AMA Christopher Tan
Asked on 23 Jan 2019
Thank you & appreciate your ans.
Hi Kkel Viin, thank you for your question. Sorry for the late reply. Firstly of all, let me just say that whether you are using cash or CPF, topping up your SA must be for the purpose of retirement planning and not tax savings. This is because, the topping up is irreversible and there is an opportunity cost.
So if you look at it from the retirement planning point of view, how do you use CPF as part of your retirement plan?
At the end of the day, the purpose of CPF is to help you accumulate a sum of money (at decently high interest) till age 65 and this lump sum will then be used to buy an annuity plan (called CPF LIFE). This annuity plan will pay a monthly amount until your unfortunate demise.
The use of annuity in your retirement plan is important. This is because, it is one of the very few instruments that can give you a reliable income stream (regardless of markets) and hedges against lonegivity risk.
So with that as the backdrop, go ahead and top up your SA with your cash if:
You want to build up your CPF so that you can have a higher annuity amount at age 65
You have sufficient liquidity - at least 6 months of your expenses must be in cash or cash like instruments.
You are not intending to invest it in other investments that has the potential to yield higher than 4% p.a.
Go ahead an top up your SA using OA monies if:
2.You have enough in OA to pay for mortgage, just in case you lose your income
And if you decide to use cash, you get to enjoy the tax savings. That is the bonus, not the goal.
Hope this helps.
You might want to read heartland boy explanation. https://heartlandboy.com/money-withdraw-from-your-cpf-at-55/
Too long, do not wish to read,
If you can do CPF Voluntary contribution as a self-employed, you still enjoy tax relief and also, you have a choice to include the amount for BRS (basic retirement sum) in the event you do not have enough money for FRS (full retirement sum).
Any SA money done for RSTU (top up SA for tax relief) is "reserved for RA account, which includes the interest" when you hit 55 for FRS. So it depends on whether you will be able to hit FRS.