I am a firm believer of the CPF system, and am pleased that we are getting 2.5% interest rates on the Ordinary Account (OA) and 4% interest rates on both the Special Account (SA) and Medisave Account (MA). I believe that it is a very good tool which will aid us in our retirement planning. The enhancement of the CPF to CPF Life made it an even better tool for retirement. It provides the best annuity plan in the market (no other private insurers are able to provide an annuity plan to compete with CPF Life). If anyone is able to find an annuity plan in the Singapore market which beats CPF Life, please let me know. I will be very interested in it.
I started contributing $7,000 per year voluntary top up to my Special Account. The benefits of Voluntary Contribution are two-folds:
(1) The amount you contributed is not subjected to taxes; and
(2) You get 4% interest on it yearly, and it is compounded.
As of current retirement sum (RS) numbers, if you have $80,500 in your Retirement Account (RA), you will be getting a monthly pay-out of about $660 – $720 per month for life (starting from Age 65). If you have $161,000 in your RA, you will be getting about $1220 – $1320 per month for life. If you have $241,500 in your RA, you will be getting about $1770 – $1920 per month for life. This RS numbers is expected to increase by 3% per year, to account for inflation.
For each year you delay receiving your pay-out, the monthly pay-out is expected to increase by about 6-7%. The latest you can delay your pay-out is until the age of 70.
This is a great tool and I am working towards helping my mum to achieve it. Voluntary Contribution to your parents SA is also tax deductible up to $7,000/year.
Clearly, this illustrates that you reap what you sow. However, we need to diligently watch our expenditures and savings to ensure that we have sufficient in our golden retirement years.
On a related topic, it is also worthwhile to top up your Medisave Account (beyond what is mandatory). Why would I suggest this? The premiums for MediShield Life and the Integrated Plans (from the private insurers) are deducted from the MA. As such, you will be able to use it to pay for your premiums, while also enjoying the 4% interest rates. Moreover, you can make it a “self-financing” system where the interest per year is sufficient to cover your premiums per year! That’s amazing.
For young families, or couples intending to start a family, the money in your MA can also be used to pay for your child’s healthcare expenses. As such, the money is immediately available to you! However, do note that the maximum Voluntary Contribution amount per year cannot exceed the CPF Annual Limit (e.g. $31,450 – Mandatory Contribution to all your CPF accounts) in 2015. In 2016, the CPF Annual Limit will increase accordingly to the Ordinary Wage ceiling.
Moreover, Voluntary Contribution to MA is also tax-deductible.
This illustrates how one can achieve savings with “double” benefits – higher interest rates + tax savings. I believe it and I am actually doing it and helping my mum to do it as well.
Again, if anyone finds a more comprehensive and better retirement/annuity plan + healthcare plan out there, please let me know so I can explore.
© Dr Thian Boon Sim
This article is contributed by Dr Thian Boon Sim. He is a Doctor of Philosophy in Electrical Engineering, specializing in the field of Wireless Communication.
Wee Khai 