4 Things NOT to Do with Your CPF

Summary

In this roundtable, Adam Ruseman and Victor discuss four key mistakes to avoid with your CPF. They advise against transferring OA funds to SA before buying a home, topping up your SA too early if your income is low, leaving OA funds uninvested after securing a property, and rushing to withdraw CPF savings at age 55. Drawing on personal experiences and practical examples, they highlight how these missteps can limit flexibility, reduce financial opportunities, or miss out on tax and investment benefits. The hosts encourage viewers to share insights and learn collectively, making the discussion both informative and interactive.

Takeaways

• 🎉 CPF has been around for 70 years, even older than Singapore itself, and has evolved from paper-based administration to digital planners and tools.
• 🏠 Do not transfer your OA funds to your SA before buying a home, as you may need the OA money for a down payment to maximize property options.
• 💰 Topping up your SA early when your income is low may not yield significant tax savings; it's better to wait until your income is higher.
• 📈 Leaving your OA uninvested after buying a home may miss growth opportunities, but only invest if you understand the risks and can aim for returns above 6%.
• 💵 Avoid withdrawing all your CPF funds at 55; treat CPF as a safe account earning 2.5% and withdraw only when better investment opportunities arise.
• 📝 CPF provides planners and ebooks to help individuals manage retirement, healthcare, and housing effectively.
• 📊 Timing is crucial for investing CPF OA funds; avoid dollar-cost averaging with CPF unless you are confident in the strategy and assets.
• 💡 Using CPF funds for dividend stocks can be more predictable than growth stocks for achieving stable yields.
• 🔒 CPF accounts provide protection from scams and bankruptcy, making them a secure place to keep funds for the long term.
• 💬 Sharing experiences and learning from others in the community can help everyone make better CPF-related decisions.

Q & A

What is CPF and how old is it compared to Singapore?

CPF (Central Provident Fund) is a mandatory social security savings scheme in Singapore. It is 70 years old, which makes it older than Singapore itself, which is 60 years old.

Why should you avoid transferring OA money to SA if you plan to buy a home?

Transferring OA (Ordinary Account) money to SA (Special Account) can earn higher interest, but it reduces the funds available for your home down payment, potentially limiting your property options.

When is it advisable to top up your SA account?

It is advisable to top up your SA (Special Account) when your income is higher, as this maximizes the tax relief benefits. Low-income earners receive minimal savings from top-ups.

What should you do with your OA funds after buying a home?

After purchasing a home, you should consider investing your OA funds to earn higher returns, ideally targeting at least 6% interest through dividend-yielding, stable assets rather than growth stocks.

Why is timing important when investing CPF OA funds?

Timing is crucial because CPF OA funds have investment limits, and buying during unfavorable market conditions can lead to losses. Strategic investment ensures you can achieve returns above the guaranteed interest rates.

What are the risks of withdrawing your CPF at age 55?

Withdrawing CPF at 55 can limit your future savings because withdrawn amounts cannot always be fully replaced. Additionally, taking the money out exposes it to potential scams and reduces the guaranteed interest growth.

How does CPF ensure the safety of your funds from scams?

CPF accounts are safeguarded and cannot be accessed by external parties, unlike bank accounts. Withdrawal limits also help prevent large amounts from being exposed to fraud.

What is the difference in interest rates between OA and SA accounts?

OA (Ordinary Account) earns a guaranteed interest of 2.5%, while SA (Special Account) earns a higher interest rate of 4%, which is intended to help grow retirement savings faster.

How can top-ups to SA provide tax benefits?

Top-ups to the SA can qualify for tax relief up to certain limits, which reduces your taxable income and provides immediate financial benefits, particularly for higher-income earners.

Why is it recommended to leave CPF funds invested rather than withdrawing them early?

Leaving CPF funds invested allows them to earn guaranteed interest, provides financial security, and avoids the risks and opportunity costs associated with premature withdrawal.

Can CPF funds be invested in ETFs like the S&P 500?

Yes, certain ETFs may be invested using CPF funds, though stock investments have limits. ETFs are considered safer assets and allow for more flexible investment options, but market timing and risk tolerance should still be considered.

What was a key lesson Adam shared about his personal experience with CPF OA and SA transfers?

Adam shared that transferring a large amount from OA to SA before buying a home reduced his available funds for a down payment, limiting his property choices, and he wished he had kept more in OA for flexibility.