Retirement planning can be a daunting task, but fear not – there’s a little-known trick that can help you earn more money while minimizing risk. It’s called CPF SA Shielding, and it’s a retirement “cheat code” of sorts.
So, why even learn about the CPF SA Shielding Hack?
The way our Retirement Account is funded up to the Full Retirement Sum can be an issue for some people. Our Special Account (SA) balances earning 4.0% per annum will flow into our Retirement Account first while our Ordinary Account (OA) balances earning 2.5% per annum, are only transferred in if there’s a shortfall in our Special Account. Logically speaking, who doesn’t want to earn a higher interest rate of 4.0% per annum am I right? Hence the CPF SA Shieding Hack has been so popular among youngsters and elderlies alike.
Essentially, this hack requires you to transfer funds from your Special Account (SA) to investments through the CPF Investment Scheme (CPFIS)
If you’re interested in giving this strategy a try, we’ve put together a guide to help you execute it effectively. Whether you’re a pre-retiree or a young adult helping your parents manage their finances, read on to learn more about CPF SA Shielding and why it might be a smart move for your retirement planning.
The Special Account Shielding Hack
When transferring your CPF SA money out of the account through investments, it’s important to choose a low-risk, low-cost, liquid, and stable option that offers high liquidity and stability. The CPF Investment Scheme (CPFIS) provides several products to invest in including-
- Unit trusts
- Investment-linked insurance products (ILPS)
- Endowment policies
- Singapore government bonds
- Treasury bills.
To ensure that your investments provide returns before transferring them back into your CPF SA, you should avoid annuities, endowment policies, ILPs, and Singapore government bonds, as they take time and are less liquid. This leaves unit trusts and treasury bills as viable options.
If you’re considering treasury bills, choose the ones with a six-month maturity date, and ensure that they mature after you turn 55. For unit trusts, you can narrow down your search by looking for low to medium risk options, such as bond funds.
Some examples of bond funds with low expense ratios that are recommended for CPF investment include the Eastspring Investments Unit Trusts – Singapore Select Bond Fund Class A, LionGlobal Short Duration Bond Fund Class A (SGD) (Dist), Nikko AM Shenton Short Term Bond Funds, Schroder Singapore Fixed Income Fund Class A, and United SGD Fund – Class A (ACC) SGD.
Out of these options, the Nikko AM Shenton Short Term Bond Fund has the lowest expense ratio and is recommended as a Parking Facility Fund for CPF investment by FSMOne, a platform that offers investment products and services. It invests in a diversified portfolio of quality, short-term bonds and money market instruments, and incurs no sales charge, although it is subject to the 0.05% quarterly platform fee.
Frequently asked questions
- What happens to CPF investment after 55?
When you turn 55, your CPF accounts are divided into a new Retirement Account (RA) and up to the Full Retirement Sum (FRS) is transferred from your Special Account (SA) and Ordinary Account (OA) into this RA. However, any money that you have in your CPF Investment Account (CPFIA) will remain there and you can continue to manage and invest it. The CPFIA is separate from your CPF accounts, so it is not affected by the creation of the RA. You can withdraw your CPFIA funds anytime after you turn 55.
- What is the ceiling for CPF Special Account?
The ceiling for the CPF Special Account (SA) depends on your age. For example, for those below 55 years old, the current SA ceiling is $186,000. However, this ceiling is subject to changes over time, as it is determined by the CPF Board.
- What happens to SA after 55?
When you turn 55, a new Retirement Account (RA) is created for you, and the money in your SA is transferred to your RA to help you meet the Full Retirement Sum (FRS). Any money left in your SA after the transfer will continue to earn interest at the prevailing SA interest rate.
- Should I use CPF to invest in T-bills?
It depends on your investment goals and risk tolerance. Treasury bills (T-bills) are a low-risk investment option and can provide a stable return, but they may not offer high returns. If you’re comfortable with a lower rate of return in exchange for low risk, T-bills may be a suitable investment option for you. However, it’s important to note that T-bills have a six-month maturity date, so you’ll need to ensure that they mature after you turn 55 to reap the returns before transferring them back into your CPF SA. Ultimately, it’s always a good idea to speak with a financial advisor or do your own research before making any investment decisions.
- Why do people do CPF shielding?
CPF shielding is a strategy that involves transferring money from your CPF Ordinary Account (OA) to your CPF Special Account (SA) just before turning 55. This helps to maximize your CPF savings for retirement, as the SA earns a higher interest rate of 4% per annum compared to the OA’s interest rate of 2.5% per annum.
- Can I withdraw all my CPF at 65?
No, you cannot withdraw all your CPF savings at 65. Instead, you will receive monthly payouts from your CPF Retirement Account (RA) as part of the CPF Life annuity scheme. This ensures that you have a stream of income throughout your retirement years.
- What happens to OA and SA after 65?
After you turn 65, any money left in your CPF Ordinary Account (OA) and Special Account (SA) will be transferred to your Retirement Account (RA). Your RA will then be used to provide you with monthly payouts under the CPF Life scheme.
- How much is CPF Full Retirement Sum?
The Full Retirement Sum (FRS) is the amount of money you need to have in your CPF accounts to receive a basic payout under the CPF Life scheme. The FRS changes every year and depends on your age cohort. For example, the FRS for those turning 55 in 2022 is $198,800.