Given the impending closure of CPF Special Account (SA) in early 2025 for individuals aged 55 and over, I’ve looked into the various options for excess funds in the CPF Ordinary Account (OA) once the Full Retirement Sum (FRS) or Basic Retirement Sum (BRS) has been met.
While I’m not personally in this situation yet, I hope this information proves valuable to those who are.
The image below outlines the primary advantages and disadvantages of these options. Continue to read for a more detailed explanation.
Option 1: Transfer to CPF Retirement Account (RA), up to the prevailing Enhanced Retirement Sum (ERS)
Together with the closure of SA, the ERS will increase to four times the BRS.
The primary benefit of transferring funds to the RA is the minimum guaranteed 4% interest rate*, which will lead to higher monthly payouts starting at age 65.
Before making this decision, consider the following:
- Irreversibility: Once transferred, funds cannot be withdrawn for other purposes and will only be paid out monthly from age 65.
- Potential Policy Changes: Although unlikely, there’s a remote possibility of future policy changes that could delay the current withdrawal age or modify the guaranteed interest rate.
*Government extends 4% interest rate floor on Special, MediSave and Retirement Account monies until 31 December 2025
Option 2: Keep the savings in OA
By keeping your savings in the OA, you will earn a decent interest rate of 2.5% per annum and maintain liquidity.
Although this is 1.5% lower than RA, the reduced interest over the longer term is manageable, especially if you plan to withdraw your OA savings eventually.
The liquidity might also come in handy for any unexpected expenses or opportunities.
Even if you don’t withdraw, these OA funds can supplement your CPF Life payouts from age 65.
Let’s use FRS and ERS for 2025 as an example.
| FRS | ERS | |
| At 55 | S$213,000 | S$426,000 |
| Estimated Monthly Payout at 65 | S$1,730 | S$3,300 |
If you leave $213,000 in your OA, it will grow to over S$270,000 by age 65.
As shown in the table, the payout difference at age 65 is S$1,570 per month. By withdrawing this amount monthly, you can supplement your CPF Life payout to S$3,300 until age 82.
After that, your OA savings will be depleted, but you’ll still receive S$1,730 per month from CPF Life.
Option 3: Invest savings under the CPF Investment Scheme (CPFIS)
If you have investment experience, you might consider investing your OA to get a return for more than 2.5%. The proceeds from liquidating these investments will be returned to your OA.
Singapore Treasury bills (T-bills) is a good option when interest rates exceed 3%. Alternatively, you can explore bonds or equities exchange-traded funds (ETFs) approved by the CPFIS.
As shown in the above table, only the Straits Times Index (STI) ETFs provided a return better than 2.5% over a three-year, five-year, ten-year periods.
However, this doesn’t mean that other ETFs are not worth considering and STI ETFs will continue to demonstrate strong performance. It’s important to remember that all investments carry risk, and past returns are not indicative of future results.
Therefore, it’s crucial to invest prudently and avoid making hasty decisions. Your OA savings are already generating a decent return, so there’s no need to rush into riskier investments.
If you prefer a more hands-on approach, consider investing in high quality Singapore companies with a proven track record of reliable dividend payments. Remember, even with carefully selected stocks, there’s no guarantee of consistent returns or capital preservation.
Option 4: Withdraw savings for investments that are not covered under CPFIS
This option is similar to investing through the CPFIS, but it allows you to invest in instruments that are not covered by CPFIS.
An example is Singapore Savings Bonds (SSB). While the current average return of 2.56% may not be as attractive, SSBs could be a good option if the interest rate rises back to around 3%.
Beyond SSB, there are many other investment options for cash outside of CPFIS. Investing directly in US or World ETFs is a straightforward approach.
Another advantage of withdrawing the savings is you will bypass the CPFIS 35% stock limit, giving you more flexibility for investing in individual stocks.
The only downside of this option is liquidating these investments won’t return the proceeds to your OA. You will need to find a suitable instrument, such as money market funds, to park your savings.
There is No Model Answer
You do not have to choose just a single option. Like mixing different foods for a delicious meal, you can combine these options to create a solution that suits your unique financial needs.
There’s also no one-size-fits-all answer. The best approach depends on your individual circumstances and comfort level. What works for someone else may not be ideal for you.
Therefore, it’s worthwhile to take the time to carefully plan your strategy. Don’t just focus on CPF; consider your entire financial picture, including asset allocation. This is a fundamental aspect of financial planning.
If you’re interested in my personal plan, you can read my previous article here. Please note that my thinking may change as I get closer to 55.
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