The Complete Guide to CPF SA Shielding: How to Maximise Retirement Savings

03 July 2024

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As you approach the milestone of turning 55, understanding CPF SA Shielding can be a game-changer in maximising your CPF savings. This widely-discussed pre-retirement strategy allows you to potentially earn a higher interest rate on your CPF savings with minimal risk. If you’re living in Singapore, effective financial planning, especially regarding your CPF, is crucial for a secure retirement.

From the day you start working, contributions flow into your CPF Ordinary Account (OA), Special Account (SA), and MediSave Account (MA). With the recent increase in the 12-month average yield from the Singapore Government Securities bond, the interest rates for the Special and MediSave Accounts have risen to 4.08% from 1 January to 31 March 2024. This marks the third consecutive increase, making it an opportune time to capitalise on your CPF savings.

With substantial funds accumulated over the years, planning how to best utilise your CPF savings as retirement approaches is essential. One effective strategy to consider is CPF SA Shielding – a term originally coined in 2019 to describe a method to maximise the interest earned on your CPF accounts.

This guide is tailored for those nearing retirement and young adults assisting their parents in financial planning. We’ll delve into the intricacies of CPF SA Shielding, exploring its benefits, the reasons behind its popularity, and the steps to execute it effectively. Whether you're sceptical about its legitimacy or curious about the potential benefits, this guide aims to clarify all your doubts and help you make informed decisions for a more secure retirement.

Understanding the CPF Retirement Account

When you turn 55, the CPF Board sets up a Retirement Account (RA) for you. This account is crucial for your retirement as it will be used to provide you with a monthly income after you retire. To understand CPF SA Shielding, it's essential first to grasp the concept and function of the CPF Retirement Account.

As its name suggests, your CPF RA is designed to support you during your retirement years. The savings in your RA will ensure you receive monthly payouts throughout your golden years, offering financial security and peace of mind.

Upon reaching 55, your CPF RA is automatically created. This is done by transferring funds from your CPF Special Account (SA) first, followed by your Ordinary Account (OA), until the Full Retirement Sum (FRS) is met. For 2024, the FRS is set at S$205,800. This sequence of transferring funds into your CPF RA is predetermined and cannot be altered.

CPF Retirement Sums: BRS, FRS, and ERS

The CPF system includes different retirement sum tiers to cater to various retirement needs and preferences:

  1. Basic Retirement Sum (BRS): The minimum amount you need in your RA to provide for a basic standard of living during retirement. If you own a property, this sum may be sufficient since it assumes that you will not need to pay rent.
  2. Full Retirement Sum (FRS): This is double the BRS and provides a more comfortable retirement. For 2024, the FRS is set at S$205,800.
  3. Enhanced Retirement Sum (ERS): This is set at three times the BRS and allows for a higher monthly payout. The ERS is designed for those who want greater financial security in retirement.

Here's a table showing the projected BRS, FRS, and ERS from 2024 onwards:

YearBasic Retirement Sum (BRS)Full Retirement Sum (FRS)Enhanced Retirement Sum (ERS)

Understanding the CPF RA and its associated retirement sums is the foundation for appreciating the benefits of CPF SA Shielding, which can further optimise your retirement savings and income.

So, what is CPF SA Shielding?

CPF SA Shielding is a strategic manoeuvre designed to maximise the interest earned on your CPF savings. When you turn 55, the CPF Board creates a Retirement Account (RA) for you, into which funds from your Ordinary Account (OA) and Special Account (SA) are transferred to meet the Full Retirement Sum (FRS). The transfer sequence prioritises SA funds before OA funds, which means your higher-interest SA funds are used first to fill your RA.

However, since the interest rate on SA funds is higher than that on OA funds, many opt for SA Shielding to keep more money in their SA. This is done by temporarily investing SA funds, ensuring that the RA is filled primarily with OA funds. Essentially, SA Shielding protects or "shields" your SA balance, allowing it to continue earning higher interest rates.

Under the CPF Investment Scheme (CPFIS), you are allowed to invest both your OA and SA savings, except for the first S$20,000 in your OA and the first S$40,000 in your SA. By investing your SA funds above the S$40,000 threshold, you can prevent these funds from being transferred to your RA. As the S$40,000 is insufficient to meet the FRS, the CPF Board will then transfer the necessary balance from your OA to meet the shortfall. This way, more of your OA funds, which earn a lower interest rate, are used to meet the FRS, while your SA funds continue to earn the higher interest rate.

Why do people shield their SA?

The primary reason to engage in SA Shielding is to maximise the interest earned on your CPF savings. While both the RA and SA offer a 4.08% interest rate, the OA only offers 2.5%. By shielding your SA funds, you ensure that more of your CPF money benefits from the higher interest rate, significantly boosting your retirement savings over time.

Here’s a comparison of the different CPF account interest rates:

Type of AccountAnnual Interest Rate
Ordinary Account2.50%
Special Account4.05%
Retirement Account4.05%

In addition to the higher interest rate, shielding your SA funds can provide greater flexibility and control over your retirement planning. Once the RA is formed and the FRS is met, any remaining SA funds continue to earn the higher interest rate and can be withdrawn under certain conditions, giving you a substantial high-interest savings account. This makes CPF SA Shielding an effective strategy for those looking to optimise their retirement income and secure their financial future.

