No SA, no worries: Here’s how to achieve retirement success

This post was created in partnership with Endowus Singapore Pte Ltd (“Endowus”). All views and opinions expressed in this article are Beansprout’s objective and professional opinions. 

What happened?

The CPF system is set to change once again.

There were several key changes announced by Deputy Prime Minister and Finance Minister Lawrence Wong in his Budget 2024 speech. 

Firstly, the CPF Special Account (SA) will be closed for those aged 55 and above. 

Next, the maximum amount that CPF members can put into their Retirement Account (RA) will be increased to $426,000.

Let us find out more about these changes and what they may mean for your retirement planning. 

What happens to your CPF SA at the age of 55?

Singaporeans have three CPF accounts prior to the age of 55 – Ordinary Account (OA), MediSave Account (MA), and Special Account (SA).

Your Retirement (Account) is created at the age of 55, and becomes the main CPF account for your retirement after age 55.

When your Special Account (SA) is closed at the age of 55, savings in your Special Account and Ordinary Account will be transferred to your Retirement Account up to your Full Retirement Sum to provide you with monthly payouts through CPF LIFE when you retire. 

You will then have three accounts – Ordinary Account, MediSave Account and Retirement Account. 

What are the options available to CPF members after 55?

If you have a large CPF balance in excess of the Full Retirement Sum, you will have to make a choice between the two options below:

1. Transfer your Special Account balances to your Retirement Account and receive higher lifelong payouts or;
2. Transfer your Special Account balances to your Ordinary Account and gain flexibility to explore different investment options

Should you choose to transfer your balances to your Ordinary Account (Option 2), you can then either make cash withdrawals from CPF, earn the prevailing CPF Ordinary Account rate, or invest through the CPF Investment Scheme (CPFIS).

In this option, the CPF would then act like a high-yield savings account with no frills. We would be able to earn a base interest rate of 2.5% per annum, with the flexibility to withdraw anytime. 

However, an interest rate of 2.5% per annum may not be sufficient to keep up with inflation, with Singapore’s headline inflation rate reaching 4.8% in 2023.

At the same time, we may still have decades to plan for even after our CPF Special Account funds get transferred to our Retirement Account as life expectancy continues to improve.

Based on the 2022 data from Singstat, the average life expectancy at age 65 for males is 19.0 years, and the average life expectancy at age 65 for females is 22.3 years. 

This means that on average, male and female Singaporeans who have reached the age of 65 will live till 84 and 87 years old respectively. 

What this means is that we will have to recalibrate our financial planning to make sure that we are able to get through our golden years with ease.   

To further build our retirement nest beyond our monthly payments from CPF LIFE, we can grow our retirement savings proactively if we choose not to top up our RA above our FRS.

How do the CPF changes affect you if you are below 55?

If you have yet to reach 55, it does not mean that the latest changes to the CPF system do not impact you. 

After all, the CPF is the bedrock of retirement savings for all Singaporeans, with 37% of our income going into CPF, especially as the wage ceiling continues to increase into 2026. 

To us, the key lesson from the changes is the need to start our retirement planning early. As CPF withdrawals only start at 55, we take a long-term view to investing our CPF with an approach that can ride out short-term market volatility. 

By investing early, our CPF returns can compound over a longer time, giving us the best shot at achieving Full Retirement Sum (FRS). 

What options can we consider to grow our retirement savings?

#1 – Bond funds within CPFIS

If you are willing to take some risk to earn a potentially higher return, then it might also be worthwhile considering selected high quality bond funds. These funds primarily invest in bonds issued by governments and corporations with strong financial positions and lower default risk.

After all, model asset allocation theory suggests that we move more of our savings towards bond-like assets as we get closer to our retirement age. 

However, we would take a more prudent approach in the selection of bond funds as we would not want to put our retirement savings at too much risk.

Hence, we would select bond funds that are managed by a reputable fund manager, have a long and sound track record of delivering performance, and meet our investment objectives, risk appetite and time horizon. 

#2 – Equity funds within CPFIS

Apart from bond funds, we can also consider equity funds within CPFIS to help us grow our retirement savings. 

When considering long-term passive investing for retirement, empirical evidence shows that the long-term return (net of inflation) of stocks is durable. Stocks have delivered an average annual return of around 6.5 to 7.0% since approximately 1800. 

