Like me, you’ve probably heard varying viewpoints following the Budget 2024 announcement that the CPF Special Account (SA) will close for individuals once they turn 55 from 2025 onwards.¹

With the closure, SA savings above the Full Retirement Sum (FRS) will flow into the Ordinary Account (OA) where it will earn 2.5% interest per annum. This is lower than the roughly 4% p.a. it’d have earned had the SA remained open after one turns 55 through a tactic known as “CPF shielding”. It’s where a person invested their SA funds under the CPF Investment Scheme before the age of 55 and subsequently liquidated them after their 55^th birthday so the money would flow back to their SA and continue earning 4% p.a. interest.

The government’s move to close the SA at age 55 is intended to “right-site” CPF savings by ensuring that money meant for retirement needs earns the higher interest rate for long-term savings.

Options for managing your SA savings at 55

If you have excess SA savings at 55 that’s above the FRS and you want more than the 2.5% interest per annum that OA gives, these are possible considerations:

• Option 1: Move your excess SA funds into your Retirement Account (RA) up to the new Enhanced Retirement Sum that’s four times the Basic Retirement Sum (BRS) or move it to the RA of your family members (RA also earns around 4% interest per annum).
• Option 2: Withdraw the excess after it’s been moved into your Ordinary Account (OA) and grow it using other instruments.

Option 1 is great for strengthening your own retirement safety net or that of family members who may not have other sources of income.

Option 2 opens up plenty of possibilities with different investment tools – from Treasury bills and bonds to insurance savings plans, unit trusts, real estate investment trusts (REITs, exchange-traded funds (ETFs) and so on. You can use the returns as you wish – be it to supplement your loved one’s retirement income, to save for your own retirement, or just to treat yourself to something nice like a trip abroad in your golden years.

In this article, I’ll focus on choosing a suitable investment instrument to grow your retirement savings.

Finding an investment tool to match your needs

So, here’s the situation:

1. You can no longer park your money in your SA indefinitely to enjoy pretty much guaranteed 4% p.a. interest AND make withdrawals whenever you want.

2. However, you still have the flexibility to make OA withdrawals from age 55 (provided you’ve set aside either the FRS or the BRS with property).

There are many ways to grow your savings for a comfortable retirement – some with the potential to yield the kind of returns SA gives you, possibly also giving you liquidity and other flexibilities.

The key is to find something that suits your risk appetite and goals. In case you’re not sure what certain investment terms mean, here’s a useful guide.

Here’s a list of investment tools I’d personally consider to help boost my retirement savings. Many of them promise more than the OA’s 2.5% interest per annum, while others have equally attractive features.

If you’re looking for short-term guaranteed returns:

• Treasury bills (T-bills). T-bills are government issued (i.e. safe) with a six-month or one-year maturity period. You can invest using your CPF-Investment Scheme funds, Supplementary Retirement Scheme funds or cash. Over the past year, the yield from T-bills has been in the middle to high 3% p.a. range, averaging 3.8% p.a. for 6-month T-bills and 3.6% p.a. for 1-year T-bills. Impressively, T-bills hit a 30-year high of a sweet 4.4% p.a. in December 2022.

If you’re looking for long-term guaranteed returns, with withdrawal flexibility:

• Singapore Savings Bonds (SSB). Like T-bills, the SSB is 100% backed by the government and you’re assured that you’ll get your full investment amount back. Bonds have a 10-year maturity period, and interest - which increases over time - is paid every six months. You can withdraw them before this time is up, without any penalty on your principal sum, and any earned interest is yours to keep.
  
  As SSB is designed to be held for a longer period than T-bills, its interest rates are lower, but still decent if you consider the long-term potential and the possibility of re-investing the interest it pays you into other products. Based on the figures below, SSB gives an average interest rate of 3.03% per year for 10 years. You can’t buy SSB through the CPFIS-OA scheme; it can only be bought with cash, which might include any OA withdrawals made from age 55 years.  Keep in mind that SSB 10-year average yields can and have gone below 2.5% p.a. before and once you’ve withdrawn your OA funds to buy SSB or for other uses, you can’t put them back into your OA.

