22 Jan 2025
SOURCE: CPF Board
The new year is upon us! Many of us have embarked on our new year resolutions, so as to get a head start on a wonderful year ahead. But while you’re at it, why not add one more to the list? Something that will help set up your future beyond just this year, well into your retirement: Taking small steps to grow your savings faster.
Let’s us take a look at some of the ways to grow your retirement savings!
1) Topping up your CPF savings early
Your CPF savings grow via what is known as compound interest. Simply put, the amount of interest you gain increases due to interest earned from your new total, rather than the initial amount (which is the case for simple interest). Because of this, your savings grow at a much faster rate, but that’s not all! You can help your savings grow even faster by making top-ups.
As mentioned earlier, compound interest factors in your total savings, allowing whatever interest you’ve already earned to also earn you interest. By topping up your CPF savings earlier, these top-ups would be able to benefit from the compound interest longer and grow at an even faster pace. This results in higher monthly payouts when you reach your retirement years, to support your desired retirement lifestyle.
Make it a habit to top up your CPF savings consistently at the beginning of the year to give your retirement savings that extra boost.
2) Understanding the CPF interest rates
Your CPF savings are placed in four different accounts, with 3 accounts active at any given time: the Ordinary Account (OA), the MediSave Account (MA), the Special Account (SA) for those below the age of 55, and the Retirement Account (RA) for those aged 55 and above.
The basic interest rates for the OA is 2.5% per annum, while the rate for the SA and MA is 4% per annum*. To help further boost your retirement savings, the Government will pay extra interest on the first $60,000 of your combined CPF balances, capped at $20,000 for the Ordinary Account (OA).
If you are below 55 years old, you will earn an extra interest of 1% per annum, and the extra interest earned on your Special Account (SA) and MediSave Account (MA) balances will go to the respective accounts. Meanwhile, the extra interest earned on your OA balances will go into your SA to enhance your retirement savings.
If you are 55 years old and above, you will earn an extra interest of 2% per annum on the first $30,000 and 1% per annum on the next $30,000 of your combined CPF balances (capped at $20,000 for OA). The extra interest earned on your Retirement Account (RA), SA and MA balances will go to the respective accounts, while the extra interest earned on your OA balances will go into your RA to enhance your retirement savings.
By understanding the CPF interest rates, you’ll be able to plan your top-ups and have a clearer picture on how your savings grow.
*The 2.5% interest rate refers to the current interest floor rate on the OA, while the 4% interest rate refers to the current interest floor rate on the SA, MA and RA.
3) Developing a clear spending and saving plan
Your own spending and saving habits have a great impact on your future retirement savings.
Where spending habits are concerned, it’s about knowing where your bigger expenses are and what can be avoided. After setting aside what’s needed for your necessities, it helps to keep track of what other expenses your salary goes to every month. Cutting down on things even if you can afford it (like drinking bubble tea once a week instead of daily, or taking public transport instead of a private hire car), can have an impact on how much you can save! Even if it is a small amount, these efforts add up and with accumulated interest, your savings can grow over time!
While these habits may seem like common sense, it can be easy to overlook. Setting aside a spending and saving goal, and charting of your progress, helps you stay on track. This article on strengthening your foundations for retirement planning can help you better understand how to navigate your spending and savings, to better plan for the road ahead.
Your spending and saving habits, CPF top-ups and interest work together to build up your ideal retirement nest egg overtime. Getting a head start on retirement planning means having more time to grow your savings, ultimately allowing you to have a bigger retirement nest egg.
Information is accurate as of the date of publication.
