Living longer means that our savings need to last us longer - but how much is enough? Learn how optimising your CPF savings can serve as a guarantee for your future retirement.

When it comes to retirement planning, CPF is the most basic building block for many Singaporeans' retirement plans.

But while it may not be seen as the most exciting tool, given its long-term and steady approach, you should still pay particular attention to how you can make the most out of your CPF savings to build a comfortable nest egg.

This is particularly crucial as Singaporeans are living longer on average. In 2021, the average life expectancy at birth was 83 years, an increase of 11 years compared to 1980, and it is only expected to rise further.

Here are some ways to make your CPF savings work smarter for you.

Low risk, stable returns

CPF Life is a national annuity scheme that provides you with monthly payouts for as long as you live. With longer lifespans, this is invaluable.

Because it is a non-profit annuity scheme, CPF Life provides guaranteed returns. For instance, if you want to receive a monthly payout of between S$1,470 and S$1,570, you will need to set aside either S$288,900 in your Retirement Account (RA) at age 65, or S$192,000 at age 55, since CPF interest rates will grow your savings through compound interest during the 10-year gap.

To put it another way, if you were to manage your own money, you would need to get annual returns of about 6.3 per cent on S$288,000 to match a S$1,470 monthly payout from CPF Life.

CPF savings are also invested in Special Singapore Government Securities, which have an AAA rating, the strongest credit rating possible.

Planning ahead matters

Apart from CPF Life, you can start to do more now to make your CPF work harder - and smarter - for you.

For instance, you can top up your Special Account (SA) or RA with cash when you receive bonuses, which might also qualify you for tax reliefs.

If you are younger than 55, you can transfer savings from your Ordinary Account, which has an interest rate of 2.5 per cent per annum, to your SA, which has a higher interest rate of 4 per cent per annum.

A useful tip to keep in mind is ‘Rule 72': By taking the number 72 and dividing it by the interest rate you can get with the money, you will be able to find out how many years it will take for a sum of money to double. In this scenario, if the interest rate is 2.5 per cent, your money will double in 28.8 years. If it is 4 per cent, it will double in 18 years.

Otherwise, you can choose to withdraw from your CPF at a later age or defer your CPF Life payout dates so that your savings have more time to grow through compound interest.


Making your money work harder

To get better returns on your savings, you can also tap on the CPF Investment Scheme. In fact, there is a wide range of tools you can use to generate better returns, from equities to fixed income and insurance products. Find out more in our special on investing in CPF here.

If you're 50 and above and own a Maybank Privilege Plus Savings Account (PPSA), you can also get rewarded with Takashimaya vouchers when you transfer your CPF Life payouts to your account.

Besides CPF, investing smart will play an important part in funding your retirement. For instance, Singapore-listed Real Estate Investment Trusts (S-REITs) can provide a stable annual income stream, with the sector offering an estimated dividend yield of around 5 per cent on average. While investing in S-REITs is not without risk, they can serve as a potential source of defensive carry for retirees seeking more certainty.

Fixed deposits are also a good alternative to gain higher returns compared to conventional savings accounts.

Another popular option is the Singapore Savings Bond, a safe and flexible way of maintaining the value of your nest egg as you can enjoy increasing monthly returns of up to almost 3 per cent over a 10-year period and exit your investment at any time with no penalties incurred.

the bottom line:

Don't discount CPF as a key part of your retirement plans. It lays a solid foundation for you to plan out your golden years.

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