Turning 55 years old? You may want to know more about this pre-retirement CPF ‘hack’.

You may have recently heard of the term “CPF Shielding” and wondered what it’s about. Not to be confused with official CPF schemes like MediShield and CareShield, “CPF Shielding” is actually a little-known “hack” that can help you optimise the returns from your CPF.

Anyone living and working in Singapore contributes to CPF and knows its importance in retirement planning. That’s why I’m sharing this lobang to help you, dear reader, get more out of your CPF and build that sweet nest egg for retirement. A word of caution—this does come with certain risks, so read on to learn more and decide if it’s something you want to do, especially if your 55th birthday is approaching soon.

What’s so special about 55?

Before we go into the specifics, we’ll need to start by understanding what happens to your CPF at age 55. Most of us know that’s the age when we can withdraw some of our CPF (shiok!), but before any of that can happen, your Retirement Account (RA) will need to be created.

How is this done? Simply put:

The maximum amount transferable to your RA is the Full Retirement Sum (FRS)—as of 2021, that amount is $186,000.

It’s important to note that savings will first be taken from your SA, followed by your OA. This sequence must be followed and is the key reason why CPF Shielding is done.

So why do CPF Shielding?

The money in both your RA and SA earn a risk-free 4% interest per annum—as opposed to your OA, which earns just 2.5% p.a.

If you’re financially savvy, it makes sense to maximise the interest earned in your CPF account, by having your RA formed largely by your OA, so as to have more of your CPF money earning 4% p.a., rather than 2.5% p.a.

This is especially crucial, as you cannot make transfers from your OA to your SA after turning 55!

How does it work?

To prevent the money in your SA from being transferred to your RA, we can “shield” it by taking out the money to invest under the CPF Investment Scheme (CPFIS). However, the first $40,000 in your SA cannot be used for investments, so you will need to leave a minimum of $40,000 in your SA. 

By putting most of your SA funds into a low-cost and liquid fund offered on the CPFIS before we turn 55, we can ensure that our RA will be formed largely by using the monies in our OA.

What should I invest in?

Given that you’re only planning to invest your money for a short period of time until after your 55th birthday, you should look out for products with these attributes:

• Low cost of investment
• High liquidity (since you will be selling after a few months)
• Relatively stable returns

Suitable products that meet these criteria are Treasury Bills (T-Bills) and Unit Trusts.

For T-Bills, you should go for the ones with a 6-month maturity date. Do ensure that the bills mature after you turn 55, as you would need to wait for your RA to be formed before transferring the money back into your SA.

If you’re considering Unit Trusts, look out for funds with low-to-medium risk—these would typically be your bond (fixed income) funds, which are generally known to be relatively less volatile investments.

Is CPF Shielding right for me?

The CPF Shielding “hack” is a great way to optimise the returns in your CPF after age 55. After all, earning 4% p.a. on your money is definitely better than 2.5% p.a.! However, as this method involves putting your money into an investment product, you need to be careful not to expose yourself to too much risk in pursuit of greater returns. Always keep in mind that your ultimate goal is to ensure that you have enough money in your RA for your retirement!