CPF Special Account: Why Singaporeans should give more hoots about topping up
But first, a question: What kind of a money-minded Singaporean are you?
As advocates for being masters of your own finances, it is heartening to see that Singaporeans are taking greater ownership over their retirement: last year, Singaporeans voluntarily topped up a total of S$1.6 billion into their CPF accounts.
But compared to the Ordinary and Medisave accounts, it seems the Special Account is still suffering the middle child syndrome - overlooked and underappreciated (try grabbing a random friend to ask what it does).
What’s CPF Special Account?
It is one of the three accounts under your CPF that specially serves your retirement planning. When you turn 55, the balance in your Special Account combines with that in your Ordinary Account to form the Retirement Account, which dispenses monthly payouts when you officially hit the retirement age.
Depending on what kind of money-minded Singaporean you are, it might pay - quite literally - to show your Special Account a little more love if you fancy living out your golden years on your own terms.
So… you’re a Corporate Climber. Your Special Account helps dodge IRAS, legally.
Two things come to mind whenever the CPF Special Account (SA) gets brought up: retirement and tax relief. We’re here to repeat the latter for your benefit; for every cash top-up you make to your own SA, you enjoy dollar-for-dollar tax relief, up to a maximum of S$7,000.
For those of you who are set on dominating the corporate game of Snakes & Ladders, this is a great ‘loophole’ to reap tax savings considering that all those promotions would push you further up the income tax bracket - a place you’d hate to be climbing, we’re sure.
Pro tip: The dollar-for-dollar tax relief is also applicable for cash top-ups to your parents’, spouses’ or siblings’ CPF Special Accounts, also up to a maximum of S$7,000. You could potentially be enjoying total tax relief of S$14,000.
So… you’re Self-Employed. Your Special Account helps pad up your retirement.
Self-employed individuals, be it an aspiring Steve Jobs or a freelance writer, tend to get lauded for daring to be masters of their own destinies. But have you thought about being a master of your retirement lately?
Rather than to wait till you’re older and unpleasantly surprised, now’s a good time to start thinking about setting aside a comfortable sum each month for voluntary contributions, especially if you don’t foresee yourself returning to full-time employment, ever. Top-ups to SA are locked up and irreversible, which might be a good thing to protect your retirement needs compared to other more liquid forms of financial instruments.
Unlike corporate climbers, self-employed individuals have to bite the bullet: they lack employer’s CPF contribution (17%), steadiness of CPF contributions and medical benefits. With these ‘disadvantages’ in mind, ask yourself this: do you plan to continue hustling well into your re-employment years, or do you want to retire earlier and enjoy the fruits of your labour?
Additional note: one benefit of CPF Special Account not many know about is that in the event of bankruptcy (touch wood), your funds in here will not be forfeited.
So… you’re a compulsive Investor-Saver. Your Special Account helps fast-track your nest egg.
CPF SA gives you up to 5% per annum interest rate, with an additional 1% on your first S$30,000 of combined CPF balances if you are 55 and above. This number is nothing to scoff at, sure, but if you are used to seeing double digit growth on your investment portfolio, seeing your retirement monies being compounded at up to 6% is a pretty big deal considering that it is risk free.
We’d like to invite you to find something better, and tell us all about it!
Moreover, if you have managed to hit S$40,000 in your SA, you can use your excess balance to invest in the likes of stocks, corporate bonds, unit trusts and ETFs under the CPF Investment Scheme – SA (CPFIS-SA). You can find the full list of eligible investment options here. Otherwise, you’d have to do it with cash out of your own pocket, which could be reserved for other lifestyle needs.
Pro tip: Instead of waiting till the end of the year to top up your Special Account just for the tax relief in the following year of assessment, the best time to do it is at the start of the current year to max out the interest rate benefits.
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