Everyone of working age would have definitely have heard of Central Provident Fund (CPF). At individual level, they either love it or do not like it. Those who do not like it may feel that it is a forced saving and fear policy changes impacting the scheme or even that it is a scam. In some cases, they may have been misinformed. Whereas those who love it understands the benefits and maxmises it.
I used to belong to the camp that did not like it mainly because of the fear of policy changes and I felt that I could earn more through investment rather than have the money sitting in CPF earning up to 3.5% (for OA) or 5% for (MA and SA).
I was too naive. Having embarked on the investing journey sine 2011, I realised that it is not easy getting a portfolio yield of 5%. From my records, I have not even reached 5% yet, even after 11 years. But bearing unforeseen circumstances, I should get above 5% this year. Due to this experience, I decided to explore CPF and join the 1M65 telegram group. As I understood CPF more, I appreciated it more. I decided to explore ways to maxmise it without topping up with cash unnecessarily as there was still a policy risks such as changes to withdrawal age.
I had two immediate priorities. The first was to transfer excess money from OA to SA to earn a higher interest while balancing the need that I still need OA for monthly deductions for housing. This was not an easy decision as this transfer is irreversible. If I am out of job, I could run into the risk of having to use cash for my monthly deductions when my OA runs out. Hence, proper planning is important and it is essential to ensure that you have at least 6 to 12 months of buffer for your monthly deductions.
Second, reach MA Basic Healthcare Sum (BHS), so that contributions meant for MA would flow to SA instead. I had actually reached BHS since 2022. When 2023 started, I did a top up of $2,500 to my MA using cash in January. Also, whenever I had deductions in MA for insurance, I topped up the shortfall in amount to reach BHS in the same month. This is because I wanted my contributions meant for MA to flow into SA. This is a win win situation for me as based on my income assessment projection, my cash top ups to MA will be eligible for tax relief.
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| Source: CPF |
a) CPF interest is calculated based on lowest balance of that month (vs interest being calculated based on average daily balance); and
With this, I have already decided several years back that CPF will be my safety net. We will all have different view regarding anything, and this certainly applies to CPF too. As I am fully into investing of equities and bond, should my investments fail, CPF monthly payouts will be my plan B. I have also decided that this strategy is for me, I am unlikely to purchase a 2nd property and use it for passive income or investment. My personal take is I will consider a 2nd property only if both my spouse and I:
- max out FRS;
- have cash on hand to top up to ERS when we reach 55 years old; and
- have cash on hand for a second property.
All three conditions must be fulfilled before I consider a second property.
What is your CPF Strategy?
I wonder if it is technically possible to exceed the BHS if it increases every year at a rate higher than the MA interest rate? In 2023 my MA is maintained at the BHS $68,500. In Jan 2024, my MA will be credited with interest 4% but the total in my MA will be less than the 2024 BHS of $71,500. If the BHS increases at the rate higher than the MA interest rate, every year I have to top up to meet the new BHS, and there is no interest to flow from MA to SA/ RA or OA.
ReplyDeleteOnce you reach BHS, all contributions and interest earned on MA will flow to your SA if SA has not reached FRS. If SA has reached FRS, it will flow to your OA.
DeleteThe yearly increase has so far been increasing above the 4% interest I think but that is also to enable people to have an avenue for tax relief should they want to reduce their taxes (though not by a lot).
Anyways for a salaried worker, it should not extremely difficult to meet the new sum assuming that they have reached BHS this year.
For context, I’m 30 and I have just reached the BHS this year and will be topping up the difference next year so that more contributions can flow to my SA.
Do also take note of the contribution rates per age band.
Hello, My understanding is cannot have a higher amount than MA BHS. If that happens, the money flows to SA/RA. IF SA/RA has reached FRS, then the money will flows to OA.
DeleteWhen 2024 starts, you can either top up MA to reach BHS as MA interest alone will not be able to hit BHS (getting tax deductions). Or, just let your monthly contributions help you reach BHS after a few months.
CPF is a risk free, solid investment platform with zero costs.
ReplyDeleteHi! I would not define it as entirely risk free. There is still an element of policy risk and also the risk that SG is not well managed. As of today, this risk is quite low. But, you will never know what happens in 5 to 10 years time or even 20 years time.
DeleteNever put all your hopes into a single basket. Have a backup.
Welcome to the FRS club. Took me awhile to realise the power of 4% compounding as well.
ReplyDeleteThank you Valuewarrior. Let us all huat together. Hope CPF will remain a solid scheme providing the returns as expected on a yearly basis for a long time.
DeleteHow do I top up MA directly without having it to be split between OA and SA? The volunteer contribution is automatically split between OA, SA and MA...
ReplyDeleteThere is a section to just top up MA, and not the general contribution to CPF. Been doing the topup yearly.. at Age 38, I can see my OA, SA all grow very fast.. if your salary exceed $6800(for 2024), then naturally you dont have to top up MA to meet the BHS if you dont want too, as after 5mths, it will reach the BHS again.. so its a continuous cycle..
DeleteHello, you can go into your CPF and click ecashier (https://www.cpf.gov.sg/eSvc/Web/Miscellaneous/Cashier/ECashierHomepage) . The select top up MA, which is tax deductible. You do not need to top up and contribute to all 3 accounts.
DeleteQuestion here - if transfer fund from OA to SA to make it reached that FRS. Then do I Still able to top up SGD8000 and get the Tax rebate?
ReplyDeleteHello, once FRS is reached, you can still do voluntary Contributions to our all 3 accounts (OA, MA and SA). The allocation for VC follows the mandatory allocations and the allocation to SA will continue to flow into SA. However, VC does not provide tax relief and subjected to a cap of $37,740 less the mandatory contributions.
Deletealternatively, consider SRS top up for tax relief or top up parents CPF for tax relief if can meet the criteria.
Congratulations!!! I'm still very far from FRS but you and other finance bloggers are my inspiration
ReplyDeleteHi Barista FIRE,
Deletedon't worry, you have reached BHS already. That is the first step. I only hit BHS last year and that was when I am 38.
After that I aggressively transferred my OA to SA to accelerate my path to FRS. If I had not done this step, I would be far from FRS.
we all take different paths and routes, but we will get there as long as we put in effort. Hence, jiayou!