Preparing For Retirement: How to Maximise Your CPF Savings

This was originally posted on Planner Bee.

Did you know that you can invest with your CPF savings? Instead of earning a mere 2.5% annual interest on your savings, you can tap on the Central Provident Fund Investment Scheme (CPFIS) to get better returns.

What is the CPFIS?

The Central Provident Fund is the national social security system in Singapore, and the CPFIS, or Central Provident Fund Investment Scheme, allows members to invest a portion of their CPF savings.

It means members can potentially enhance the returns on their savings beyond the standard CPF interest rates.

Essentially, members can invest money inside their Ordinary Account (OA) and Special Account (SA) in various financial instruments including fixed deposits, unit trusts, insurance products, bonds, and shares.

Who is eligible for the CPFIS?

Those who can invest under the CPFIS must meet the following criteria:

• Be at least 18 years old
• Not an undischarged bankrupt
• Have over S$20,000 in your OA
• Have over S$40,000 in your SA

The minimum sum requirement in your OA and SA is to ensure that you have enough funds in your CPF in the event that your CPFIS investments fare poorly.

If you meet these requirements, you will also have to complete a mandatory self-awareness questionnaire.

What you need to know before investing through the CPFIS

How do I know how much I have in my CPF account?

To find out how much you have in your CPF account, you can simply:

• Log in to the CPF website, or access the CPF e-Services via your SingPass app. Go to ‘mycpf Online Services’, then select ‘My Statement’
• Alternatively, head down to your preferred CPF Service Centre with your identity card

How much can I invest?

After setting aside S$20,000 in your OA and S$40,000 in your SA, you can invest the remaining amount.

You can invest up to 35% of your investable OA savings in funds and stocks, and up to 10% in gold and gold-related products. There is no limit to how much of your investable SA savings you can invest, but you have to keep a minimum balance of S$40,000.

Why should I invest my CPF savings?

1. Enhanced returns:CPF savings earn interest, but the rates may be comparatively lower than what can be achieved through certain investment options. Investing your CPF savings may provide an opportunity to potentially earn higher returns, especially over the long run.

If you let your savings sit passively in your account, the interest rates they accrue are very low:

2. Beat inflation: Over time, inflation erodes the purchasing power of money. Investing your CPF savings in instruments that have the potential to outpace inflation can help maintain the real value of your funds.

3. Diversification: CPF provides a stable and secure platform for savings. However, investing allows you to diversify your portfolio by including different asset classes, such as stocks, bonds, or real estate. Diversification can help manage risk and enhance overall portfolio resilience.

4. Flexibility: CPFIS offers flexibility in choosing from various investment options. Depending on your risk appetite and investment preferences, you can tailor your investment strategy to align with your financial objectives.

5. Withdrawal flexibility: While CPF savings are primarily meant for retirement, CPFIS investments offer a degree of flexibility. You can withdraw your investments when needed, providing liquidity for financial emergencies or other planned expenses.

What are the types of available investments?

Your CPF savings can be used to invest in the following.

Ordinary Account:

• Unit Trusts
• Investment-linked Insurance Products
• Endowment Policies
• Annuities
• Singapore Government Bonds
• Exchange Traded Funds (ETFs)
• Treasury Bills
• Fixed Deposits
• Fund Management Accounts
• Up to 35% limit of investable savings (combined):Shares Corporate Bonds Property Funds
• Up to 10% of investable savings (combined):Gold ETFs Other gold products

Special Account:

• Investment-linked Insurance Products (excluding high-risk products)
• Unit Trusts (excluding high-risk products)
• Annuities
• Singapore Government Bonds
• Endowment Policies
• Treasury Bills

A list of investment products under the CPFIS can be found here. You can also compare the available CPF investment options here.

Read more: Investing 101: What You Should Look Out for As A Beginner Investor

How do I get started?

If you want to start investing your OA savings, you have to first open a CPF investment account with OCBC, DBS, or UOB bank.

If you want to start investing your SA savings, you do not need to open a CPF investment account. You can contact one of these financial institutions or insurers to begin investing.

If you are a first-time investor, we recommend you exercise caution and engage a financial advisor or broker to manage your CPF investments. But if you are well-versed in investing and prefer to be in charge of your own investments, you can open a brokerage account before you begin.

Investments will not make you rich overnight, but by investing your savings, you make better returns than letting the money sit inside your account. If you do not have enough cash on hand, the CPFIS is a good way of starting your investment journey and diversifying your portfolio.

How do I choose the type of investment that best suits me?

Consider your investment horizon: Your investment horizon, or the length of time you plan to leave your money invested, is a critical factor. Different investments have varying time frames for potential returns, so align your choices with your financial goals.

Review CPFIS-OA and CPFIS-SA: CPFIS-OA allows you to invest using funds from your Ordinary Account, while CPFIS-SA involves investing with funds from your Special Account. Different investment instruments may be available under each scheme, and the risks associated with OA investments may be higher.

Stay informed about market conditions: Regularly stay updated on market conditions, economic trends, and potential changes in CPF investment options. This information can help you make informed decisions and adjust your investment strategy accordingly.

Do your homework

All investments come with a certain level of risk, so make sure you do your due diligence and know what you are in for before you start investing.

Always remember to consider your situation before you make any investments. If you are close to retirement, in need of funds to purchase a home, or if you notice that your investments are making less than the given interest rates, think about whether you are investing at the right time and whether you should hold back at the moment.

Start by taking the CPF Self-awareness Questionnaire here!

Read more: CPF Hacks To Become a Millennial Half-Millionaire