These days, many people realize that they cannot solely depend on their CPF savings for retirement. This may be due to challenges in unlocking the value of their HDB flat, changes in their health conditions as they age, or just inflation of healthcare of lifestyle expenses. Still, you need to make plans on how to make the best use of your Central Provident Fund (CPF) funds, as it can make a huge difference during your retirement years.
In Singapore, most people use the money in their CPF accounts to pay for their HDB flats or private properties. However, one needs to take note that the value of these properties does not necessarily go up over time. This is highlighted by National Development Minister Lawrence Wong, who said in a blog post that the Selective En bloc Redevelopment Scheme (SERS) will apply only to a few flats (Source: Channel News Asia), and indications that older HDB flats are depreciating in value due to lower demand.
So, consider carefully what to do with the money in your CPF balance. Alternatives to using it to pay down your house include investing in shares, bonds and collective investments such as unit trusts. You can find a list of allowable investments here.
There are two CPF investment schemes that you can use. You can invest the money in your Ordinary Account (OA) and Special Account (SA) under the CPFIS-OA and CPFIS-SA schemes. To proceed, there are a few criteria before one can start.
Firstly, you have to be at least 18 years old. Secondly, your OA and SA must contain at least $20,000 and $40,000 respectively. You can check this link for the differences between the two investment schemes.
Lastly, if you are using your OA, you have to open a CPF Investment Account at one of the three CPFIS agent banks in Singapore. They are DBS, OCBC, and UOB. You won’t need to if you use the funds in your Special Account.
It’s worth noting that any gains you make in your CPFIS are not subjected to capital gains taxes. However, dividends are taxed at your individual tax rate. Bear in mind that special charges apply when you invest under the CPFIS-OA and CPFIS-SA schemes. The amount and type of charges depend on the type of investment you make. You can find more here.
Withdrawals are subject to the same withdrawal rules from your CPF accounts. In other words, you can only take the money out after you are 55 years old. However, you can buy and sell your investments as often as you like provided you have held them for at least one day.
But just because you can trade as often as you like doesn’t mean you should. We believe that buying and holding shares that can help compound returns give you the best chances of a comfortable retirement.
Even if you don’t plan on retiring in the immediate future, it may be a good idea to start thinking about putting your available cash to better use. At Valuation School, we believe that the best place for money that you don’t need for the next five to seven years is in shares.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice.