A Beginner’s Guide to CPF Shielding

Maximising your CPF is easier than you think thanks to CPF Shielding

Taking control of your finances is one of the best things you can do for yourself. Thankfully, those who are living in Singapore can do this thanks to CPF. From the moment you start your first job, you contribute to your Ordinary Account, Special Account, and MediSave account.

CPF Shielding is an amazing strategy for those who are about to turn 55. By taking advantage of this CPF SA shielding, pre-retirees can maximise the interest they are earning, as well as enjoy improved flexibility in using their CPF balance when they finally retire.

But what is CPF shielding, how can it help you, and how can you do it? We’ll discuss these below.

Here at OMY, you will discover the following:

What Is CPF Shielding?

Before getting into the nitty-gritty details of how to SA shield, you first have to know how your Retirement Account (RA) works.

This account is automatically created when you turn 55 years old to give you monthly payouts when you finally retire. It is created by merging savings from your CPF Special Account (SA) and Ordinary Account (OA) until you reach the Full Retirement Sum (FRS) which is currently S$192,000 for 2022. The FRS values increase each year to cover inflation.

As you may already know, your CPF SA and CPF RA earn a risk-free interest of 4% per year. Considering this, it is wise to maximise the interest you earn in your CPF accounts by having your CPF RA mostly formed by your OA which earns lower interest, instead of your SA. Keep in mind that it is not permitted to transfer funds from your OA to SA after turning 55.

When you follow this hack, more of your money can earn 4%, instead of a meagre 2.5% interest per annum.

How CPF Shielding Works

How CPF Shielding Works

Now that you know what CPF shielding is and how it can help you, you’re probably wondering how you can do it. Thankfully, it’s not rocket science.

What you need to do is take out the money in your SA to invest so you can keep your balance to a minimum before turning 55 years old. Remember that the less money you have in your SA, the more money will be taken from your OA to your RA.

It’s important to note that you cannot empty your SA to make investments. You are required to leave S$40,000 in the account since this minimum amount cannot be used for investments as mandated by the CPF Investment Scheme, just as you can’t use the first S$20,000 in your OA for investments.

Because this S$40,000 limit rule is only imposed for using your SA for investments, it is possible for your RA to be fully created using your SA savings if it’s enough to make up for your FRS. How much money you will have left in your OA will vary on how much money you used from the SA, as well as how much you have in your account to start with.

What You Need to Do Before Turning 55

To “shield” your SA balance, you need to calculate how much money you must transfer out of your SA. Your goal is to only keep S$40,000 in that account. Once done, move that amount out of your SA by investing it in a low-risk investment product such as:

  • Unit Trusts (not including high-risk products)
  • Investment-linked insurance products (not including high-risk products)
  • Annuities
  • Singapore government bonds
  • Endowment policies
  • Treasury bills

What You Need To Do After Turning 55

Once you turn 55, your RA will be immediately created. Once done, you may cash out your investments and transfer your money back to your SA so you can enjoy the 4% interest per annum again. This is how you can practice CPF SA shielding.

You also have the option to top up your RA to the Enhanced Retirement Sum or ERS. Topping up is only an option for individuals 55 years old and older. The ERS is three times your Basic

Retirement Sum, and it can be extremely helpful if you want to get increased monthly payouts in your golden years.

Benefits of CPF Shielding

The major benefit of CPF SA shielding is obvious. When you liquidate your investments, your money can easily be returned to your SA, and this can be withdrawn anytime. This gives you improved flexibility all while earning an attractive 4% interest per annum, risk-free.

For more money-conscious Singaporeans, you can do an OA and SA shield by investing all your savings above the limit set by CFP, not just the SA. If your remaining money is not enough to meet the FRS requirements, you can use cash in your bank to top up your RA so it will earn better interest instead of sitting idly in the bank.

This is truly a legitimate technique to help you earn more money for retirement while still satisfying the CPF policy and optimising your interest.

Drawbacks of CPF Shielding

As with other things, there is also danger involved when you practice CPF shielding. For example, you may be pushed to go for a high-risk investment that you don’t fully understand how it works.

If this happens, the money you lost may outweigh the compounded interest you can earn through shielding. This is why you must stick to low-risk and short-term investment instruments after pulling out extra funds from your SA for investment purposes. Keep in mind that your goal is not to earn money long-term, but only to transfer it, and then return it to your SA after a month or two.

More From OMY: How To Invest In Singapore: A Beginner’s Guide

How Much Can You Earn When You Practice CPF Shielding?

Not sure if CPF shielding is worth it? Check out this table below.

If you invest S$100,000 from your SA After 10 years After 20 years After 30 years
Ordinary Savings Account (2.5% interest) S$128,008.45 S$163,861.64 S$209,756.76
Special Account (4% interest) S$148,024.43 S$219,112.31 S$324,339.75

From the table above, you can see that after 30 years, you will earn an additional S$ S$324,339.75 when you practice CPF shielding. This is S$114,582.99 more than if you only earn 2.5% interest from your Ordinary Savings account.

Are the Interest Rates Guaranteed on CPF?

Absolutely. All interest rates on your CPF are guaranteed. Here are the interest rates of your CPF accounts.

Ordinary Account 2.5%
Special Account 4%
Retirement Account 4%
Medisave Account 4%

Why Can’t I Just Transfer Funds from My OA to My SA?

Unfortunately, this isn’t possible since CPF contributors above 55 years old are not allowed to move money from their OA account to their SA. However, SAs can still be used for investments. Meanwhile, OAs are for education, housing, and other investments to help you increase your CPF funds.

Why Does the RA Use SA Before OA?

This is mandated by law, but the reason is unclear.

Can Foreign Workers Use the SA Shield Hack?

Everyone who contributes to their CPF can use this hack. Unfortunately, most foreign workers employed in Singapore cannot receive CPF contributions.

Is Doing CPF SA Shielding Expensive?

It’s actually free! You don’t need to spend anything, apart from fees related to your investment. Of course, keep in mind that you may deal with losses if you don’t research your investment allotment.

What Happens When Your CPF SA Is Full?

If you have enough money in your SA, up to your Full Retirement Sum will be transferred to your RA from your SA.

What Happens to SA After 55?

Your SA funds will be transferred to your RA before your OA funds.

How Many Times Can I Withdraw from CPF After 55?

When it comes to your withdrawable savings, you can make as many withdrawals as you want.

Save More for Your Retirement by Practising CPF Shielding

The CPF Shielding hack is truly one of the best ways to help you maximise your interest when it comes to your CPF. But should you really practice it?

Ultimately, the answer depends on you.

When done right, this hack can help you enjoy incredible gains and live a more comfortable life during retirement. But as with other investments, you must understand the risks involved in CPF shielding before going through with it.

If you prefer to follow the traditional way intended for your CPF retirement fund that doesn’t involve SA shield, there’s nothing wrong with that since it’s definitely the safer option.

The best tip is to give yourself time to reflect and assess whether or not you should practice CPF shielding.

If you’re not 55 years old yet, use this time wisely to grow your SA as much as you can. You may also top up your family’s RA to reduce your income tax. When you use these easy CPF hacks, you can ensure you live an incredible life in your golden years.

More From OMY: 5 Best Savings Accounts In Singapore With Highest Interest Rate

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