How You Can Make Your Child A CPF Millionaire By Contributing $400 Every Month Until They Turn 21

The CPF scheme does a good job of forcing us to save for many of the most important expenses in our lives – our home (via the Ordinary Account (OA)), retirement (via the Special Account (SA) or Retirement Account (RA)) and medical needs (via the MediSave Account (MA)). We can also use part of our OA to invest for a larger retirement nest egg.

But, the CPF does not just 1) force us to save a portion of our salaries, it 2) also forces our employers to contribute to these important expenses in our lives, and the government 3) pays us a very decent risk-free annual interest of 2.5% (OA) to 4.0% (SA, MA RA), as well as an additional interest of 1.0% on the first $60,000 of our combined CPF balances, and extra additional 1% of the first $30,000 of our combined CPF balances for those 55 and above.

We look at an interesting and highly unconventional concept – of kickstarting our child’s CPF millionaire status – by contributing to his or her CPF account from the day they are born to when they turn 21.

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Saving For Your Child’s Retirement

Raising a child can be very expensive in Singapore. While trying to keep up with new and essential expenses today, it may be challenging to even think about forking out an additional sum each month for our child’s retirement – which may be close to six to seven decades away!

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From a purely theoretical exercise, here’s how socking away $400 a month for our newborn’s future can result in them becoming a CPF millionaire for their retirement – without them having to lift a single finger for work.

Before we go into the calculations, it’s important to note that we’re not advocating to raise children who don’t have to work. Quite the opposite actually, we believe in having strong work ethics to lead a sustainable and successful life – and this number crunching is simply to understand how it can work.

With that said, let’s also go over some assumptions and ground rules to understand how this would work:

#1 We contribute $400 each month to our child’s Special Account, for their retirement. For simplicity sake, we will assume one contribution of $4,800 is made to our child’s SA on the first day of each year.

#2 We do this for the first 21 years, until our child starts working after their tertiary education (of course, boys may only start 2 to 3 years later due to National Service)

#3 We assume our child does not have any other CPF savings during this time

#4 We assume that our child never earns a single cent in income (and hence do not receive any regular contributions from work after age 21). This, again, is for the purpose of illustrating how they can eventually reach the $1 million-mark.

Here’s how our contributions to our child’s SA will look like after 21 years.

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 The first thing most of us would deduce from the table is that we would have contributed a total of $100,800 in our child’s SA by the time he or she turns 21. This amount would have compounded to $173,006 because of the annual 4.0% interest earned on their SA balances, and an additional annual interest of 1.0% on the first $60,000.

This translates into $72,206 worth of interest.

We can also see that by the 10th year, our child’s SA would have reached the $60,000 mark, and any additional sums in the account would no longer earn 5.0% per annum (p.a.), but instead, earn only 4.0% p.a.

Lastly, we would also realise this is not remotely close to the $1 million mark stated in the title of the article.

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Our Contributions Continue To Compound, Even After We Stop Contributing

Even after we stop making annual contributions of $4,800 to our child’s Special Account at age 21, the funds that we have already topped-up into their SA continue to compound for their retirement.

Of course, we also hope that our child is able to secure a good job at this point, and earn a good pay to live comfortably and provide for their family. For the sake of this article, we assume our child never takes on employment.

This also means our final calculation is the minimum our child will have in their CPF, and the actual amount could be much more substantial as they start working and make mandatory CPF contributions from their salaries.

Here’s where we left off the calculation at age 21, and what will happen to his CPF savings to the time he reaches 65.

This time, the first thing we may notice is that our child is definitely a millionaire by the time they turn 65, with just our initial yearly contribution of $4,800, or total contribution of $100,800, till they turn 21.

The next thing most of us would notice is that over the course of 65 years, our child earned the bulk of their millionaire status from interest returns rather than our actual top-ups. From an initial total contribution of $100,800, it has compounded to $1,040,937. While 65 years is a long time, this shows the power of compounding over a long time-horizon.

Read Also: Why I Don’t Want My CPF Returned At 55 – But I Want My CPF LIFE Payouts At 65

Should We Contribute To Our Child’s Retirement?

As stated at the beginning of the article, this computation is merely a theoretical exercise – meant to show us how such a contribution can make our child a millionaire by the time they retire.

Some things we need to note if we ever think of embarking on such a plan, which would be considered by most people as extreme.

– We assume the CPF SA interest rates will continue to be 4.0% over a very long time. While this may not always be the case, we’ve also seen the CPF SA rate rising higher than 4.0% for a short stint in 2023 and 2024.

– The funds that we contribute can never be withdrawn earlier. This means if we ever face liquidity a crisis in our lives, we cannot dip into our child’s SA. If our child ever faces a liquidity crisis in their life, he or she also cannot touch their CPF balances until they reach the Payout Eligibility Age, even if they may have close to $1 million. There’s also a risk that the Payout Eligibility Age rises beyond the current 65-year-old starting point.

– The value of $1 million in 65 years’ time would also be very different to the value of $1 million today.

– A smaller point to note is that we will not get any tax benefits for contributing to our children’s CPF accounts. Conversely, we can potentially enjoy a dollar-for-dollar tax deduction when contributing to our CPF accounts via the Retirement Sum Topping-Up (RSTU) Scheme.

Our ability to embark on a strategy of setting aside $400 each month for our child’s retirement, would naturally be a secondary concern, after paying for our current bills, prioritising our own retirement and planning for our child’s education and other important nearer-term expenses in our lives. For most people, our child’s retirement would likely be the last thing any parent would plan for.

Nevertheless, even if we cannot afford $400 each month or $4,800 each year, we can start off with smaller amounts to bolster our child’s future. These funds can also be put into more liquid investments, so we can actually utilise them in extreme scenarios where we require the money.

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