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How to make up to $1m with CPF

Tan Ooi Boon on 06 Jan 2021

The Straits Times


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To start the new year on a positive note, here are some tips on how you can invest your money so that you can reap returns of between $200,000 and $1 million for your retirement.


The best part is you do not even need to come up with a lot of cash to earn this amount, and you can start planning for this investment right now in your own home.


No, this is not one of those "too good to be true" get-rich-quick schemes that you may come across on social media.


Indeed, this investment is not only for all residents here, it is also the safest around because it is protected by the Singapore Government.


I am referring to the ubiquitous Central Provident Fund (CPF). Many people are still unsure how to maximise its full potential to generate good retirement income that will last them a lifetime.


Singaporeans have had a love-hate relationship with the CPF. Those in the hate camp are resolute in seeing CPF as a "scam" by the Government to prevent them from withdrawing all their funds at age 55.


As they detest receiving their payouts in "dribs and drabs" from 65, many have the mistaken belief that they should deplete their accounts as much as possible, such as by using all their eligible funds to pay for their housing loan.


After all, since they cannot touch much of the money until 65, they think it is better to use CPF to pay their mortgages, as this means they can have more cash now.


But fans of CPF think otherwise - they are mostly savers and even savvy financial planners who know how to use CPF's ability to generate good returns for themselves.


It is not an exaggeration to say that CPF has been making millionaires out of ordinary working-class Singaporeans who will get to enjoy every dollar that they put there, with hardly any risk of losing even a cent.


Of course, such big returns will not appear overnight - you need a lifetime of patience and some planning to reap the rewards.




There is a reason that Singapore's CPF is lauded as the best retirement scheme in Asia. CPF Life, its longevity annuity scheme, can provide a rather substantial monthly payout for life with a relatively low investment.


For instance, those who turn 55 this year can set aside the Enhanced Retirement Sum (ERS) of $279,000 from either their CPF Special Account (SA) or Ordinary Account (OA) to enjoy a monthly payout of up to $2,300 from the age of 65.


If they live until 85, they would have received about $550,000 in all, which means they would have almost doubled their original amount and gained more than $270,000.


At 90, they would have received a total of about $690,000, or more than $410,000.


Do not despair if you do not have enough for ERS - you can still aim for the Full Retirement Sum at $186,000, which will give you a monthly payout of up to $1,500, or the Basic Retirement Sum (BRS) at $93,000, which will give you a monthly payout of up to $800.


Of course, when you set aside a lower amount for CPF Life, you will receive lower returns than those who have put up the highest sum.


If you are still keen to earn more, the good news is that this investment does not end at 55.


You can continue to top up the CPF Life retirement account with either cash or your remaining funds in CPF until you hit the ERS limit for the year.




In the past few years, many savvy CPF fans have been proudly sharing their secret of how to "game" the CPF system by making use of its own rules to make more money.


This is how one tip works:


•A few months before you reach 55, you will receive a written notice from the CPF Board to inform you of the CPF Life scheme and how you can benefit from it. Once you decide that you want to set aside the ERS, the total sum of $279,000 will be deducted from your existing funds in the SA first. If you do not have enough, the remaining sum will come from your OA.


• You should know by now that money in the SA earns 4 per cent interest, while money in the OA earns 2.5 per cent. Of course, those seeking more returns would prefer that CPF deduct the ERS amount from the OA first, rather than the SA, but this is not how the current process works.


•To circumvent the deduction from the SA, you can leave behind the mandatory minimum of $40,000 and invest the rest in a short-term and relatively safe investment product approved under the CPF Investment Scheme.


•When the time for deduction comes, only the remaining $40,000 in your SA will be deducted and the CPF Board has to deduct the rest of the sum for ERS from your OA.


•After the deduction, you can cash out on your short-term investment and all the money will then go back to your SA, which earns more interest.


You may want to commend the person who first thought of this creative plan to "hide money" from the deduction process so that members get to have more funds in their SA.


But this plan comes with some risks, especially if you are not a savvy investor.


First, you need to pick the right investment product and pay the applicable fees even though you plan to park the SA funds for only a short time.


Know that no matter how safe a product is, there will still be risks of losses, especially if a major crisis breaks out suddenly.


So it may not be worth your while just to earn extra interest at 4 per cent. Do not forget that if you leave your money untouched in the OA, it still earns 2.5 per cent.




Whatever method you choose to deal with your fund, the central idea is to inject more cash into the CPF to earn more interests.


• When the transfer date comes, the FRS ($186,000 this year) will be deducted from your accounts. After the deduction, use only cash, not CPF, to top up to ERS. This will leave you with additional cash of $93,000 in CPF.


• Money will be deducted from SA first before OA. If you have plans to use some of the funds in OA for property financing, you can ask to reserve a portion of your money in OA so that this amount stays there and will not be transferred to your Retirement Account (RA). After that you can use cash to top up the shortfall  in RA later - top ups to the original FRS amount earns tax relief of up to $7,000 per year. In this way, you can put in more than  $93,000 cash into CPF as well as benefit from the relief. 


Many people hope to retain  money in SA by taking up short-term investments. But it is not easy to keep it there unless you don’t need the money for a long time - any withdrawal or transfer after 55 comes from there first. 


So rather than to focus on earning 4 per cent over a smaller sum, think about refunding as much of the CPF used for your property (including accrued interest) into OA in the long term.  After all, 2.5 per cent interest on say $400,000 in OA still earns $10,000 a year and all the money is available to you anytime. 


If you continue to leave all your money in CPF after 55 and withdraw only sparingly, substantial balances can yield a return of $500,000, if not more, by the time you hit 85, given the high interest rate.


And together with your returns from the CPF Life payouts, you can aim to hit $1 million. After all, we should prosper as we live longer, and not get poorer, right?


Correction note: This story has been edited for clarity.


Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.



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