CPF Investment Options: Boost Your Retirement Savings in Singapore Introduction Your CPF savings are the backbone of your Singapore retirement plan. But what if you could turn…
As a Singaporean/PR, we should know that the CPF SA/RA is a compulsory savings and retirement scheme administered by the Singaporean government. It’s also seen as a safe and reliable investment instrument because it’s backed by the government.
With a minimum return of 4.0% p.a. (4.08% p.a. as of 1st January to 31st March), the CPF SA/RA provides a bond like rate of return in the medium to long term, this is also why if an individual is looking to invest into bonds for their retirement, Singaporean and PR alike should look no further than to top up their CPF SA or RA to meet the minimum sum for their retirement needs if liquidity is not a concern.
This post is first posted on thefinancelayman
CPF Funds are invested into Special Singapore Government Securities (SSGS) that are issued and guaranteed by the Singapore Government. The government takes the investment risk in managing the SSGS proceeds and ensure the CPF board will be able to pay its members all their committed interest when its due.
For decades, a significant number of financial planners and stockbrokers constructed portfolios for their clients with a composition of 60% equities and 40% bonds or other fixed-income products. These balanced portfolios proved successful during the 1980s and 1990s period with mixed outcomes in the 2000s. Of course a decade or two seems to short to be planning for retirement if you’re only in your 20s and 30s.
Simply put, if you’re interested in a 60/40 investment strategy for your retirement, you can consider treating your fund in the SA as the 40% bonds component. Any additional funds can then be allocated to equities. However, it’s crucial to note that there are different risk classifications for equity investments. Investing in individual stocks or shares or into a single sector (e.g. technology) or country carries significant risks, as companies may face financial challenges leading to potential loss of investment capital. Therefore, a well diversified global approach is the best way to go about for this.
e.g. the MSCI All Country World Index has delivered more than 8% p.a. returns over 40 years (factsheet)
In the 2024 budget, the government has announced a mandate to increase the enhanced retirement sum from 2025 onwards to four times the Basic Retirement Sum (or twice the Full Retirement Sum), replacing the current rate of three times the Basic Retirement Sum.
As a result of this change, the SA account will be terminated once a CPF member turns 55 year old with the proceeds (capped to the Minimum Sum in that year) to be automatically transferred into the CPF Retirement Account with excess going to the CPF OA.
Members will have 3 options thereafter:
If you lean heavily towards a risk averse profile, allocating your funds into equity-like asset classes may not be suitable. In such cases, an alternative could be investing in Retirement plans offered by insurance companies. These plans offer potential returns comparable to CPF, with the added benefit of allowing you to decide when and for how long you wish to receive payouts. This flexibility offers more certainty, albeit with potential returns lower or higher than CPF Life, depending on the insurer’s investment performance. Additionally, certain insurers provide disability or critical illness protection during both the payout and accumulation periods, offering further security to policyholders.
Otherwise, short term fixed deposits/endowment offered by banks can be a potential option if you wish to short term to medium term liquidity as you may be able to find good yields from these products now and then.