In the past three decades, the global stock markets returned 6.7% per year. These returns have remained rather stable as long as investors have stayed invested. 

For example, we can consider low-cost funds tracking broad market benchmarks such as the S&P 500 index, which offers exposure to the 500 largest companies in the US. 

Other than aiming for capital appreciation, there are also income-focused equity funds that may provide us with a steady income stream to meet our spending needs during retirement, for example.

Like when selecting bond funds, we will have to ensure that these equity funds meet our investment objectives and risk appetite, and have a consistent performance history. 

#3 – Low-cost, globally diversified risk-adjusted CPF portfolios

If you looking to take more risk for potentially better returns, then it might also be worthwhile considering allocating a portion of your retirement savings to a low-cost, globally diversified CPF solution.

Diversification can be achieved across geographies and sectors or stock and bond markets.

⁠However, it might be worth noting that with investing, there are no guarantees and you must be comfortable taking some risks. The allocation should align with one’s goals, time horizon and risk appetite. 

By being risk-aware, you can also invest with a greater peace of mind and reap the rewards that come from investing. 

#4 – T-bills and Fixed Deposits

Investors who are looking for safe investments to earn a return above the CPF OA rate of 2.5% can consider fixed deposits or Singapore T-bills. 

For example, the cut-off yield on the latest six-month Singapore T-bill was at 3.78%, slightly below the CPF SA rate of 4.05% per annum in the second quarter of 2024.

However, cash yields move with interest rates and can fluctuate quickly. Investors in T-bills need to be aware of reinvestment risks, as the current high interest rate environment may not persist over the long term. 

Hence, there is no guarantee that the attractive yield on the T-bill currently can be consistently earned over the next 20-30 years.

How you can invest your CPF savings for the long term through Endowus

As the first CPF digital advisor in Singapore, Endowus aims to help you invest better with the highest probability of success. 

Endowus espouses an investment strategy that’s passive, long-term and well-diversified, with the power of compounding over time to deliver a better outcome than the 2.5% p.a. CPF-OA interest.

After all, historical data has shown that over the long term, investing in a broad market exposure portfolio is more likely to show positive returns.

Endowus offers 6 different portfolios that you may use your CPF Ordinary Account (OA) to invest in. 

The Endowus CPF Flagship Portfolio comprises 6 portfolios with varying allocations across equities and bonds that cater for individual investors’ risk tolerance and foreseeable investment time horizon, offering tailored recommendations based on a short series of questions during onboarding. 

While past performance is not an indicator of future performance and returns are not guaranteed, Endowus’ Flagship balanced portfolio which comprises 60% allocation in equities and 40% in bonds has achieved a 5-year annualised rate of return of 11.4% as of 31 December 2023. 

If you prefer to take a more active approach to managing your investments, Endowus’ Investment Office has curated a list of funds from top-tier fund managers such as JP Morgan, Franklin Templeton, Fidelity, Amundi and many more.

With its suite of CPF solutions, Endowus has been entrusted with over S$1 billion of CPF and SRS savings.

But why should one manage their CPF with Endowus given the management fees of up to 0.4% p.a. for CPF investments?

Endowus sets itself apart by offering funds at institutional share class (wholesale prices), and they return 100% of trailer fees to their client; overall reducing the fees for the investor.

Step-by-step guide to get started with investing using Endowus

It’s simple to invest your CPF with Endowus by following the following steps. 

1. Create an Endowus account.
2. Select a suitable Endowus portfolio or fund(s) that meet your needs.
3. Create a CPF Investment Account (CPFIA) with any of the 3 local banks (DBS, OCBC, UOB).
4. Link the CPFIA to Endowus when prompted.

To help you get a headstart in your retirement planning, Endowus is offering a promotional $20 off Endowus’ access fee for new users who sign up via Beansprout. 

Sign up using this link to claim this special offer now.

Important disclaimers

The information herein is for general information only and does not constitute a recommendation, an offer to sell, or a solicitation to invest in any securities, options, or other derivatives in any jurisdiction and its content is not prescribed by securities laws. This information herein is not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject Endowus or the relevant asset manager to any registration or licensing requirement in such jurisdiction or country.

Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources, investment eligibility and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

The information and analysis shared here is from Beansprout and not Endowus. Endowus does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. Endowus accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.