why am i all in cpf special account

Why Am I All In On CPF Special Account?

My plan ever since I started working was to achieve financial independence and retire as early as possible. Although CPF LIFE payouts only start when we reach 65, they should be included in our retirement planning. Making use of the higher interest in our CPF Special Account can help us in building up our CPF. Our income-earning power tends to fall after retirement age so the additional boost in income can be helpful.

My CPF Ordinary Account (OA) balance is currently zero as I have transferred all of it to my CPF Special Account (SA). When I was still working, I transfer my OA to SA every month. When I hit 31 this year, my PSEA account was transferred into my OA and I also immediately transferred it to my SA.

In the beginning, I planned to hit FRS before 35 by fully transferring OA to SA and with a yearly S$7k top-up to SA. I left my job in late 2019 and all the increases in my CPF balance since then is all interest.

My Special Circumstances For Transferring Everything To CPF Special Account

Having a 0 balance in my OA is unorthodox, which is only possible due to my circumstances, which is not feasible for most people.

  • I am the only child
  • Not planning to get married
  • Not planning to get a house

As an only child, I am fortunate that I already have a roof that is fully paid over my head and won’t have to worry about splitting the flat with any siblings after my parents pass away. The lease of the house will also only end after I die.

I currently do not plan to get married and my own property so I don’t see a need to have any OA balance. Every dollar in my OA is a loss of 1.5% if I had it in my SA instead. If someday I suddenly think of marriage or getting my own place, I will just start accumulating my OA in my CPF.

The Power Of Compound Interest

I have been reading ASSI’s blog for several years and his post on aggressively transferring his OA to SA for the first four years of starting working to take advantage of compound interest. His blog is the one that gave me the idea of transferring all my OA to SA.

CPF interest is calculated monthly so you should transfer or top-up to your SA as soon as you can

SA has a 1.5% higher interest rate than OA. But if you put it in relative terms, SA’s interest is 60% more than OA’s interest.

The first S$60,000 in our CPF balance earns an additional 1%, limited to $20,000 in OA. If I had not transferred my OA to SA, S$20,000 in OA would be earning 3.5% and while S$40,000 earning 5%. In my case where I have a zero OA balance, the first S$60,000 of my SA earns 5% interest, generating S$3,000 every year.

You also have to take into account that our SA grows at a much slower pace than OA due to the allocation rates between the different CPF accounts.

Maximizing CPF Interest Rates On The First S$60K

If we do not do any transfers, our OA will hit the cap of S$20,000 of OA that can earn the additional 1% before your total CPF balance hit S$60,000. Your SA will not have enough funds to take advantage of the additional 1% interest for the first S$60,000.

CPF 60k lost interest illustration maximize

What you can consider doing is transferring OA balances above S$20,000 to SA until your total CPF balances hit S$60,000 to make sure you fully take advantage of the extra 1% interest.

I personally have the full S$60k without any OA balances so I can get S$3,000 of interest on S$60k.

There is a calculator on the CPF website that shows you how much additional interest you can generate by transferring OA to SA. For every S$10,000 you transfer, you would gain an additional S$2,098 of interest.

This additional interest can help us reach the FRS at a quicker pace. After hitting FRS, the amount of interest generated (4%) should be able to outpace the yearly increase of the FRS (~3%).

Yearly S$7k Top Up To CPF Special Account

I not only transferred all my OA to SA, but I also did a yearly S$7k top up to my SA at the beginning of the year. I did it at the start of the year as CPF interest is calculated monthly. We can also enjoy tax savings from this S$7k top-up to SA. The gains are double where you save a % of your income plus the 4% – 5% interest from CPF.

This is especially important in the first few years of work where your total CPF balances are below S$60,000. We should try to hit the S$60,000 mark in our CPF balance ASAP to take advantage of the additional 1% that is given to the first S$60,000 when we are below 55. For every dollar below the S$60,000 threshold, we are losing out on the free 1%.

I have since stopped the top up to my SA as I am unemployed and no longer have enough income to do so and I feel that my SA balance is sufficient. If I am gainfully employed in the future, I will probably still do the transfer and top up yearly.

Current Special Account Balance Sufficient For Retirement

Looking at the recent Seedly post on the average CPF balance, according to my age group of 30 – 35, I have only slightly more than the median balance. There are plenty of people with very strong earning power or inheritance in this age group with 50 of them having more than S$500,000 in their CPF.

Assuming if you are 65 now and you have a RA balance of the current FRS (2021) of S$186,000, you will be able to get a payout of S$1,040 per month till the day you die. This is sufficient for a frugal lifestyle and if you have passive income from other sources like stocks and bonds, the CPF LIFE payouts is a nice bonus and you can afford more discretionary spending.

