MA contribution will overflow into OA, which you can withdraw from.

CPF withdrawal at age 55

How much can you withdraw at 55 years old?

Even though you can withdraw some of your CPF monies at 55, you may not be able to withdraw whatever amount you want because CPF will want you to set aside some monies for the public annuity scheme, CPF LIFE.

You can withdraw up to $5,000 from your SA and OA if you have not met CPF FRS requirements, or your CPF SA and OA savings after setting aside your CPF FRS in RA, whichever is higher. Note that you will not be able to withdraw any of your Medisave balances even if you reached 55.

Should you withdraw your CPF when you're 55?

Note that CPF withdrawals into your bank account is different from other forms of CPF usage for housing and education purposes. Once this money has been withdrawn, you would not be able to deposit the money back. You will be restricted to the usual CPF contribution limits such as the RSTU and the CPF Annual limit if you want to put more cash into CPF.

Also, given that the higher yielding CPF SA interest will be withdrawn first before CPF OA monies, you will lose out on the attractive interest rates from CPF if you choose to withdraw your CPF monies immediately.

If you want to tap into your savings and investments for your retirement spending, it is probably better to use your cash first before tapping into your CPF.

Treat CPF monies as a scarce resource for retirement

By now, you probably appreciate that many CPF hacks and workaround solutions involve keeping more money within CPF at retirement. This is to allow it to compound with the higher yielding Special Account and Ordinary Account.

Learn how to read CPF statements, or plan for retirement in Singapore with this simple checklist. You may use the Endowus CPF Calculator to find out whether you can retire comfortably at your desired retirement age with your desired monthly income.

Being invested makes a big difference to your CPF money. To get started with Endowus, click here.

Next on the Endowus Fin.Lit Academy

Read the next article in the curriculum: Can your CPF savings keep up with high inflation?

<divider><divider>

Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.