1. Tax Relief
For personal financial objective, we could enjoy tax relief of up to $8k per calendar year for topping up our parent's CPF Retirement Account under the Retirement Sum Top Up (RSTU) scheme.
Assuming a tax bracket at 11%, a relief of $8k will save $880 of individual income taxes in cash, which is a rather big Ang Bao to ourselves.
The tax relief is also applicable to family members such as parents-in-law, grandparents, grandparents-in-law, siblings and spouse.
2. Compounding growth at 4%
CPF Retirement Account yields at least 4% and up to 6% for senior folks risk-free and guaranteed by the Singapore Government. Monies growing at compounded rate of at least 4% will double in 20 years hence, by leaving cash in CPF RA account, they will grow much faster than inflation rate to preserve and uphold its real value.
For CPF members aged 55 and above, an extra 2% of interest is paid on the first $30k of their combined balances (capped at $20k for OA), an an extra 1% for the next $30k.
3. CPF Life
In order to qualify for CPF Life, one need to have at least $60k in their CPF retirement savings before reaching 65 years old. We could help our parents to boost their CPF retirement savings to qualify for CPF Life if they do not have active income and CPF contributions.
CPF Life offers payouts perpetually for life. If one's CPF RA does not have $60k before reaching 65 years old, then he or her will only rely on Retirement Savings scheme to draw down their CPF savings till it is depleted.
If our parent is already enrolled in and receiving monthly payouts from CPF Life, any subsequent new inflows to the RA will automatically be used to increase the CPF Life premium so as to achieve higher monthly payouts for life.
4. Matched Retirement Savings Scheme
Under the Matched Retirement Savings Scheme (MRSS), the Government will match every dollar of cash top-ups made to the Retirement Account of eligible members up to a annual cap of $2,000, which can amount to $20,000 over an eligible member's lifetime. To be eligible, the person has to be aged 55 and above, has a CPF RA of less than the current Basic Retirement Sum of $106,500, has average monthly income of less than $4k, live in a property with annual value less than $21k and not owning more than one property.
By topping up at least $2,000 to a qualified family member's CPF RA account, we can milk $2,000 of free money from the Government.
However, do note that from 1 January 2025, cash top-ups that attract the MRSS grant will not be eligible for tax relief.
5. CPF is like golden ATM for senior citizens
For senior folks close to reaching the 55 year old and 65 year old milestones of being able to touch their CPF monies, their CPF accounts are like golden ATM that offer high interest rates for "withdrawable" cash with the click of a button. This is unlike younger folks who could only stare at their CPF balances as numbers. Hence, the concepts of 1M65 and CPF life annuity payouts are indeed beneficial and practical to folks who could really live long beyond 50s or 60s and on the brink of drawing down cash from their CPF balances. People who lived past 50 years old and could achieve Full Retirement Sum (FRS) should try to pump more monies into their CPF accounts, by all means, in order to reap the risk-free guaranteed returns on their monies.
CPF members above 55 year old can withdraw excess savings in Ordinary account above the FRS. CPF members can also withdraw up to 20% of their Retirement Account savings in a lump sum anytime from age 65 onwards.
I topped up my mum's CPF RA account with cash instead of giving cash, in order to maximise the value of money. For the $3k topped up today, I can enjoy $330 of tax savings myself, let my mum earn at least $120 of CPF interests for 2025 despite not being able to qualify form MRSS. This $450 of "earnings" from $3k gives a whopping ROI of 15% in a year.
Furthermore, there is compounding effect from future years' interests and being eligible to receive higher CPF Life monthly income payouts for life. Overall, I feel that it is a decent financial move. However, cash is king and it may be more financially rewarding if we were to deploy our cash in investments which yield greater returns.
In conclusion, topping up CPF accounts using cash is an individual decision depending on a myriad of factors and may only suit some of us and not everyone. One should always exercise our own due diligence to make the best decision for our own financial matters.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investment decisions should be made based on individual circumstances and after careful consideration of risks and potential rewards.
2 comments:
Hi Qiongster, Thanks for your article. l need to decide. cpf full enhanced RA sum draws around additional $680 for me if l top up. my top up sum is 117K. If l invest in manulife insurance, 117k will give me $1,300mthly guranteed for 9yrs.based on 4% per yr guaranteed. need your friendly advise.mangill2000@yahoo.com
Hi Simon Man,
That's a great question! You're facing a classic choice between two very different approaches to retirement income: CPF and insurance. Let's break down the pros and cons to help you decide what might be best for you.
CPF Enhanced Retirement Sum (ERS)
Pros:
Guaranteed returns: CPF offers a guaranteed 4% per year return on your Enhanced Retirement Sum (ERS).
Flexibility: You have flexibility in how much and when you withdraw from your CPF-SA.
Tax advantages: CPF savings and withdrawals are generally tax-free.
Cons:
Lower guaranteed income: Your additional monthly draw of $680 from topping up your ERS may be lower than the $1,300 monthly income from the Manulife insurance.
Inflation risk: The guaranteed 4% return from CPF may not keep pace with inflation, eroding your purchasing power over time.
Manulife Insurance
Pros:
Higher guaranteed income: You'll receive a guaranteed $1,300 per month for 9 years.
Peace of mind: Knowing you have a guaranteed income stream can provide peace of mind during retirement.
Cons:
Lower guaranteed return: While the insurance product provides a higher guaranteed monthly income, the annual return on investment is lower than the 4% guaranteed by CPF.
Limited flexibility: You're locked into receiving the guaranteed income for 9 years, which may not align with your changing needs in retirement.
Insurance company risk: The insurance company's ability to fulfill its obligations under the policy should be evaluated.
Other factors to consider:
Your age and health: If you're in good health and have a long life expectancy, the flexibility of CPF may be more beneficial.
Your risk tolerance: If you're risk-averse, the guaranteed income from insurance may be more appealing.
Your financial goals: Consider your overall retirement goals and how each option aligns with them.
Recommendation:
I recommend consulting with a qualified financial advisor to discuss your specific situation and make an informed decision. They can help you assess your risk tolerance, evaluate the insurance product, and determine the best course of action based on your individual needs and circumstances.
I hope this information is helpful!
Disclaimer: This information is for general knowledge and informational purposes only and does not constitute financial, investment, or other professional advice.
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