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Gladys Tan

Financial Consultant

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Common Questions About CPF & Pointers To Make CPF Work For You

Do you find yourself wondering about CPF and how you can make better use of it?

In March, I ran a quick poll on my Instagram stories to find out what my followers think of CPF and how they use it.

Here are some of the results from the polls:

Do you invest your CPF monies?

In the poll, 57% of those who responded said yes, 43% said no to this question.

It's almost split in the middle and a fair representation of the clients and friends I speak to as well.

Regardless of whether you intend to invest your CPF monies, here are some pointers to note:

1️⃣ While you can invest from both your OA and SA, your SA allows you to earn a higher risk-free return of up to 5% p.a, whereas the monies in our OA earn up to 3.5% p.a.

2️⃣ The interest rates awarded to our CPF accounts are risk-free, however they are not guaranteed to remain unchanged.

3️⃣ As of 1 October 2020, we are no longer subjected to a sales charge for investing CPF monies. Additionally, a reduction of the cap on wrap fees has also been put in place. Still, we need to pay for the agent bank charges but that’s a very nominal amount (a couple of dollars monthly).

4️⃣ While investing can potentially provide us more than risk-free returns, it is not without risk. Financial Markets can be highly volatile in the short term. During market declines, we may be tempted to sell our holdings to cut losses, but the market has historically recovered from financial crises. The question that must be asked is: Do you have time?

Do you top up your CPF account for Tax Reliefs?

It was interesting to note that only 27% top up their CPF account for tax reliefs.

I myself started just a few years ago.

🌟 Here’s a fun fact: Did you know that as of Nov 2021, more than 220,000 CPF members topped up > $4 billion in their own or their loved ones’ retirement savings?

This is the first time it has ever crossed this amount.

There are benefits to topping up our CPF accounts. Tax benefit is one. The other would be to increase our monthly payouts in retirement.

For some, it may seem like a situation where they can have their cake and actually eat it.

Of course, there are concerns as well. Some of us may prefer to keep cash on hand.

Furthermore, the top-up money is strictly for retirement and it is not refundable so we will not be able to access it until we are of retirement age. And because it’s specifically set aside for retirement, top-up money cannot be withdrawn for other purposes such as education, investment, insurance premium payments, and housing.

If you need help ascertaining whether this step is right for you, feel free to book a call with me to chat more.

Home owners, do you use CPF to pay for a mortgage?

75% of homeowners amongst the audience who responded use their Ordinary Account (OA) for mortgage repayments.

It seems like leveraging on the Housing Scheme is a popular option for most homeowners indeed.

After all, it allows us to:

👉🏼 Buy a HDB flat, or buy or build private and residential properties in Singapore.

👉🏼 Pay for down payment and housing loan taken for the property purchase

👉🏼 Pay for stamp and legal fees

👉🏼 Pay for a loan taken for the construction of your house and the purchase of vacant land (for private properties only)

👉🏼 Fund Home Protection Scheme premiums (for HDB flats only).

But how can we ensure that we don’t do the above at the expense of our Retirement?

Here are a couple of tips:

1️⃣ Maintain an emergency fund and use your OA wisely. Set aside some OA savings that can be used as an emergency fund and better prepare for your retirement. For instance, you can retain up to $20,000 at the point of home purchase to pay for your monthly housing instalment in times of need.

2️⃣ Balance your use of OA savings with cash. Use a mix of cash and your OA savings for your housing payments, so that you can keep some monies in your OA to earn risk-free interest rates and compound towards retirement. For individuals looking to earn more than these risk-free interest rates, you can consider investing your OA monies too.

Have you evaluated how your CPF can help you with your lifestyle needs? Whether it's for retirement, mortgage, or even healthcare?

Please don't hesitate to reach out if you need advice on this!

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