BBCWatcher's Relatively Simple Guide to CPF
Updated February 22, 2023
Here's my simple, general advice on getting the most out of CPF. Exceptions sometimes apply, but this advice is how I would optimize CPF over a lifetime in the majority of cases.
Now
1. Make a CPF nomination. Update your nomination if/as needed.
Early Working Career
2. Make top ups to your own MediSave Account if you qualify for tax relief. MA voluntary contributions must fit within the Basic Healthcare Sum. Up to $8,000 per year is eligible for tax relief.
When You Have a Medical Expense
3. If your MA has reached the Basic Healthcare Sum, if you have a MA payable medical expense, and if you can make a MA top up with tax relief, try paying the medical bill with MA then top up MA within the same calendar month as the deduction and before your payroll cycle MA contribution and any insurance repayment. Otherwise, consider paying in cash so you can collect a credit card rebate (for example) and also avoid losing any MA interest.
Early and/or Mid Working Career
4. In late January every year make a $8,000 (total) Voluntary Contribution/top up to your own MediSave Account and/or Special Account if you qualify for tax relief. Your Voluntary Contribution to MA must fit within the Basic Healthcare Sum. Your top up to your Special Account must fit within the Full Retirement Sum.
5. In late January every year, make another $8,000 (total) Voluntary Contribution/top up to a qualified family member's (such as a nonworking spouse's or elder's) MediSave Account and/or Special Account (or Retirement Account if the recipient is age 55+) if you qualify for tax relief. The same MA and SA limits apply. RA top ups below the Full Retirement Sum qualify for tax relief.
6. If you have at least some Ordinary Account dollars piling up that you won't need specifically for housing, transfer them to your Special Account in every month you have an excess. All such transfers must fit within the Full Retirement Sum and are only possible before your 55th birthday. (However, when market interest rates are exceptionally high you might instead buy some Singapore Government Securities to enjoy higher interest rates.)
7. If you have Ordinary Account dollars still piling up, and if your Special Account has reached the Full Retirement Sum, consider participating in the CPF Investment Scheme (OA) using the lowest cost CPF Investment Account provider and a prudent, low cost investment choice. Don't choose too many separate investment vehicles since each one incurs fees.
8. Don't forget your spouse or partner! For example, if your spouse hasn't yet qualified for maximum CPF bonus interest, try to help him/her out.
Just Before You Take a HDB Loan
9. Consider transferring your (and your spouse's) OA dollars above $20,000 to your Special Account if you wish to avoid the "HDB sweep."
If You're Self-Employed in Singapore
10. You're obligated to make MediSave Account contributions, but consider making "all three account" Voluntary Contributions since they're eligible for tax relief, too.
As You Approach Your 55th Birthday
11. Consider using the Special Account "shielding" technique so that your new Retirement Account is funded primarily from Ordinary Account dollars.
On Your 55th Birthday
12. If you want to withdraw some funds, do it on your 55th birthday from your Ordinary Account while your Special Account "shield" is raised.
13. Consider topping up your new Retirement Account all the way to the Enhanced Retirement Sum. You can transfer OA dollars to RA while your SA is "shielded."
In Your Golden Years
13. If you have spare cash and would like to boost your retirement income for life, consider top ups to your Retirement Account every time the Enhanced Retirement Sum is raised.
14. If you'd like an attractive place to park some funds (at least when market interest rates are low), consider making an "all three" Voluntary Contribution into your OA/SA/MA. If your MA has reached the Basic Healthcare Sum then that portion of your contribution will spill over into your SA (if you haven't reached the Full Retirement Sum yet) or OA. This contribution must fit within the CPF Annual Limit.
15. Unless you're in poor health and/or in financial distress, start your CPF LIFE payouts at age 70 on the Escalating Plan.
16. Don't make your loved ones wait for a bequest that might never come if you merely live past a certain age. With your foundational standard of living assured with ERS-level CPF LIFE, age 70 payout start, Escalating Plan, be generous to your loved ones right away, while you're still around for shared enjoyment. If they'd like to invest your gifts into prudent long-term investments, sometimes including CPF, that's a great way to build truly dynastic wealth. And/or education, a down payment on a house, starting a new business, etc.
When You're a New Singapore Permanent Resident
17. The above advice applies, but (if able, and if market interest rates are low) you should consider slamming lots of dollars into CPF especially during the first couple years when you're subject to reduced compulsory contributions and have more room below applicable limits. As soon as your get your NRIC number assigned you should be able to make CPF contributions. To some degree you can control when your NRIC number is issued, so try to get that done as quickly as possible after your In Principle Approval (IPA) letter.
If You're a U.S. Person (or Become One)
18. CPF is still attractive, but you should completely avoid the CPF Investment Scheme due to PFIC complications except for simple vehicles such as Singapore Government Securities. You'll need to report your employer's share of CPF contributions as earned, non-excludable income. All interest credited across all CPF subaccounts should be reported every year and is U.S. taxable. Thus there is no U.S. tax on lump sum CPF withdrawals (except for the final bit of interest) since all the income and interest is reported and taxed as/when it flows. CPF LIFE annuity payouts will be subject to the IRS's after-tax annuity rules. Your CPF account should be reported annually in FinCEN Form 114 ("FBAR") and IRS Form 8938 ("FATCA"), as applicable. CPF may effectively reduce your U.S. Social Security retirement benefits via the Windfall Elimination Provision (WEP). Be aware of such impacts and plan for them. You can probably avoid WEP by making a full withdrawal from CPF before age 65 (if able), but of course a full withdrawal also ends your CPF interest earning and forecloses CPF LIFE payouts.
If You Become a Tax Resident of Another Country
19. Singapore has very few tax treaties with other countries, and in most cases CPF (and your other assets and income) will fall under the tax system of your country of residence without any special considerations or favors. Report and pay taxes according to the tax laws and tax rules in your country of residence.
If You Have an Elder with Little or No Retirement Savings
20. Deposit some dollars into his/her Retirement Account to boost his/her lifetime income. Matching dollars from the government and/or tax relief may be available.