If you're anything like me, you receive your pay check at the end of each month, and swear that the next month will be different from the last.
Perhaps you stay disciplined the first week. Then the second week you are tired after going to the gym and decide to take a cab home rather than the bus. That weekend, you attend your friends' wedding at an expensive hotel and have to give them a generous red packet. Finally, the icing on the cake - the dreaded pink slip on your car windshield! These incidents do add up.
Fortunately for Singaporeans and Permanent Residents, each month, a portion of our pay check is automatically saved to our CPF accounts, just like the auto-save function on the Word Processor, which I am relying on as I type this.
The money is not just being set aside in a dusty account. Rather, our CPF is designed to be maximised by us at different stages of our lives. In our younger years, we might rely on the savings in the Ordinary Account (OA) to purchase property. As we grow older, we may start needing our Medisave Account (MA) for better medical insurance or hospital visits. Later in life, the money in our Special Account (SA) helps to build our Retirement Account (RA), to ensure we receive monthly payouts in our twilight years.
In case you are not already aware, while you are under the age of 55, your monthly contribution to your CPF account is 37% of your total wage. 20% of that comes from your pay check, and the other 17% is payable by your employer. As you grow older, your CPF contribution rates will decrease as per this breakdown:
Information above accurate as of Mar 2017
#1: How CPF helps you CTRL+S for a house
The Ordinary Account will be most relevant to us while we are in our twenties through to forties. This account is designated for housing, insurance, investment and educational expenses.
If you're ready to settle down or if you simply would like to buy a property, you can use your OA savings to purchase an HDB flat or a private residential property.
If you are using your OA savings to service a housing loan for an HDB flat, you are required to be protected under the Home Protection Scheme, which is a mortgage-reducing insurance. It only applies to public housing and can also be paid for using OA savings.
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#2: How CPF helps you CTRL-S for your health
If you discover that you have a chronic condition requiring frequent medical treatment or you need to be hospitalised, the savings in your Medisave Account can help to meet these costs. The money is there to ensure that we are never stranded or caught off guard by the cost of medical expenses.
Furthermore, we are automatically covered by MediShield Life, a basic insurance scheme that is covered by the savings in your MA. If you decide that you want to buy an additional private health insurance as well, CPF members can also use their MA savings to help cover some of the costs of an Integrated Shield Plan.
It is also comforting to know that everyone over the age of forty is automatically enrolled in ElderShield, a severe disability insurance scheme which provides monthly cash payments to aid those who are not able to do simple daily activities and who need long-term care, especially in their old age.
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#3: How CPF helps you CTRL+S for a happy retirement
How do you utilise your Special Account (SA)? The easy answer is… you don't! Or at least not yet. This is the account that perhaps most people associate with CPF. It is money that is being put aside for retirement.
If you want to get more 'bang for your buck', then you may want to consider transferring money from your OA to your SA^. The interest rate on your OA is up to 3.5%* while the interest rate on your SA is up to 5%*.
^ For members 55 and below only
* The above interest rates include an additional 1% interest paid on the first $60,000 of a members' combined balances (with up to $20,000 from the OA). For those aged 55 and above, an additional 1% extra interest is paid on the first $30,000 of combined balances.
However, do note that this process is irreversible. If you have thought through your needs for your OA savings and think that you can afford to, then transferring money from your OA to your SA is a safe way to grow your retirement money over time.
Additionally, if you would like to put away a little extra for your old age, you can consider topping up your Special Account (or Retirement Account Savings for those 55 and above). Under the CPF Retirement Sum Topping Up Scheme, you can get tax-relief of up to $14,000^ per year if you use cash to top up the SA/RA for you and your *loved ones.
^ Cash top-ups beyond the current FRS will not be eligible for tax relief. Overall personal income tax relief cap of $80,000 applies for cash top-ups to CPF accounts.
* Loved ones refer to parents, grandparents, parents-in-law, grandparents-in-law,spouse and siblings
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So we can rest assured that our CPF is helping us to CTRL+S for our financial security… but don't ditch that budgeting app just yet! While our CPF savings are certainly helpful for getting through the different pillars of life - housing, healthcare and retirement - that doesn't mean that we shouldn't be setting some money aside by ourselves. Now is as good a time as any to kick off with some healthy spending habits and start planning for the future.
CPF Contribution Calculator
CPF Starter app
Writer profile: Faith is a part-time writer and future trainee lawyer. Starting out in the work force and receiving her first pay checks, she has been doing research into the best way to maximise her savings and her CPF.