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CPF-SA savings 10 years from now.

Saturday, August 12, 2017

The biggest downside of not being gainfully employed is the lack of mandatory CPF contributions.

To ensure that my CPF savings will become a more significant bond component of my investment portfolio in my golden years, I have been making voluntary contributions.

Checking on my CPF account last night, I wondered how much would I have in my CPF-SA by the time I am 55? 

55 years old. That is also when money from my CPF-SA will be moved into my newly created CPF-RA to fund the annuity called CPF Life.

My CPF-SA savings in January 2017:


Assuming that CPF annual contribution limit (now $37,740) remains unchanged in the next 10 years and applying the following allocation rates:

Click to enlarge. Source: CPF Board.
Doing voluntary contributions to the annual limit each year, for the next 5 years, about $8,159 each year will go to my CPF-SA. 

Ratio of contribution to the SA being 0.2162.
At age 50, I would have $308,588 in my CPF-SA.

For the 5 years following that, about $11,699 each year goes to my CPF-SA. 

Ratio of contribution to the SA being 0.3108.
At age 55, I would have $441,344 in my CPF-SA.

Of course, all else being equal, the number is likely to be bigger 10 years later as the calculations do not take into consideration the additional 1% interest payable on the first $40,000 in the CPF-SA.

Although it is not $1 million, $441,344 is nothing to scoff at either.

This is why I have told some rather worried readers who are pretty risk averse and who are not investment savvy to seriously consider using the CPF-SA as their primary tool to achieve greater financial security in their old age.

As simple as ABC? 

As simple as CPF.

Related posts:
1. AK showing off his CPF-SA.

2. Average HDB household and $1M.


AK71 said...

On my FB wall:

Raymond Ng:
The math is simple, but the mental part is difficult.
It is very easy to understand the compounding effect, but most people don't have the patient to see it through (unless if you're gainful employ till 55 or 65).

We must change our perspective about CPF SA. It is the money for basic retirement and not for us to take out (unless if you have excess of RA). That's the beauty of SA. lol.

When it's time to convert from SA to RA (upon 55), you have set a side some money for perpetual annuity for life. The annuity will come every month rain or shine (risk: how about during war?).

Some people 'blame' G for locking their money, but I think some of us will thank G for setting this SA for us. The future us will thank us.

AK71 said...

On my FB wall:

Desmond Lee:
To reap the benefits of CPF SA, one have to hit Minimum Sum asap. Either through OA to SA transfer or annual $7k cash top up (eligible for tax relief). Once MS achieve, you are unable to top up SA anymore. Increase are through monthly contribution and interest earn in SA.

The 4% interest in SA each yr would cover future increase in MS. The current MS increase is ard 3%.

If you have achieved the cap in Medisave account the monthly contribution and interest earn would be transfer to SA. If you hv achieved MS in SA the amount would be deposited in OA.

Gov knows SA is giving good interest. Once MS is achieved, it is difficult to increase further by top up.

Guess where will your first CPF withdrawal come from after setting aside the FRS in RA? The amount will drawn from SA first not OA haha....

AK71 said...

A lot of money in my CPF-SA is from the government.

K said...

Hi AK,

I am not clear and you may be able to assist me. ;)

Qn: At 55, the CPF-RA will be created for CPF-Life. Is one still be able to do VC (now $37,740) after 55? If it is possible, will you continue and to what age can one do it?

Qn: Assuming at 55, the CPF-RA is created and $249k is moved from CPF-SA to CPF-RA. Let's use your scenario, there should be still money left in the CPF-SA even if you decide to go with ERS (now $249k). If one still continues with VC, the CPF-SA will continue to grow?


AK71 said...

Hi K,

Just like how we will continue to have mandatory contributions if we are still gainfully employed, we can continue to do voluntary contributions at age 55 and beyond. You can do it for as long as you live.

If you refer to the CPF allocation rates table I shared here in this blog, you will see that if we make contributions to our CPF in our golden years, our CPF-SA will continue to grow but it will be growing at a slower rate.

At above 65 years old, only 0.08 part of any mandatory or voluntary contribution will go to the SA while 0.84 part goes to the MA. If the MA is maxed out, this 0.84 part goes to the OA which otherwise would receive only 0.08 part of any contribution then.

