Keys to Save SGD 1Million Before Retirement

Do you want to retire with enough funds in your retirement plan? Here are the steps for you to save SGD 1Million before retirement. 

Do you want to retire with enough funds in your retirement plan? It has been proven possible to save up such an amount even before you reach 65. While it seems to sound too good to be true, here are the steps for you to save SGD 1Million before retirement.

How to Save SGD 1Million Before retirement

Each Singaporean is required to contribute to their CPF, which is composed of three parts. The Ordinary Account (OA) has a 2.5% interest rate. Take note that this account is usually used for housing and student loans. The Special Account (SA) has a 4% interest rate used for retirement, while Medisave Account (MA) has a 4% interest rate for healthcare.

You will add a 1% interest rate to each COF account upon reaching your first $60,000 of totalled CPF contributions with at least $ 20,000 in OA. Your interest rate for OA will be 3.5% from the previous 2.5% interest rate. The interest rate of your Special Account and Medisave Account will be 5% each.

Do you want to reach your SGD 1million before retirement in your CPF? You must know the specific conditions which make it possible. First, after you have reached your first $60,000, you have to move your OA to your SA. Since your OA now has the compounding effect of the 5% per annum from SA, your contribution can grow faster.

Next, aim to reach the Medisave Contribution Ceiling, $49,800. Upon reaching the ceiling amount of MA, you will transfer the excess contribution to your OA, which now has a higher interest rate. It will surely take years to reach $1million in the CPF. However, the period it takes will significantly depend on your salary since CPR contribution is 20% of your salary. Also, the employers will contribute an additional amount of 16% of your salary. So there is no shortcut towards the prized SGD 1million  before retirement. So why are you going to save up on it? There is a couple of benefits you get in the CPF Special Account.

Benefits of Saving in Your Special Account

Safe away from Creditors

We are not new to loans and debts. Most Singaporeans use loans and credit cards for their various needs, from paying for education fees to building up a new business. However, not all can successfully repay their loans, especially those who got cash from loan sharks. In the end, they might have to file for bankruptcy. Creditors can then seize any existing assets and savings. CPF is an exception as no creditors can get a hold of it.

Reliable Absolute Return

Since most Singaporeans want to save up for their retirement, they invest in various products such as exchange-traded funds and mutual funds. However, their returns from these financial products are not constant as it fluctuates according to the index it uses. These are riskier approaches since no one can predict the future strength of the economy.

On the other hand, the CPF returns will remain absolute despite the economic depression Singapore might encounter. Also, your CPF is guaranteed by the Singapore government itself.

Beats Inflation

For you to say that your investment is actually making returns, it must outpace the inflation, which is 3%. Since SA has a maximum interest rate of 5%, it outpaces inflation by 2%.

Drawbacks of Saving in Your Special Account

CPF conditions may change over time

The plan of reaching SGD 1Million before retirement depends on the rate of the CPF. There is no assurance that the CPF conditions will never change. The government may revise it in 10 years if deemed needed.

You can’t purchase a big apartment.

Most Singaporeans use HDB Concessionary Loans to purchase a home. With this, you must only pay at least 10% of the cost of the flat to buy it. If you purchase a flat costing $350,000, you can get a housing loan and pay 20% as a down payment. The down payment will be $70,000. You could get this amount from your OA or your personal savings. Since you have transferred your OA to SA, you can’t use OA for any loans anymore.

You need an educational loan from financial institutions

You can use your OA as an educational loan for yourself or your relative. However, since you do not have it anymore, you will need to resort to other financial institutions such as banks and moneylenders who might have higher interest rates.

If you need affordable loans to pay for your school fees, you can get them from Cash Mart. Cash Mart offers reliable personal loans with competitive interest rates and a repayment scheme fit for you.