The growth of your CPF savings: From payday to retirement

10 Sep 2018 

Did you know that your CPF savings play a significant role in your financial journey?  Find out how your CPF grows from your very first contribution to support you at different life stages. 

The beginning of your CPF journey
From your first paycheque, you’ll notice that a portion of your salary goes into your CPF.  On top of that, your employer will also have to make regular monthly contributions towards your CPF according to the CPF contribution and allocation rates.

These contributions are then allocated across your three different CPF accounts:
The growth of your CPF savings From payday to retirement

Even though you might feel the impact of your take-home pay being lower than your gross pay now, you’ll see that in the long-run, it pays off in a big way! Over time, these savings accumulate and automatically multiply with the attractive CPF interest rates. 

The ‘growing stage’ of your CPF monies

This stage is where you can maximise your CPF savings, in two different ways: 1) through your ongoing CPF contributions, and 2) through compound interest.

1.  Ongoing CPF contributions 
Your ongoing CPF contributions earn base interest rates as follows: 

2.5% in your Ordinary Account (OA), and 4% in your MediSave (MA) and Special (SA) Account (RA).

You will also benefit from an extra 1%  interest on the first $60,000 of your combined CPF balances f(up to $20,000 from your OA). That means your savings in the OA can earn up to 3.5% interest per annum, and up to 5% in the rest of your CPF accounts!

For members aged 55 and above, an additional 1% interest is also paid on the first $30,000 of combined CPF balances, with up to $20,000 from your OA.

2.  Compound Interest
Your CPF monies in your accounts are compounded yearly, which means that your savings will grow at an increasing rate. Do you know that at up to 4% risk-free compound interest, every dollar in your SA will more than double in 20 years’ time?

Financially speaking, the best time to save up more money is when you are at the earlier stage of your working life, since bigger financial obligations aren’t as imminent. Being thrifty and conscientious on spending goes a long way, as money saved can go towards financial planning and investing in your future. 

Another tip is to prioritise paying off any student loans you may have. If you are repaying your loan under the CPF Education Scheme, you can use this calculator to calculate your loan repayment period.

By doing all the above, you will be able to make the most of this period to grow your CPF accounts! 

The ‘maturing stage’ of your CPF monies
This is the point where you are likely to be facing various factors impacting your financial growth, perhaps due to larger financial obligations that come with your age and life-stage. 

These may include costs relating to housing loans, marriage preparation, starting a new family or supporting your aging parents. 

While it may seem tough to grow financially in this stage, your CPF accounts do offer you support. Your CPF monies continue to increase steadily with the help of compound interest and, for working adults, your ongoing monthly contributions.

You can also use your CPF savings in your OA to help finance your home; use your MediSave for some of your medical needs; and continue to build your retirement nest egg with the savings in your SA. 
The growth of your CPF savings From payday to retirement

At this stage, it would be wise to start investing for your future, namely your retirement.

One way to do so is by making cash top-ups under the Retirement Sum Topping-Up Scheme. By topping up just $100 every month, you can grow your retirement nest egg to over $14,000 in  10 years1. Not only that, you will also be able to enjoy tax relief2​ from topping up.

The ‘renewal stage’ of your CPF monies
Finally, you’ve arrived at the stage where you get to reap the rewards of your hard work.

At age 55, your OA and SA savings will be transferred to form your RA. Your retirement savings will then be used for CPF LIFE, an annuity that provides you with lifelong monthly payouts from your payout eligibility age of 65.  

Your CPF LIFE monthly payouts will depend on factors such as the amount of RA savings you used to join CPF LIFE,  the CPF LIFE plan (Standard, Basic, or Escalating)  you choose and when you start your monthly payout. Your CPF LIFE monthly payouts will increase by up to 7% per year when you choose to start your payouts later, up to age 70. Here’s an estimation of how much you can expect to receive each month under the Standard Plan in 2018 with different retirement sums:

The growth of your CPF savings From payday to retirement

Make yours a fruitful journey
Simply make the most of each stage, and enjoy the process – remember, your CPF savings are meant to complement your financial journey and support your life goals. Plan for your future early and reap the rewards of your own!

1Based on the base interest of 4% p.a. on your Special Account (SA). Read more on CPF interest rates here. For more information on RSTU, refer here.

2​Tax relief is applicable only for cash top-ups up to the Full Retirement Sum. The maximum tax relief per calendar year of assessment is $14,000 (maximum $7,000 for self and maximum $7,000 for loved ones). Loved ones refer to your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings. To qualify for tax relief for cash top-ups to your spouse or siblings, they  must not have an annual income (e.g. salary or tax exempt income such as bank interest, dividends, and pension) of more than $4,000 in the year preceding the year of top-up or be handicapped. Overall personal income tax relief cap of $80,000 applies. Other terms and conditions apply.

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