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5 Reasons Why I Am Not Transferring OA to SA

CPF SA top-up, a compulsory savings plan in Singapore, is often recommended for retirement, healthcare, and housing needs.  More Singaporeans have turned to CPF throughout the years since we may earn a risk-free interest rate of 4% on our Special Account (SA) and Retirement Account (RA). 

Benefits of CPF
Source: CPF

The catch is, you do not need a strong background in financial literacy or take on any investment risk. There are even a slew of bonuses and incentives to entice individuals to top up their CPF accounts. We can obtain up to S$8,000 in tax relief per year if we contribute to our own Special (SA) or Medisave Account (MA), and another S$8,000 if we contribute to our family’s accounts. CPF funds can yield 4% per year in interest, with some sums earning up to 5% per year.

I’ve highlighted 5 reasons why it may be a good choice to top-up our CPF Special Account. Find out more in the link below. 

Read more: 5 Compelling Reasons to Top-Up Your CPF Special Account (SA) for Long-Term Benefits

Despite this common advice, I will share my own personal reasons why I chose not to top-up my CPF Special Account (SA) despite all these benefits. 

Overview of the CPF System

Singapore’s Central Provident Fund (CPF) is a comprehensive social security system aimed at providing Singaporeans with a sense of security and confidence in their older years. Established in 1955, CPF has evolved significantly, addressing the retirement, healthcare, and housing needs of its citizens.

  • Ordinary Account (OA): Primarily used for housing, education, and investment. Offers a lower interest rate compared to the Special Account.
  • Special Account (SA): Focused on long-term retirement planning and savings. Generally offers a higher interest rate.
  • Medisave Account (MA): Specifically for medical expenses and health insurance.
  • Retirement Account (RA): Created when a member turns 55, drawing funds from OA and SA to provide for retirement needs.

To make the most of the Retirement Account (RA) as part of your overall retirement strategy, consider exploring effective CPF shielding techniques.

Benefits & Limitations of CPF

The Central Provident Fund (CPF) in Singapore offers several benefits but also has its limitations. One of its primary advantages is the assurance of retirement savings, which provides a fundamental level of financial security for the elderly. Additionally, the Medisave account within CPF plays a crucial role in managing healthcare costs, alleviating financial burdens associated with medical care. The CPF also aids in housing financing, as funds from the Ordinary Account can be used for housing loans, helping citizens to secure a home.

However, the CPF system is not without its drawbacks. A significant limitation is the lack of flexibility, as funds are generally locked in until retirement age. This restriction limits immediate access to these savings, which can be a concern for those needing funds for unforeseen circumstances. Furthermore, members have limited control over how their CPF savings are invested, leading to potential frustrations for those who wish to have more say in their financial planning. Finally, the possibility of future policy changes within the CPF system adds an element of uncertainty, potentially impacting long-term retirement planning strategies.

Alongside CPF considerations, it’s important to understand how to efficiently manage your tax liabilities. My article on reducing income tax in Singapore offers valuable insights.

1. Topping up CPF SA is Non-Reversible

One critical factor that really plays on my mind when it comes to topping up my CPF SA is the fact that it’s a one-way street. Once I transfer funds from my cash or CPF OA to CPF SA, there’s no turning back. It’s like saying goodbye to that money forever, and I lose the flexibility to use it for anything else. Well not really forever, but probably until I’m 65 years old.

Sure, I know that topping up my CPF SA can come with some perks like tax relief and higher interest rates. It sounds tempting, I won’t lie. But here’s the thing – I’m still young, and life is full of surprises. You never know what’s around the corner. What if I suddenly lose my job or get an irresistible chance to start my own business? These are the moments when having access to some extra cash can be a real lifesaver.

And that’s where the problem lies – once I make that transfer, it’s like saying goodbye to my financial flexibility. There’s no easy way to undo it. I don’t want to find myself in a situation where I need money urgently, but it’s all locked up in my CPF SA. I’d rather have the freedom to use my funds as I see fit, based on my current needs and future goals.

2. Pursuing Early Financial Independence

The allure of early retirement and financial independence has always resonated deeply with me. The idea of gaining control over my time, pursuing passions, and enjoying life on my own terms fuels my motivation to work towards this goal. Despite the benefits of topping up CPF SA, it does not align with my personal goals. 

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With the current CPF scheme, the government encourages us to delay our retirement till as late as 70 years old so that the monthly annuity cash flow we can withdraw is larger. What if I actually wanted to retire early at around 40-45 years old

My desire for early financial independence clashes with the delayed retirement encouraged by the CPF scheme. Having my funds tied up in CPF SA could hinder my ability to enjoy my early retirement dreams and pursue passions like travelling or spending quality time with loved ones.

3. Balancing CPF Contributions with Investment Alternatives

While CPF offers a reliable yield, I can’t help but wonder about the potential returns achievable through well-diversified investments in various asset classes.

