There are many good reasons to top up your CPF Special Account (SA). It provides a stash that's locked up until you're retired and need the payouts from CPF Lifelong Income For Elderly (LIFE), a life annuity that provides a monthly payout once you turn 65.
All the while, it is also compounding your balances at a minimum return of 4.0 per cent per annum as well as providing you a tax relief on your chargeable income for every dollar you top-up, up to $7,000 in your own account and another $7,000 in a loved one's account.
People in Singapore are starting to warm to the notion too. In its latest annual report, CPF claims that there was a 96 per cent increase in the total top-up amounts coming up to $1.8 billion in 2016. Even our website regularly writes on why people in Singapore should consider CPF top-ups as part of their plans for retirement.
While it's a great tool for growing your retirement nest egg, there are occasions where you may not want to top-up your CPF SA. If you're facing any of the three life scenarios highlighted below, you may want to hold off topping up your CPF SA.
1. Before You've Bought A Home
If you've not bought a home, it's likely for several reasons. Of course, the most likely is that you're not looking to get married yet, but it could also be that you may have busted the income ceiling, have investment properties under your name or that you're getting married to a foreigner.
In several of these scenarios, you may not be able to purchase a Build-To-Order (BTO) flat from the government or get an HDB loan, where you only require a 10 per cent downpayment which can come in CPF monies. Without visibility into your housing requirements, you don't want to put liquid cash into the extremely illiquid CPF SA.
Sure, you may be losing out on a relatively good interest return, but this cash may come in very handy when you actually have to buy a resale home or a condominium, and have to cough up a substantial cash outlay.
2. If You Have Plans For A Big-Ticket Expense In The Near Term
If you're planning for a wedding party, buying a car or still haven't renovated your home, you may similarly want to hold off your CPF top-ups. These are usually once in a lifetime, or once in a very long-time, scenarios that will require lots of liquid cash to pay for.
Even if you think you can take a loan at a lower rate than the 4.0 per cent interest that the CPF SA is going to pay you, it puts added pressure on you to make those payments every month. And if you balloon those kinds of loans and payment terms, you'll be in for a very stressful time.
You could try to stash your money that's meant for your top-ups in a high-interest savings account or even the SSB while you navigate expenses on your wedding, car, home renovation or other big ticket expenses. If you require the cash, it'll be there, and if you don't require the cash, at least it'll be earning relatively decent returns and you can still top-up your CPF after paying for the big-ticket expense in question.
3. If You're Considering Moving To Another Country
A third life scenario you may be facing is the prospects of moving to another country, either migrating or because of work. You may find that moving to another country can be a "big-ticket expense".
First off, you won't really benefit from any tax reductions anymore if you continue to make these top-ups. Even if you're moving there only for work, you don't actually know when you'll come back so you may want to settle in and perhaps even purchase a home in that country.
If you have some foresight into this situation, you may want to hold off any cash top-ups as it's a one-way transaction and if you find yourself requiring cash while living abroad, it's going to be tough luck. Sure, you may finally decide to adopt a new nationality, which will return all your CPF monies, however, many Singaporeans still prefer to hold the Singapore passport even if they're living or working elsewhere.
Other Life Scenarios Where We Should Be Holding Off CPF Top-Ups?
In these three life scenarios, it makes sense to hold-off our CPF top-ups, temporarily or permanently, for various reasons. The fact remains that people will require liquid cash on many occasions in our lives and topping up our CPF accounts might limit this freedom.
We should think hard and very carefully about making CPF top-ups. It's a great way to build your retirement nest egg, but used wrongly, could be a double-edged sword.
DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.