In our journey of strengthening one’s financial knowledge and make better financial choices, a common sentiment that most of us will have at some point is: “If only I knew and did it years ago!” When it comes to retirement planning, doing so would be too late.
Using the CPF’s Retirement Sum Topping Up Scheme, here are three CPF top-up hacks you can do today to help you avoid pangs of regret decades later as you visualise missed opportunities.
#1 A Risk-Free Endowment Plan
An endowment plan is a product that you pay monthly or annual premiums for you for a set duration (usually between 10 to 30 years), whereby your capital will be used for investments in an attempt to give you better returns. Different products may have different percentages of guaranteed and non-guaranteed components as well as insurance benefits.
If you are interested in the “forced savings” aspect of an endowment plan, and like the idea of earning more interest compared to a fixed-deposit or just letting money sit in a bank, then instead of getting an endowment plan, you can make use of your CPF account to perform this same role – without risking your capital and with returns fixed at a guaranteed percentage!
This makes even more sense when you are in your 40s or older. If you decide that you need more for your retirement and want to have something like what an endowment plan offers, why should you do so at the risk of losing some capital or getting poor returns when the market isn’t doing well? The nearer you are to the CPF retirement age when you can make withdrawals, the nearer the “maturity” date of your very own CPF “endowment plan” is, making it a suitable solution for those who are starting late.
#2 An Annuity Plan For Family Members
The CPF LIFE is an annuity scheme that guarantees monthly payments to CPF members in their retirement years for as long as they live, even if their retirement sum has been drawn down after monthly payouts.
In a family where there is one breadwinner and a spouse who is a homemaker, when the breadwinner passes on, whatever that is left in their CPF accounts is the estate they leave behind for their surviving family members. If at that time, their CPF Retirement Account has been drawn down, then their family would not get anything. If there is still some money left, then the family will have this finite amount of money.
However, if the breadwinner of the family opted to make regular CPF top-ups, and allow their spouse to qualify for their very own CPF LIFE annuity plan, then even if the breadwinner passes on, their spouse will enjoy payouts from their own CPF account, having peace of mind that they will have payouts for as long as they live.
#3 A Legal Tax Reduction Mechanism
Did you know that by doing CPF top-ups, you can enjoy tax relief of up to $14,000 each year? If you take advantage of this over multiple years, the savings you enjoy can be pretty substantial.
When you perform cash top-ups to your own CPF account, you get up to $7,000 in tax relief, and an additional $7,000 tax relief when you do so for your family members. Note that this only applies for cash top-ups, so CPF transfers don’t quality.
Rather than sit on it and regret years later, do take action now! These days CPF top-ups can be done easily online, through GIRO or other means like AXS machines and cheques, so there really isn’t a good excuse.
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