My current SA balance is S$129,000+ and assuming I am 65 today, my projected monthly CPF LIFE payout is about S$730 a month. This is a conservative estimate as the CPF interest rates will be higher than the inflation rate. The first S$30,000 will also get an additional 1% when I hit 55. My CPF SA balance would increase faster than inflation assuming no hyperinflation and CPF interest rates do not drop below inflation. S$730 a month might not be enough for most people but it is good enough for me and after supplementing it with my future dividends, I should be able to survive quite comfortably with a frugal lifestyle.

Basically, I am set from 65 years old onwards, I just need to think about surviving the 30+ years between now and 65 years old.

Topping Up Of CPF SA When Unemployed

As I am currently unemployed, I am unable to top up my CPF regularly so I was thinking about whether I should use my dividends to slowly top up my CPF until I hit FRS. However, I did some calculations and the lower the amount in your RA, the more “worth it” your annual CPF LIFE payments will be.

Current RA Balance at age 65 Monthly CPF LIFE Payouts Monthly CPF LIFE Payouts to RA Ratio
S$40,000 S$250 0.625%
S$80,000 S$490 0.615%
S$120,000 S$700 0.583%
S$160,000 S$910 0.569%
S$200,000 S$1,120 0.56%

Although S$40,000 has the best ratio, the amount paid out at S$250 is too little and insufficient for survival. We also will need to take into account if the amount paid out is enough.

I won’t be topping up my CPF with cash unless I get a job in the future or I have so much money (improbable) that I can just top up my CPF just for the sake of it. I would rather invest any excess money for passive income as my concern is having enough cash flow to survive from now till I reach 65.

To take full advantage of CPF LIFE, make sure you keep yourself healthy and survive as long as possible as you get monthly payouts till the day you die even if your payouts have exceeded the premium paid.

You have to note that if you keep a balance below FRS to “maximize” efficiency, you will only be able to withdraw S$5,000 from your CPF at 55.

What About My Medisave Account?

I actually topped it up once with about S$2,000 when I struck 3rd prize in 4D when ASSI gave out 4 digits during CNY in 2017. As I won’t have any dependents to inherit my inheritance, if my MA can generate enough interest to cover my annual hospitalization insurance premium, CareShield premiums and then some, I don’t think I will need to top it up further using cash. Any balance when I die either will go to charity or back to the government.

Talking about inheritance, do submit an online CPF nomination on the CPF website as soon as you can. The CPF nomination process can now be done easily online for free and you just need the names and IC of your nominees and two witnesses (witnesses cannot be your nominees). Previously you had to submit a hardcopy via mail or go down to the CPF offices to do it there.

Drawbacks Of Transferring Ordinary Account To Special Account

It’s not all good when we transfer our entire OA balance to SA.

CPF Transfers From Ordinary Account To Special Account Is Irreversible

You need to know that the transfer from OA to SA is irreversible and there is a warning by CPF that remind you of this fact 3 times before you confirm the transfer. If you need your OA balance to pay for your/ your child’s education, finance your property purchase or invest, do your calculations to make sure you have enough buffer in your OA before doing any transfers.

Lack Of Funds In Ordinary Account For Investments

For investments, if I have any OA balance left, I would only use my OA if there is a major crash.

As for SA, I won’t touch it as the investments available is limited, inaccessible (compared to OA investing) plus a guaranteed 4 – 5% is good enough for me. I would rather use my investment war chest to invest over my SA when the time comes.

Lack Of Funds In Ordinary Account For Housing

If I need to buy a house someday, I would need to start from a 0 balance which will be quite tough. I would need to use cash and more years of employment to finance my housing purchase.

How To Transfer From Ordinary Account To SA?

If you like to do so, the steps are quite straightforward after you find the option under My Requests > Building Up My / My Recipient’s CPF Savings > Using CPF > Transfer from my Ordinary Account to my Special Account.

Dollars And Sense has step-by-step instructions here on how to do it if you need the instructions.

How To Top Up Special Account Using Cash?

You can do a one-off top-up to your SA using PayNow/eNets/Giro/Standing Instruction by following the instructions after you find the option under My Requests > Building Up My / My Recipient’s CPF Savings > Using Cash

Seedly has step-by-step instructions here on how to do it if you need the instructions.

TL, DR

I am all in on my CPF Special Account account as I want my SA to grow as fast as possible and I currently do not have any need for my OA. SA offers 1.5% interest (60%) more than OA. The earlier you can hit the FRS, the easier your life will be as the interest will be able to cover the yearly increases. The lower the amount in your RA, the more “worth it” your annual CPF LIFE payments will be. The transfer from OA to SA is irreversible so you got to make sure you do not need it for any other purposes like housing, education or investments.

Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice.

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