CPFIS Investment Options

You have the opportunity to invest your CPF savings across a diverse range of financial products to enhance your retirement savings. However, it’s important to note that the CPF Board does not endorse any specific product providers or investment products under the CPFIS.

Investing always carries risks, so if you’re uncertain about making investment decisions, it might be wiser to leave your money in your CPF accounts where it will earn risk-free interest. Here are some of the investment options offered by CPFIS.

Investment OptionInvest from OAInvest from SA
Fixed DepositsYesYes
Investment-linked insurance products (ILPs)YesYes
Treasury Bills (T-Bills)YesYes
Singapore Government Bonds (SGBs)YesYes
Unit TrustsYesYes
Endowment PoliciesYesYes
Exchange Traded Funds (ETFs)YesNo products currently available
Fund Management AccountsYesNo
Property FundsYesNo
Corporate FundsYesNo

Here’s how to shield your CPF

Shielding your CPF Special Account (SA) funds involves a few strategic steps. This process ensures that more of your OA funds are used to meet the Full Retirement Sum (FRS), allowing your SA funds to continue earning higher interest rates. Here’s how to do it:

Step 1: Transfer SA Funds for Investments

First, you need to invest your CPF SA funds, but keep in mind that you must leave at least S$40,000 in your SA. The remaining funds can be transferred to investments under the CPF Investment Scheme (CPFIS). This scheme allows you to invest in a variety of assets as above.

By investing your SA funds, you can effectively shield them from being transferred to your RA.

Step 2: Leave SA Funds in Investments

Once your SA funds are invested, leave them in those investments until after you turn 55. When you reach this age, the CPF Board will create your RA using the remaining S$40,000 in your SA first and then pulling the necessary balance from your OA to meet the FRS.

Step 3: Transfer Money Back to SA

After your RA has been created and funded, you can liquidate your investments. Sell your investment assets and transfer the funds back to your SA. This allows your SA to resume earning the higher interest rate of 4%.

By following these steps, you can effectively shield your CPF SA funds, optimise your returns, and enhance your retirement savings.

How Much More You Can Earn with CPF SA Shielding

Implementing CPF SA Shielding can significantly increase the interest earned on your CPF savings due to the higher interest rates available in the Special Account (SA). The additional 1.5% interest compared to the Ordinary Account (OA) can make a substantial difference over time. Here’s an illustration of the potential additional earnings from SA Shielding:

Let's consider an investment of S$150,000 from your SA and compare the interest earned over different periods.

Investment ScenarioAfter 10 Years (At Age 65)After 20 Years (At Age 75)After 30 Years (At Age 85)
Ordinary Account (2.5% interest)S$192,012.68S$245,792.47S$314,635.14
Special Account (4% interest)S$222,036.64S$328,668.47S$486,509.63

By the end of 30 years, the additional 1.5% interest from CPF SA Shielding can earn you a staggering S$171,874.49. This significant difference underscores the value of utilising CPF SA Shielding as a strategy to enhance your retirement savings.

Timing and Considerations for CPF SA Shielding

Optimal Timing for CPF SA Shielding

To effectively shield your CPF SA funds, you must complete the process before your 55th birthday. Here are key points to consider:

  • Invest in Low-Risk Options: If you plan to invest in T-Bills or fixed deposits, ensure their maturity date is after your 55th birthday. If they mature before this date, the funds will be transferred into your RA, defeating the purpose of SA Shielding.
  • Invest Close to Your Birthday: For those opting for unit trusts, make the investment as close to your 55th birthday as possible. For example, if your birthday is on April 1st, invest in unit trusts in the last week of March. This minimises the loss of CPF interest, allowing you to start earning SA interest immediately after liquidating your investments post-55.

What to Watch Out For

While CPF SA Shielding can enhance your retirement savings, there are several factors to be cautious about:

  • Capital Losses: Investing in unit trusts or other instruments can lead to capital losses due to market fluctuations, management fees, and transaction costs. To mitigate this risk, choose low-risk funds or bonds. For instance, the Nikko AM Shenton Short Term Bond Fund has a low expense ratio and has performed relatively well.
  • Loss of CPF Interest: During the period your SA funds are invested, you will not earn the SA floor interest rate of 4%. It’s essential to minimise the duration your funds are out of the SA to reduce this loss.
  • Impact on Mortgage Payments: If you are still using OA funds to pay for your mortgage, SA Shielding might reduce the OA balance available for these payments. This could force you to use cash for mortgage payments or adjust your retirement sum to the Basic Retirement Sum (BRS) by pledging your property. Additionally, keep in mind that CPF contributions to your OA decrease as you age.
  • Mis-Selling Risks: There is a potential danger of being recommended expensive or higher-risk investment products without fully understanding their risks and costs. Focus on low-cost, low-risk investments like short-term Singapore Treasury Bills or government bonds.

By understanding the optimal timing and being aware of the potential risks, you can effectively implement CPF SA Shielding to enhance your retirement savings while minimising potential downsides.

Making the Most of Your Retirement Savings

In conclusion, CPF SA Shielding is an effective strategy to enhance your CPF savings and maximise the interest earned. By strategically investing your Special Account funds, you can ensure that more of your savings benefit from the higher interest rates, ultimately leading to a more substantial retirement fund. However, it’s crucial to balance the pursuit of higher returns with the primary goal of CPF—to provide a stable income stream during retirement. Ensure that your Retirement Account is adequately funded to secure your CPF LIFE payouts and maintain your financial well-being in your golden years.

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