Diversification is a key aspect of my financial planning. By spreading my investments across a mix of stocks, bonds, and other asset classes, I aim to reduce risk and capture potential growth opportunities. 

Stocks, for instance, have historically shown the potential to offer higher returns over the long term, albeit with higher volatility. Bonds, on the other hand, tend to be less volatile and can provide a stable income stream. 

ETFs provide a convenient and cost-effective way to access a diversified range of assets, further enhancing the potential for growth and risk management in an investment strategy. For example, in this article on my blog, “Why ETFs Should Be Part of Your Investment Strategy,” I delve deeper into the benefits of including ETFs in one’s investment portfolio. 

Combining these assets allows me to construct a portfolio that aligns with my risk tolerance and financial goals.

Maximising our CPF contributions may leave us with insufficient funds to pursue these other types of investing opportunities.

4. Preserving Liquidity for Short to Mid-term Goals

Preserving liquidity has always been at the heart of my financial decisions, and it’s a principle that resonates deeply with me. It’s not just about numbers and accounts; it’s about having the freedom and flexibility to shape my life the way I envision it.

It is extremely important as I have other priorities in life such as getting a home, upscaling and starting a venture. As an entrepreneur at heart, I seize opportunities without hesitation. Liquid investments enable me to dive into ventures that align with my passions and have long-term potential.

Moreover, I value continuous education and personal growth. Accessible funds open doors to knowledge and self-improvement, investing in myself and my future.

Life can be very unpredictable, so financial flexibility is vital. If I max out my CPF SA top ups, I may not have enough funds to shoulder these responsibilities or achieve my goals. 

Exploring high-interest saving options, such as the UOB One account, can be a smart way to maintain liquidity, as detailed in our review of the UOB One savings account.

5. Policy Uncertainty: Potential Change in Payout Eligibility Age

CPF policies have evolved over the years, with the payout age already being increased in the past. There’s a real chance that it could happen again, particularly as Singaporeans are living longer and working beyond traditional retirement ages.

As it stands, the re-employment age has already been extended to 67 years old, and there are plans for it to rise to 70 by around 2030. The current CPF LIFE scheme already incentivizes people to delay disbursement until they reach 70, offering a higher monthly payout for those who wait.

Such policy changes introduce uncertainties into retirement planning. While we hope for a stable and predictable future, we must also consider the potential impact on our retirement plans if the rules change. 

This reality makes me carefully assess my options, weighing the benefits of CPF top-ups against the potential changes in CPF policies. My philosophy is to maintain a flexible retirement strategy that can adapt to evolving circumstances. 

Will you top up your CPF SA?

So, will you top up your CPF SA? The answer depends on your financial goals, priorities, and the importance of liquidity and flexibility in shaping your future. While topping up the CPF SA is a common recommendation, it may not be the best fit for everyone, including myself. Preserving liquidity is essential to address short to mid-term goals, like home upgrades and business ventures. Accessible funds provide a safety net for unforeseen events, such as job loss or emergencies.

My pursuit of early financial independence and diverse investment opportunities extends beyond CPF contributions. I see potential for better returns in well-diversified assets like stocks and bonds. 

In the end, it’s a personal choice that requires careful consideration to ensure financial well-being and security throughout life’s journey. 

Frequently Asked Questions (FAQ)

Can I transfer all my Ordinary Account (OA) funds to Special Account (SA)?

Transferring all OA funds to SA is not permitted. There are limitations on the amount that can be transferred from OA to SA. However, you can voluntarily transfer funds from your OA to SA if you meet the criteria set by the CPF Board.

Should I top up my OA or SA?

The decision to top up your CPF accounts depends on your financial goals and circumstances. If you seek higher interest rates and are planning for retirement, topping up your SA might be beneficial as it generally offers a higher interest rate compared to OA. However, if you have immediate housing needs or are planning for certain investments, maximizing your OA might be more advantageous.

What is the difference between CPF OA and SA?

CPF OA is primarily used for housing, education, and investment in financial products, while CPF SA is focused on retirement planning. The OA usually offers a lower interest rate compared to SA. Additionally, the usage of funds in OA and SA is governed by different rules and limitations.

Should I transfer OA to SA?

Deciding to transfer funds from OA to SA involves considering various factors, such as your current financial needs, long-term goals, and the benefits each account provides. It’s advisable to evaluate your financial situation and consider how the transfer might impact your ability to meet short-term financial goals versus securing your retirement. As mentioned in the article, transferring from OA to SA is irreversible so it is best to due your own due diligence before making the decision.

Eugene Chai

With five years of financial experience (and maybe a few too many all-nighters fueled by cold brew and craft beer), Eugene tackles complex financial concepts and breaks them down for young adults. Featured on Investment sites and CNA's Money Talks, this self-proclaimed "Finance Whisperer" isn't your stuffy suit. He uses relatable narratives (think "adulting, but make it money") to turn numbers into your financial BFFs, guiding you towards smart choices with your hard-earned dough.

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