AK71 said...

Passive income strategy after making $1 million.
"I plan to max out the CPF Annual Contribution Limit in the next 10 years (till I turn 55) by doing more Voluntary Contribution as I no longer have significant Mandatory Contribution."

K said...

Hi AK,

This is the scenario: I am 56 (unemployed), CPF-RA has sufficient funds for ERS, I have some funds left in both my CPF-OA and CPF-SA. I have passive income from my investments.

I would definitely continue to do VC. My understanding is after 55, you can withdraw from CPF-OA and CPF-SA any time. If so, it will behave like 2 "savings account" for me at 2.5% and 4% interest. Noted that only a small part of VC will go into the 4% account.

Isn't this better than keeping my funds in a DBS savings account, if the interest rate at CPF-OA is better than the DBS account?

Is my thinking correct?

K said...

Why would you want to stop VC at 55?

K said...

Hi AK,

(not sure if my last comment was sent out)

What's the reason for stopping at 55?

If I am 56 years old with ERS in my CPF-Life, maxed out my MS, with funds in both my CPF-OA and SA, does it still make sense for me to make VC? My understanding is once you reach 55 you can withdraw funds from CPF-OA and CPF-SA, any time. If so, wouldn't it make sense to continue with VC and use the CPF-OA and CPF-SA as "savings accounts". My passive income will generate the VC amount for me. Noted that less of the VC will go into CPF-SA.

All things being equal, the CPF-OA and CPF-SA will still pay more than a bank savings interest rate.

Am I thinking logically?


Spur said...

I think some elderly above 55 have figured out to use CPF as a high-yield "bank account".

This is particularly for those who have met the FRS or BRS with property pledge, and also met BHS.

Even if most of the monies go into OA, but that's still a base 2.5%. Plus up to additional 2% interest.

Better than many "jumping-thru-hoops" bank accounts ... old folks need a break! Can't expect them to keep on running SOC in their 70s or 80s. Haha!

AK71 said...

Hi K and Spur,

That is what I have been saying for a while now and my parents were quite happy to continue contributing to their CPF accounts in their 60s. They are both above 70 now. :)

Most recently, I talked about it in this blog:
Deposit for 5 years 11 months for higher returns?

If things remain the way they are, I will very likely continue to contribute to my CPF account beyond age 55. However, I don't know if things will remain the way they are. So, I shall decide when the time comes. ;)

WTK said...

Hi AK,

That's the problem of not having the CPF Contribution from the employers if one is gainfully employed. However, if one decides to work after securing the financial freedom, it defeats the purpose of enjoying the merits of financial freedom. I guess that one cannot have the all slides of the cakes and eat them. This is life. One will have to make the decision accordingly. For one who decides not to work after securing the financial freedom, I guess that the only way to enjoy the benefit of compounding is through making voluntary contribution as suggested by you to make up the shortfall.


ED said...

Hi AK,
I think that some of your readers are not aware of the fine print when leaving their monies in their OA and SA after 55.

Yes they can treat them as 2 separate 'Bank Accounts', but they cannot fully control where to withdraw their money from. Here is the reply from CPF:

At 55, when my Retirement Account is setup with money from my Special Account. If there is money left in my SA, Can I leave it in the SA?
If yes, when I want to do a withdrawal from my CPF after 55, can I choose which account to withdraw from? IE, withdraw from OA instead of SA?

Yes, you can leave the savings in your SA.

Withdrawals will be deducted from your CPF accounts in this sequence (applies to all members 55 and above):
the interest earned in the Special Account (SA) then Ordinary Account (OA) from the beginning of the year up to the month before the withdrawal, followed by
the contribution/refunds credited to the SA then OA in the same month of the withdrawal, and lastly
monies in the SA then monies in the OA.

This would mean that members would not be able to request withdrawal only from the OA (or from the OA first).

I can understand why our government is doing this. They will make you to withdraw from the higher interest account first. You can make use of the system, but you cannot abuse it. After all, you have met your retirement objective with CPF when your RA is created.


Kevin said...

Hi AK,

Can a CPF member still make voluntary contributions if he or she(age below 55) has hit the FRS? Which account will the voluntary contribution go to?

