CPF Special Account (SA): Your Ultimate Guide

Financially Reviewed by Edward Hee
By Firdaus Syazwani

Published: 18 July, 2024
Last Updated: 24 July, 2024

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Planning for a secure and comfortable retirement might seem daunting, but it doesn’t have to be.

With the recent changes to the CPF Special Account (SA) in Budget 2024, things got a little complicated.

In this post, you’ll learn:

What the CPF Special Account SA is
How the closure of the SA works when you turn 55
Actions you can take with your CPF funds now
Whether topping up your CPF SA is right for you
How to top up your CPF SA

Curious about how these strategies can secure your financial future?

Let’s dive in and explore how to make the most of your CPF Special Account!

What is CPF Special Account (SA)?

The CPF Special Account is a crucial part of Singapore’s retirement planning framework, designed specifically to help you save for your golden years.

This account is part of the larger CPF scheme, which aims to ensure that Singaporeans have sufficient funds for retirement.

The CPF SA offers several benefits and features that make it a secure and attractive option for retirement savings.

Primarily, the CPF Special Account is intended for retirement savings and investments in retirement-related financial products.

This means that the money you put into your SA is earmarked for your future, giving you peace of mind that your retirement is financially secure.

One of the key advantages of the CPF Special Account is the interest rate it offers.

The government adjusts the CPF SA’s interest rate periodically to keep up with inflation, ensuring that your savings grow at a rate that maintains their purchasing power over time.

As of now, the interest rate for the CPF SA is 4% per annum, which is significantly higher than the interest rates offered by regular savings accounts.

Additionally, the funds in your CPF Special Account remain inaccessible until you reach the retirement age, which is currently set at 55.

This feature ensures that your retirement savings are protected from premature withdrawals, helping you build a substantial nest egg for your future.

Firstly, let’s talk about the changes in Budget 2024

When you turn 55, significant changes happen to your CPF accounts, especially the Special Account (SA).

At this milestone, the savings in your Special Account will be transferred to a newly established CPF Retirement Account (RA).

This transfer occurs up to the Full Retirement Sum (FRS), which is the amount considered sufficient to provide you with a basic level of retirement income through monthly payouts.

Any savings in your Special Account that exceed the Full Retirement Sum will be moved to your CPF Ordinary Account (OA), after which your CPF SA will close.

That’s the first change.

Next, the Enhanced Retirement Sum (ERS) has been increased from 3x to 4x the Basic Retirement Sum (BRS), providing an option for those who wish to have a more substantial monthly payout during retirement.

It’s important to note that opting for the Enhanced Retirement Sum is not compulsory.

You can choose to voluntarily top up your CPF RA to reach the ERS if you desire higher payouts.

Currently, the Retirement Account offers an interest rate of 4.08% per annum, up from 4.05% in the second quarter of 2024.

By voluntarily transferring more funds into your Retirement Account, you can take advantage of these higher interest rates and grow your retirement savings more effectively.

Here’s what you could previously do with your CPF SA before this change…

Before the recent changes to the CPF system, your Special Account offered several opportunities to grow your retirement savings and optimise your financial strategy.

A popular strategy was called CPF shielding.

CPF shielding involved transferring your CPF SA funds to investments just before turning 55.

This move was made to protect these funds from being automatically transferred to your Retirement Account upon reaching 55.

After your CPF RA has been created, you would liquidate your assets and it would be deposited back to your SA.

From this, you take advantage of the higher interest rate of the SA for a more extended period.

This strategy allowed you to maximise your retirement savings by leveraging the relatively higher returns from the SA and your chosen investments.

However, the ability to shield your CPF Special Account funds has been discontinued with the latest changes.

Now, when you turn 55, your Special Account savings will be automatically moved to your Retirement Account, up to the Full Retirement Sum (FRS), regardless of any previous investment strategies.

The remaining funds will then be transferred to your OA, and then the SA will be closed.

Things you can/should do now once you’re 55

Reaching the age of 55 marks an important milestone in your financial planning journey, especially when it comes to managing your CPF accounts.

There are several strategic steps you can take to optimise your retirement savings and ensure a comfortable retirement.

Transferring CPF OA funds to your RA

One of the key actions you can take is transferring your Ordinary Account (OA) savings to your Retirement Account (RA).

This transfer is beneficial because the RA offers a higher interest rate compared to the OA.

By moving your funds to the RA, you can take advantage of this higher interest rate, which is currently 4.08% per annum, slightly adjusting to 4.05% in the second quarter of 2024.

Additionally, these funds in the RA will contribute to your CPF LIFE payouts, providing you with a steady stream of income during your retirement years.

Keep your CPF OA funds as-is

Alternatively, you may choose to stick with earning the 2.5% interest rate offered by the OA.

While this rate is lower compared to the RA, it still provides a safe and reliable return on your savings.

This option might be suitable if you prefer to keep your funds more accessible or if you have other plans for your OA savings that require flexibility.

