CPF Hacks To Become a Millennial Half-Millionaire

Many young Singapore residents are worried about their future. They believe they do not have enough savings both on hand and in their Central Provident Fund (CPF) accounts even as the country’s cost of living keeps going up.

But did you know that among the nearly 400,000 CPF members that had at least S$500,000 in their accounts, around 8,500 of them were aged 40 and below? While it may not seem like a huge pool of people, it proves that it is possible to pocket half a million by 40.

Here’s a few tips on how you can become one of them.

1.   Transfer funds from Ordinary Account to Special Account

While your Ordinary Account (OA) only pays an annual interest of 2.5%, the Special Account (SA) offers 4%. The extra 1.5% makes a huge difference as interest compounds over time.

Here’s an example of what your savings will look like after 30 years in either the OA or the SA:

AccountSumSum after 30 years
Ordinary Account (2.5% interest)$50,000$104,878.38
Special Account (4% interest)$50,000$162,169.88

Your CPF funds will grow by an additional S$57,291.50 if it were kept in your SA instead of your OA. You also earn an extra 1% interest per annum on the first S$60,000 on your combined OA and SA CPF balances.

But take note that this is a one-way transfer. This means that you can move funds from your OA to your SA, but not the other way around. If you are thinking of using your OA funds to buy a house in the near future, you may want to think carefully before transferring any money. If your housing needs are already taken care of, transferring your funds from your OA to your SA could ensure a larger nest egg.

2. Top up your Special Account

You can also put money into your SA directly. The 4% interest you earn through the account is around twice the rate you earn putting your money into saving accounts under programmes such as UOB One or DBS Multiplier. You are entitled to a tax relief on up to S$7,000 of cash top-ups to your SA each year as well.

3. Enjoy tax reliefs by topping up your parents’ accounts

By contributing to your parents’ SA and retirement account, you can also claim a tax relief of up to S$7,000.

However, only cash top-ups qualify for this tax relief. There is also an S$80,000 personal income tax relief cap, and a limit to the total top-up amount that is eligible for tax relief.

4. Make voluntary CPF contributions

Besides topping up your SA, you can also make voluntary contributions to your OA and MediSave account.

But take note there is a limit to how much you can voluntarily contribute.

The maximum amount you can voluntarily top up to your MediSave Account is the difference between the CPF Annual Limit of S$37,740 and the mandatory CPF contributions made in that year.

You can use this calculator to find out how much of your top-ups will be allocated to each account.

5. Top up in bite-sized amounts

Putting in a huge chunk of your money into your CPF account at one go might sting. Why not make small and manageable top-ups instead?

For instance, you do not have to make a lump-sum S$7,000 transfer to your SA. Instead, you can automatically transfer a portion of your monthly salary to your CPF account every month through the General Interbank Recurring Order, or GIRO.

6. Top up your CPF in January instead of December to earn 20% more interest

If you intend to voluntarily contribute to your CPF account, do so in January instead of December. You will be able to earn more interest because CPF interest is calculated money. By topping up at the start of the year rather than at the end, you will have accumulated 20% more in interest in a decade.

Source: CPF

Financial planning is a journey

There are no secrets to getting rich overnight, but by making the most of the CPF programme, you stand a better chance of achieving your financial goals.

Have more tips and tricks to share? Reach out to us at ask@plannerbee.co!

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