Is it best to make the voluntary contribution on the calendar year January 1st to reap the rewards of the interest rate return if the person intends to contribute $37,740 to hit the CPF annual limit ceiling? That is assuming the CPF member isn't gainfully employed.

Another question is, what happens to the new CPF employer and employee contributions if the CPF member successfully contributed $37,740 at the start of the year which hit the CPF annual limit ceiling and became gainfully employed thereafter?

AK71 said...

Hi Ben,

Yes, unfortunately, we cannot have our cake and eat it too.

Once it is eaten, the cake is gone. Sob sob. ;p

AK71 said...

Hi ED,

Yup. Make use of the system but there are safeguards in place to make sure members don't abuse it. The CPF is supposed to help the common people and not the rich, after all. ;)

AK71 said...

Hi Kevin,

Voluntary contribution (VC) + mandatory contribution (MC) cannot exceed the annual contribution limit at any age. You can do VC as long as your MC has not hit the limit for the year.

If you have no MC like me, then, VC the annual contribution limit at the start of the year. You will earn more interest. ;)

If you are working and have MC, you might want to wait till December to see if you have any room left to do a VC. If you exceed the annual contribution limit, you will get a refund (like I did in some years).
CPF is really a PONZI scheme!

AK71 said...

Reader says...
Once we have maxed MA and SA, our voluntary contribution goes to OA and SA? Where can I find the percentage breakdown? Hehe I wish higher percentage goes to SA 😁😁😁 Thanks 🍷

AK says...
That is correct. 🙂
I shared the breakdown before.
See this blog:

Just In said...

Hi AK,

Could I clarify some questions on this topic? Firstly, if our SA already hit the MS (and we have employment), are we still allowed to do VC to our SA up till the annual limit? Secondly, if we lack cash to top up our SA (e.g. up to $7k/year for the tax relief), would you recommend someone performing an OA to SA transfer on an annual basis just to accelerate the process of getting SA to hit MS?

AK71 said...

Hi Just In,

I will not recommend anything although doing OA to SA transfer was what helped accelerate the growth of my CPF money.

Upsize $100K to $225K in 20 years?

As for doing voluntary contributions to the annual limit, you might want to read these:
1. How to grow our CPF savings?

2. $1.2M in CPF savings by age 65.

Gambatte! :)

AK71 said...

Oh, you definitely want to read this blog too:
AK is buying a 12 year AAA rated bond!

AK71 said...

Reader says:
Once the CPF SA reaches FRS, is it double confirmed that it will continue to grow (both by contribution and interest) instead of overflowing to OA? I am doing a projection of my SA (currently at $175k) and it should reach $350k once I am 55 (I am 45 and will stop contributing/working at 50). I hope to enjoy the 4% interest, but no where is it stated on what happens when SA hits FRS (ie. whether the additional money stays in SA or goes to OA).

AK says:
Yes, of course.
Read this blog. ;)

AK71 said...

Raymond Ng says...
(AK's) SA will grow to $493K by 65 (assuming no more top up).

Jack James says...
I think he is still topping up his OA instead.

He is not allowed to TOP up in SA account.

AK whispers...
Psst. I tell you hor.

Although I am not allowed to do retirement sum top up my SA anymore, more than 20% of my voluntary contribution (subjected to the annual CPF contribution limit) still goes to my SA now.

When I turn 50, more than 30% of my annual voluntary contribution will go to my SA.

More money in an investment grade sovereign bond that pays a 4% coupon? I like. ;)

Shhh. Don't tell too many people, OK? ;p

AK71 said...

Siew Mun Kwan says...
I will take note. Cos if I turn 55, employer/employee will reduce quite a bit. Hence i got room to do a voluntary cash top up
At 55, 15% still is quite a bit at 4%

AK says...
Yes, the ratio to SA drops from age 55.

Siew Mun Kwan says...
Now I know your strategy. Part of your Reits and Non-Reits returns are fed into your CPF to generate stable returns. Thereby creating a wealth eco-environment which is self growing and has stable returns.

AK says...
Nothing new, really.
I shared this 2 years ago. ;)

AK71 said...

Reader says...
Do you know what is the breakdown of the contributions into each account?

AK says...
It changes with age. See the table in this blog. ;)

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