Keep funds in OA, but invest it

Another option to consider is investing your OA savings through the CPF Investment Scheme (CPFIS) to potentially earn more than the standard 2.5% interest rate.

There are various investment opportunities available, such as unit trusts, stocks, and bonds, which might offer higher returns.

However, investing comes with risks, and it’s important to carefully assess your risk tolerance and investment goals.

Consulting with a financial advisor can help you make better decisions when planning for your retirement.

Withdraw your OA funds & invest it

You also have the option to withdraw your OA savings and use them to invest.

This approach gives you complete control over your funds and allows you to explore a wider range of investment products.

However, it’s crucial to consider the risks and benefits associated with such investments.

Ensuring that you have a well-diversified portfolio and a clear investment strategy can help you manage risks and optimise returns.

This is especially essential as you could’ve obtained a risk-free 2.5% per annum if you left it in your CPF OA, or a 4% yearly if you transferred it to your RA.

So you have to make sure that if you’re investing it, it minimally meets these benchmarks consistently.

Should you top up your CPF Special account after these changes?

If You Have Excess Funds and Would Like to Meet the ERS, Yes

If you find yourself with excess funds and you are aiming to secure a more comfortable retirement, topping up your CPF Special Account can be a wise move.

The Enhanced Retirement Sum (ERS) offers a higher retirement savings threshold, currently set at 4 times the Basic Retirement Sum (BRS).

Meeting the ERS can significantly boost your monthly CPF LIFE payouts, ensuring a more generous income stream during your retirement years.

By topping up your Special Account, you can work towards reaching the ERS, thereby enhancing your financial security and peace of mind in your later years.

If You Are Risk Averse and Would Like to Rely on CPF LIFE for Your Retirement Funds, Yes

For those who prefer a more conservative approach to managing their retirement savings, topping up your CPF Special Account is a sound strategy.

The CPF Special Account offers a reliable and relatively high interest rate of 4.08% per annum.

This rate is significantly higher than what most traditional savings accounts offer, providing a safe and effective way to grow your retirement funds without exposing them to market risks.

Additionally, by topping up your Special Account, you can rely more heavily on CPF LIFE, an annuity scheme that guarantees lifelong monthly payouts.

This scheme ensures that you have a stable and predictable income throughout your retirement, reducing the stress of managing investments or worrying about running out of savings.

For risk-averse individuals, this can provide a comforting level of financial security, knowing that their retirement funds are both growing steadily and protected from market volatility.

If You Need the Liquidity, No

If you require liquidity, which most people do, topping up your CPF Special Account might not be the best choice.

Instead, you might want to use your cash for more immediate needs such as housing, children’s education, or supporting your parents.

These are significant expenses that require accessible funds, and once you top up your CPF Special Account, the money becomes locked in until you reach the eligible withdrawal age.

Therefore, maintaining liquidity to handle these essential and often unpredictable life expenses can be more prudent.

If You Want to Invest to Earn More Than the Risk-Free Rate, No

For those who are looking to invest and earn returns higher than the CPF Special Account’s interest rate of 4.08%, topping up your CPF SA might not be the most effective strategy.

The investment choices under the CPF Investment Scheme (CPFIS) are somewhat limited.

By withdrawing the cash instead, you can explore a broader range of investment opportunities.

You have the option to either do it yourself (DIY) or engage a professional financial advisor.

This flexibility can potentially yield higher returns, provided you have a well-thought-out investment strategy and are comfortable with taking on more risk.

How can I top up my CPF Special Account (SA)?

Topping up your CPF Special Account (SA) is a straightforward process, and it can be a strategic move to enhance your retirement savings.

I covered it comprehensively here.

Conclusion

Understanding and optimising your CPF Special Account (SA) is crucial for securing a comfortable retirement.

We’ve covered what the CPF SA is, how the closure works when you turn 55, and the actions you can take with your CPF funds now.

We also discussed whether topping up your CPF SA makes sense for you and the steps to do it if you decide to go ahead.

Remember, topping up your CPF SA can boost your retirement savings, but it’s not the only option.

Whether you need liquidity for immediate expenses or want to explore higher-yield investments, it’s essential to consider your personal financial situation and goals.

If you’re still feeling unsure about the best approach for your retirement planning, don’t worry.

Our financial advisor partners are here to help, and you can talk to them for free.

They can provide personalised advice to help you make the most of your CPF savings.

Retirement planning doesn’t have to be confusing or stressful.

With the right information and support, you can take confident steps towards a secure and enjoyable retirement.

Click here to talk to a financial advisor.

References

Firdaus Syazwani

In 1999, Firdaus's mother bought an endowment plan from an insurance agent to gift him $20,000. However, after 20 years of paying premiums, Firdaus discovered that the policy was actually a whole life plan with a sum assured of $20,000, and they didn't receive any money back. This experience inspired Firdaus to create dollarbureau.com, so that others won't face the same problem of being misled or not understanding what they are purchasing – which he sees as a is a huge problem in the industry.

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