If you’re after something long term with potentially higher returns than CPF OA’s interest of 2.5% p.a. as well as insurance coverage, consider:

• Investment-linked plans (ILP). A two-in-one investment and protection solution, ILPs can grow your money while giving you the assurance of a payout in the event of death and/or covered events. The illustration below shows how Singlife’s ILP, Singlife Savvy Invest II could potentially grow your annual premiums of S$6,000 paid over 20 years – i.e. S$120,000 in total premiums – into more than S$200,000 after 20 years, almost doubling what was invested earlier, while offering the flexibility of withdrawals along your investment journey. You will also be rewarded with loyalty bonuses after the end of your selected minimum investment period.

There are a few things to note however:

- With this ILP, account values are non-guaranteed and subjected to the performance of the chosen funds that your policy invests premiums into.

- This illustration above assumes that the premiums paid, single premium top-up and withdrawal are made at the start of the policy year. Premiums paid to date include any single premium top-up, less any withdrawals.

- The values shown above are rounded down to the nearest dollar and are based on an illustrated investment rate of return of 8% per annum and annual management charge of 1.30% per annum. There’s no guarantee the fund will perform at this level – it could fare better or worse depending on your fund choice. At an illustrated investment rate of return of 4% per annum and the same annual management charge of 1.30% per annum, the account value at the end of policy year 3 is S$18,648 (103% of premiums paid to date), and at end of policy year 20 it will be S$146,578 (122% of premiums paid to date).

• Traditional annuity or whole life savings plans. These give you monthly or annual payouts for life. CPF Life is an example of an annuity and you can choose to supplement it with an annuity plan or whole life savings plan from a private insurer, effectively creating for yourself a second retirement income stream. Whole life savings plans provided by private insurers typically offer the advantage of flexibility and protection options. Depending on the plan you choose, a whole life savings plan might have features like a 100% guarantee on your capital, guaranteed returns, non-guaranteed or potential bonuses depending on the fund performance, and give you the freedom to choose your premium payment duration and annual payout start date, and add protection elements, where needed.
  
  Here’s an example of how a whole life savings plan like Singlife Flexi Life Income II works:

Again, there are some important things to note with this illustration above, and you should also pay attention to these details when shopping for a suitable plan:

- The illustration above is based on an investment rate of return of 4.25% per annum. To give an example of a less favourable performance, say an illustrated investment rate of return of 3% per annum, the cash bonus between ages 45 to 99 will be S$360, the Booster Bonus will be S$120 and the surrender value at age 99 will be S$84,146.  

Personalised, wrinkle-free solutions

There you have my picks of retirement investment tools to consider based on different needs. Of course, there are many more tools to play with, so it’s all about finding something that suits your goals and circumstances. When retirement planning gets mind-boggling, it helps to get a fresh perspective from a professional financial adviser representative, who’ll be able to share expert tips and help you customise a plan based on your unique needs.

Good luck on your retirement planning journey!

^Notes

^{1. Source: Ministry of Finance, Budget Statement for Budget 2024, accessed on 25 March 2024.}
 

^{2. Upon the occurrence of any of the life stage events below, the policyholder can apply to withdraw up to 10% of the account value under the Life Stage Benefit, subject to the following: (a) the partial withdrawal amount must meet the minimum partial withdrawal amount of S$500; (b) the account value of the policy must not fall below the minimum account value of S$1,000 after the partial withdrawal; (c) the application for withdrawal under this benefit must be submitted within 90 calendar days following the occurrence of the life stage event; and (d) satisfactory proof to show evidence of the occurrence of the life stage event must be submitted together with the application for withdrawal. The life stage events covered under this benefit are: (a) the life assured changes the marital status (i.e. marries, divorces or is widowed); (b) the life assured becomes a parent by having a newborn child, or legally adopts a child; (c) the life assured purchases a property; (d) the life assured or the life assured’s child enrols into tertiary education; (e) the life assured reaches retirement age of 65; or (f ) the life assured is hospitalised. The policyholder can only use this benefit up to a maximum of 2 times during the policy term. Please refer to the Product Summary for more details on the Life Stage Benefit.}
 

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