How older Singaporeans can continue using CPF to enjoy higher risk-free returns after age 55

For many Singaporeans and PRs, our 55th birthday marks the age we can finally withdraw some of our hard-earned savings from our CPF accounts.

We can withdraw at least $5,000 from our CPF Ordinary Account and Special Account balances, and if we have more than the Full Retirement Sum (FRS), we can withdraw anything above that. In 2021, the Full Retirement Sum is $186,000.

For those who want to continue keeping our money in CPF, it is not compulsory to withdraw any amount.

In fact, we can continue to enjoy higher risk-free returns by keeping our money in CPF than compared to the banks! In addition, we can also utilise CPF to grow our savings at a good interest rate past the age of 55.

Here are 3 ways we thought of (and you can let us know if there are other hacks we may have missed out).

1. Keep our emergency funds in our CPF

Rather than withdrawing what we can in cash, we can make use of our CPF to store our emergency funds.

All of us need to keep an emergency fund anyway, and being able to keep it in our CPF allows us to earn up to 6 per cent returns, compared to the 0.05 per cent we typically get in our savings account.

We need our emergency funds to be fairly liquid – which is why keeping it in our savings account, or even earning a slightly higher interest return on the Singapore Savings Bonds (SSBs) or cash management account are necessary.

However, after turning 55, CPF allows us to withdraw “in full or partially, as frequently as you like, and at any time”.

Once we decide to make a withdrawal, we can receive it “almost instantly” (if we are registered for PayNow).

Once we adopt this strategy, we can effectively use any amount we are eligible to withdraw from our CPF as our emergency funds. We are also not deprived of any cash flow, as we can make use of the amount we were already keeping as our emergency fund in our savings account.

2. Keeping a higher interest “fixed deposit”

When we turn 55, we need to set our retirement sum aside – in our newly opened Retirement Account (RA).

Even after setting this sum aside, we continue to add to our CPF balances with mandatory contributions from our salary, if we continue working. Our contribution rates are as follows:

As we can see, we do not contribute to our Retirement Account even if we continue working after 55. This doesn’t necessarily mean we can withdraw these savings – as we still need to meet our Full Retirement Sum (locked at the year we turn 55), before being able to make additional withdrawals from our CPF.

What it does mean, however, is that these additional CPF contributions may never go into CPF LIFE when we turn 65.

For those of us who have set aside our Full Retirement Sum, we retain the flexibility to withdraw our CPF savings any time we like. Hence, our mandatory CPF contributions via our salary can be taken as a “fixed deposit” that we can withdraw when we want as well.

Even for those of us who have not kept the Full Retirement Sum and cannot make withdrawals, we can still utilise these funds as a “fixed deposit” earning good interest of up to 4 per cent in our Special Account.

Rather than topping up our Retirement Account, we also have the option to treat it as funds we want to pass on to our beneficiaries.

3. Continue contributing to our retirement income

Once we turn 55 and set aside our retirement sum, we may think we have done enough for our retirement savings, especially if we are able to hit the Full Retirement Sum. This is entirely untrue.

The Full Retirement Sum is merely an amount set by the government rather than based on our individual needs. Furthermore, CPF LIFE monthly payouts are only meant to afford a basic standard of retirement.

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Even after turning 55 and whether or not we hit the Full Retirement Sum, we can still continue to add to our retirement income by topping up our Retirement Account up to the Enhanced Retirement Sum (ERS).

On a side note, by topping up our Retirement Account via the Retirement Sum Topping Up (RSTU) Scheme, we can continue to earn tax deductions.

This may also make slightly more sense when we are over 55, as our employee CPF contributions fall from 20 per cent to 13 per cent. This actually means the taxable income of employees above 55 earning $6,000 a month goes up.

The utility of CPF does not end at 55

For many of us, we will continue working beyond the age of 55. This is simply a function of increasing retirement age and life expectancy.

At the same time, hitting the milestone age of 55, when we can withdraw a lump sum amount from our CPF, does not mean the usefulness of CPF is limited. We can continue to make full use of our CPF to earn higher risk-free interest return on our funds.