Understanding CPF
Here Is What Is So Special About Your
CPF Special Account (SA)
Alright, here is a CPF account that is not much talked about by people. Well one reason, you can’t really use the money. It is focused on preserving for your retirement hence it is quite locked up until you reach 55.
Nevertheless, there are some things that I will share with you now that might beneficial who love the term FYI. So here are 3 Things about CPF Special Account.
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You are only contributing 6% of your income into your CPFSA
It is the least in terms of your CPF allocation rate. Here’s a table of the allocation rates:
Well, this table applies to CPF members who are 35 and below and who are from the private and public non-pensionable sector.
Why it is allocated this way, I have no answer for that. It does ponder a question on why we are not placing the majority of the money for our retirement when that is when we need the most.
Nevertheless, we do need the funds to buy a house. Thus it is a matter of decision making from the people who handle our CPF monies.
2. Investing from your CPFSA
For those who might not know, your CPFSA does earn an interest of 4% per annum and it is risk-free, meaning that you will only earn interest without ever taking any risk.
Comes to the question, why should I invest? Well, one simple answer is to get a better return elsewhere. When it comes to investing, if you want to earn 8%, you have to be willing to lose 8% as well. So there are definitely risks.
You also need to have at least $40,000 in your CPFSA in order for you to invest. For example, if your CPFSA balance is $45,000, you can only invest $5,000. Unlike your CPFOA, you don’t have to open up an investment bank account in order for you to start investing. Well, that is one less troublesome task for you in order to start investing.
3. Why must I have a balance of $40,000 before I can invest?
There is no clear answer to this but I have my own view on this. Some young adults are keen on investing their CPFSA but that minimum balance of $40,000 might be one thing that is stopping them from doing so.
As you might know, in order for you to invest your CPFOA, you must have at least $20,000 and for CPFSA it is $40,000. When you reach 55, both your CPFOA and CPFSA will combine and create your CPF Retirement Account.
For example, we assume an individual uses up all his CPF monies for investment; he will still need to have $20,000 in CPFOA and $40,000 in CPFSA. Upon age 55, both accounts are combined and it totals up to $60,000.
Upon reaching 55, there is a retirement sum that has to be fulfilled. There are 3 tiers of the retirement sum; Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS).
To sidetrack a bit, the Retirement Sum Scheme is a scheme that provides CPF members with a monthly income to support a basic standard of living during retirement. You need to have at least $60,000 before your payout eligibility age in order for you to be placed on CPF Life (an annuity scheme that will provide you income during retirement).
Hence there it is, that $60,000 that you need to have in order to be placed on CPF Life comes from that minimal of $60,000 combined from your CPFOA and CPFSA that you have to set aside before you can start investing.
That comes to the end of 3 Things About CPF Special Account. Hope that this is beneficial for you and do share it with your family friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
