How to make the most of CPF after the Special Account closes

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5 Jan 2025

Tan Ooi Boon

Source: The Straits Times © SPH Media Limited. Permission required for reproduction

SINGAPORE – When the CPF Special Account for those aged 55 and older closes from the later part of January, those with higher savings should consider using the extra cash to boost their CPF LIFE scheme.

 

After all, you now have the opportunity to receive higher payouts of up to $3,300 a month from age 65 if you increase your savings to the new enhanced retirement sum (ERS) of $426,000.

 

The new ERS is a big jump of $117,300 from the sum in 2024 ($308,700), which enabled members to receive about $2,400 a month.

 

As the top-up is a hefty one – more for older members who have not kept up to date with their maximum retirement sums – the extra balance from the closure of the Special Account (SA) will come in handy.

 

For those who have met their full retirement sums, the balance from this account will be transferred to the Ordinary Account (OA) and members can either withdraw the funds or use them to top up their Retirement Account for higher CPF LIFE payouts.

 

If you have used some of the money for external investments, you can still hold them until the products mature or are sold. When this happens, the proceeds will either go to your Retirement Account (if you have not met the full retirement sum for your cohort) or back to your OA.

Why some members have high SA balances

 

Before the announcement of the SA closure, some savvy members had used “shielding” as a way to keep more money in the account, instead of letting a big portion of it go to the Retirement Account at age 55.

 

They did so by investing most of the funds in their SA before their birthday so that when the time comes for meeting the compulsory full retirement sum, money in the OA, which earns 2.5 per cent interest, would be used instead.

 

So after their birthday, they would cash out their investments to allow the proceeds to go back to their SA.

 

Some of those who did so would probably have between $300,000 and $400,000 now. So it makes sense for them to consider topping up to the new ERS since their original intent of “shielding” was to enable them to have more money to spend in old age.

 

Seeing CPF anew from 55

 

All die-hard older CPF fans have this problem – they baulk at withdrawing any money because such withdrawals would come from the SA first.

 

This is especially true for fans of “shielding” since they took great pains in keeping more money there and constant withdrawals mean SA funds would be depleted faster.

 

But with the closure of SA, you can take a fresh look at CPF without this psychological barrier, as money saved for retirement is meant to be spent, and not saved indefinitely.

 

Without the SA, diehard fans who are still working will see all their monthly contributions go to the OA after they meet the maximum limit of MediSave Account, which is $75,500 in 2025.

 

There are benefits to reap after you have hit this sum – the MediSave Account also earns a minimum 4 per cent interest and the maximum sum would yield about $3,000 in interest, which comes in handy to pay the annual premiums for MediShield Life, CareShield Life and Integrated Shield plans.

 

Also, when you receive the occasional MediSave top-ups from the Government, such amounts will flow to the OA if the limit has been reached.

 

More importantly, just like receiving work bonuses, you can now eagerly wait for your annual CPF interest to be deposited at the start of every year.

Unlike in the past, when you might hesitate to withdraw any amount, you can now choose to withdraw the interest for OA annually without impacting future returns.

 

Take a person with higher OA savings. Just withdrawing $12,000 of such interest annually would mean an extra $1,000 to spend every month.

 

If you are receiving the ERS payout of about $3,000 a month, this means you would be getting about $4,000 from CPF alone, or $8,000 a month for couples.

 

Ultimately, this is how you can make the most of your CPF money for your retirement – getting a decent amount of money to spend month after month and for as long as you live.


Article was first published on The Straits Times on 5/1/2025