CPF Millionaires: Hacking your way to the top!

As many of you know, the Central Provident Fund (CPF) is a government implemented scheme that mandates every Singaporean to save up 20% of their income. This was done with the intention to help Singaporeans save up for their house, healthcare and even retirement. But have you ever wondered how much you can have inside your CPF? Well, there is actually no cap to the amount of Savings you can have inside your CPF.

While some may resent the fact that they are unable to tap on this amount, others use this as an opportunity to become a Millionaire. That’s right, Singaporeans managed to accumulate millions in savings and it is much more attainable than one may think.

The power of Compounding

A reason why individuals can hit the million dollar mark in their CPF savings is due to the benefit of compounding interest. Apart from forcing one to save, the CPF account provides a risk free and competitive interest rate of as high as 6% per annum. The fact that the savings in our CPF is only accessible when we reach the age of 65 is also a key part of this approach as the principal amount would then be allowed to compound over a long period of time. So how much does one actually need to save to reach this milestone?

Assuming that one starts compounding at the age of 30, both you and your spouse would require a sum of $130,000 (each) in your Special Account (SA) and Medisave Account (MA) to attain a total of 1 million dollars at the age of 65 years old.

Some hacks to help you achieve your goal

1. Transfer from excess amounts from Ordinary Account (OA) to Special Account (SA)

To optimise the high interest rates provided by CPF, one can choose to transfer any excess amount they would like from their OA to their SA. This is because SA has a significantly higher interest rate of 4% as compared to OA which is only 2.5%. In doing so, it would allow the same amount of money to gain greater benefits that can increase your overall savings.

However, it is important that one only transfers the amount that is not going to be utilised for other important matters such as housing. Once the amount is transferred to the SA, it would be irreversible and only accessible until retirement.

2. Voluntary Top Ups to your CPF

You are also allowed to make additional top up to your CPF accounts. This means that if you have surplus income at the end of the month, you should consider topping up your accounts so that it can compound in interest over time.

One should prioritise in topping up their Medisave Account (MA), as they provide the same competitive interest rates as the Special Account (SA) but with the flexibility of using it to pay for your medical expenses when needed. The extra interest gained by MA can be used to pay for the Medishield Life annual premiums. On top of that, voluntary contributions to the MA also allow you to claim tax relief which helps in saving for your goal.

After contributing the maximum amount for the Basic Healthcare Sum to your MA, you should consider topping up your SA as well. This helps to increase your savings and compound more interest which would help you to achieve your goal faster. Cash top ups also enjoy a tax relief equivalent to the top up amount for the calendar year. As mentioned, it is important to only top up if you are sure that the amount would not be utilised as it is irreversible.

Also, a helpful tip when it comes to voluntary top ups would be to do it in January at the start of the year. CPF is calculated monthly and topping up at the start of the year would allow you to earn as much as 20% more interest over a period of 10 years.

3. Budgeting

To ensure that you are able to do optimise the CPF interest rates and encourage more contributions to your account. It would be wise to budget your expenses every month. You can evaluate your spending by tracking your bank statements. In doing so, identify the area that you seem to be over spending and cut down on those. This would in turn allow you to have a greater surplus at the end of the month to make contributions to your CPF accounts. You can always seek the help of finance professionals who are able to review and help you plan out your monthly expenditure.

4. Build other sources of alternative income

In the midst of saving, one can also look into building up other sources of income to increase your wealth and savings. Everyone has hobbies such as cooking, baking, drawing. Enjoy mastering your skills so that you may provide services that people will pay for. In this way, you get to enjoy yourself while making money at the same time.

5. Protect your Savings

Lastly, it can be important to protect your savings. Apart from your SA which will not be touched, your OA and MA can still be used to pay off other expenses such as housing and medical bills. Ensure that you do not over extend in buying a house, make your decisions based on something you can afford with your financial goal in mind.

Although there is general health insurance like Medishield Life, medical bills are very costly. Life is unpredictable and unfortunate events may occur which may incur heavy bills that Medishield would not be able to cover. Do protect your savings by getting additional health coverage that can reduce those expenses.

Conclusion

In conclusion, becoming a CPF millionaire is actually a pretty realistic and achievable goal. It is important that one starts early when it comes to planning your retirement. Since CPF is already mandatory, why not make your money work for you. Enjoy the benefits of compounding and use it to hack your way to the top!