CPF optimisation

I know that a lot of Singaporeans complain about our CPF system but personally I think it is a really good one. After speaking to many of my foreign friends, they are all very envious of this retirement scheme that the Singaporean government has in place for its people.

Here is an overview of the Singapore CPF system and how best to optimise your returns, assuming that you have more than sufficient cash for your day to day necessities.

Basis CPF overview:


The Contribution Rates

If your income is above SGD 5,000/mth, there is no contribution from the SGD 5,000 upwards.

Employee Age (Years)	Contribution Rate (for monthly wages ≥ $750)			Credited to
	Contribution by Employer (% of wage)	Contribution by Employee (% of wage)	Total Contribution (% of wage)	Ordinary Account (% of wage)	Special Account (% of wage)	Medisave Account (% of wage)
35 & below	16	20	36	23	6	7
Above 35-45	16	20	36	21	7	8
Above 45-50	16	20	36	19	8	9
Above 50-55	14	18.5	32.5	13.5	9.5	9.5
Above 55-60	10.5	13	23.5	12	2	9.5
Above 60-65	7	7.5	14.5	3.5	1.5	9.5
Above 65	6.5	5	11.5	1	1	9.5

 Table from : CPF

Interest rates earned:

Ordinary Account: 2.5% p.a.

• What is this? This contribution is for housing, insurance, investment and education
• How is this calculated:3 month average of major local bank's 12 month fixed deposit or 2.5% p.a., which ever higher
• What can you use this for? :  Investments that are allowed by the government under this account, subject to a min of SGD 40,000 in the account

Special and Medisave account 4.0% p.a.

• What is this? Special account is  for old age and investment in retirement-related financial products. Medisave account is for hospitalization expenses and approved medical insurance.
• How is this calculated: 12 month average yield of 10 year Singapore Government securities plus 1% or 4% p.a., which ever higher
• What can you use this for? :  Investments that are allowed by the government under this account, subject to a min of SGD 20,000 in the account

Retirement Account  4.0% p.a.

•  This account is created by transferring the saving from the special account and ordinary account on your 55th birthday.
• How is this calculated: 12 month average yield of 10 year Singapore Government securities plus 1% or 4% p.a., which ever higher
• The minimum sum will be SGD 155,000 where at least SGD 43,500 needs to be in your medi safe.

 Special additional 1% : Government shall pay additonal 1% pa.a for first 60k of a member's combined balances, with up to 20k from the ordinary account. This additional interest will go either into the SA or RA

How to optimise your CPF

• Try to put contribute more CPF per year. From 2015, max you can contribute is SGD 31,350 per year or  addition SGD 9750, over your mandatory contributions (assuming you earn more than SGD 5,000 / mth)
• Try to hit a min of SGD 60,000 as soon as possible, so that you can earn the extra special 1% interest rate on your money.
• If this money is purely for retirement and you do not need it till you retired, try to max out your special account as soon as possible. The max is the current CPF minimum sum, which is about SGD 155,000.

Summary
The above advice is for those who are not so investment savvy, or maybe others who just want some investments in low risk portfolios. I personally think that a stable 4% p.a. interest in the special account is a good low risk investment for the long term. And with the additional 1% special interest for the first SGD 60,000, I would say that this investment is as good as it gets, based on its risk/reward.