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From early 2025, the government will close the CPF Special Account for those who turn 55. Rather than act as a fourth CPF account, the Retirement Account (RA) will instead replace the Special Account (SA).
Older Singaporeans will experience a one-off measure to close their Special Account at this point. By default, Special Account savings will flow into their Retirement Account up to the Full Retirement Sum (FRS).
Any remaining SA savings will go into their Ordinary Account – and can be withdrawn. This move will affect close to 720,000 people above 55 – who will have withdrawable CPF savings.
How The Closure Of The Special Account Will Affect You
Those who are 55 and above have three main options to continue growing their withdrawable SA savings from 2025:
Option 1: Once your RA is topped up to the FRS, you can simply keep your remaining CPF savings in your Ordinary Account. However, you only earn 2.5% p.a. in your OA, compared to the current 4.05% in your Special Account.
If you want to earn a higher return, you may need to explore investing your Ordinary Account savings via the CPF Investment Scheme-OA. You can choose to invest in guaranteed instruments, such as Singapore Government Securities (SGS), or other approved investments such as equities and bonds.
Option 2: You can earn a higher interest rate by topping up your RA up to the Enhanced Retirement Sum (ERS). This will ultimately provide higher CPF LIFE payouts in your retirement. Alongside the closure of the Special Account from 2025, the government will also increase the ERS to 4x the Basic Retirement Sum (BRS), compared to 3x the BRS previously. This will allow you to top up more into your RA if you wish to.
Option 3: You can withdraw your funds to invest outside the CPF system. The goal will still be to beat the short-term interest rate of 2.5% – since that’s what you can earn if you just leave your funds in the OA.
Those who have yet to turn 55 also have to consider the implications of the SA closure when they are older. For a start, they can no longer rely on retirement plans that involve the CPF Shielding Hack to retain more SA savings.
Growing Your Savings Beyond The CPF System
If you are over 55, you have to consider whether it’s better to grow your savings within the CPF system or outside of it. If you are younger, perhaps maximising voluntary contributions may no longer fit your financial goals – and you may be looking for investment options outside of CPF.
In the current elevated interest rate environment, even safe investments can offer decent interest returns. Instruments such as T-bills, fixed deposits and even bonds offer guaranteed principal and returns. The actual rate of return will vary based on the risk that you choose to take.
You can also earn a higher return by investing in riskier assets such as equities. Typically, you have to consider a longer investment horizon when you invest in equities. You can invest in individual stocks or gain more diversified exposure via ETFs, such as Singapore’s benchmark Straits Times Index (STI) – which delivered a return of about 4% p.a. over the last 10 years and about 6% p.a. over the past 20 years. You may also strive to gain global exposure by investing in the US, China and other markets – which have typically delivered higher returns over the long-term, along with experiencing higher volatility as well.
For example, here are the latest returns on such investments:
Guaranteed Instruments
Returns
Leaving funds (or contributing funds to Retirement Account)
~4.0% p.a.
6-month T-bills (9 May 2024)
3.7% p.a.
Fixed Deposits
~3.0% p.a.
Bond ETF, such as ABF Singapore Bond Index Fund
3.13% p.a.*
Equities, such as the Straits Times Index (STI) ETF
~4%-6% p.a.
* weighted average yield-to-maturity
For those 55 and above, you can consider investing in T-bills, as well as certain fixed deposits, bonds and equities via the CPFIS-OA scheme. Regardless of your age, you can also gain exposure to a greater variety of investments outside the CPF schemes.
For those under 55, you cannot invest top-up monies in your CPF accounts. From your mandatory CPF contributions, you can only invest beyond the first $20,000 in your OA and first $40,000 in your SA respectively.
Diversifying Your Investments Via Real Estate Exposure
You can also choose to diversify your investment portfolio and potentially boost your returns with exposure to real estate. In the past, the only ways to gain exposure to real estate was by investing large sums of money on your own or accessing more bite-sized investments via REITs.
Today, there are several online investment platforms in Singapore that offer investments in real estate private equity and/or real estate-backed loans.
For example, BigFundr is an MAS-licensed investment platform that gives you access to real estate-backed loans with principal and interest guaranteed by Maxi-Cash Capital Management Pte Ltd (Maxi-Cash), a wholly owned subsidiary of SGX-listed Aspial Lifestyle Limited.
While riskier compared to government securities, you can expect to earn a higher return of up to 6.28% p.a.when you invest in deals offered on the BigFundr platform.
Read Also: 5 Ways Singapore Investors Can Invest In Properties (Without Buying A Physical Property Yourself)
Investing In BigFundr’s Guaranteed Real Estate-Backed Loans
Being a relatively new type of investment in Singapore, BigFundr goes out of its way to explain its investment philosophy, including how its real estate-backed loans incorporate several layers of protection for investors.
BigFundr’s mission is to democratise real estate-backed investments and make better returns safer and more accessible for everyone. BigFundr does so by securitising real estate-backed loans, enabling retail investors to invest in these loan notes from as little as S$1,000 and achieve returns that were previously exclusive to accredited and institutional investors who had to invest up to S$200,000.
BigFundr explains its risk management strategy through a layered approach. At the start, real estate-backed deals that you can invest in are already screened by BigFundr’s experienced team – helmed by CEO and Founder Quah Kay Beng who has over 25 years of experience in the real estate industry.
These deals tend to be short-term – spanning 6 to 18 months, and you can learn about each real estate deal in detail on BigFundr’s website.
The Loan-to-Value (LTV) of the deals offered on its platform is capped at 70% of the property value – providing a buffer in the event of price fluctuations. A 70% LTV means that the borrower would have to put in 30% of the property value first.
An independent cash administrator is appointed to ensure investors’ funds are never commingled with BigFundr’s working capital. In addition, the respective fund manager oversees the disbursement of funds – only releasing funds directly to contractors and in tranches based on project completion milestones.
If there are hiccups in the project, or worse, the borrower goes into bankruptcy, the real estate acts as collateral. Contractually, BigFundr’s loans will always be the first to be repaid. Even if there are shortfalls, BigFundr always obtains a personal guarantee from the borrowing entity to make good on the loan.
BigFundr also works with fund houses that have committed to buy back the loans at an agreed-upon date.
Finally, should the worst happen, whether the project is delayed or the repayment schedule is extended, it will likely lead to a protracted affair for BigFundr to recover all of its investors’ funds. This is where BigFundr’s investors enjoy a full guarantee provision by its parent company, Maxi-Cash*.
Rain or shine, Maxi-Cash will immediately step in to repay investors’ principal and interest payments on time.
With these safeguards in place, BigFundr has funded over 135 deals worth more than S$198 million with no reported defaults. Those interested can find out more about BigFundr’s real estate deals on its websites, and start investing from as little as S$1,000.
DollarsAndSense readers who sign up for a BigFundr account with the promo code SAVEBF18 will get S$18 credited to your account upon successful verification. Each deal will be funded on a first-come, first-served basis. This promo code is valid until 16 June 2024. Promo code cannot be used in conjunction with any other codes or promotions and is limited to the first 1,000 redemptions.
*Maxi-Cash Capital Management Pte Ltd, a wholly owned subsidiary of Aspial Lifestyle Limited, an SGX-listed company.
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