Money is an emotional topic in Heartland Boy’s family, and often, also the root of all problems in the household. This can all be traced to the diverse perspectives on money held by his family members. As age catches up, Heartland Boy’s parents find it increasingly tiring to stand behind the wok for long hours to serve up a good bowl of fish soup. What is even more worrisome is that his parents have not saved for retirement and hence have no retirement savings. Some Chinese parents that are steeped in Confucian values, Heartland Boy’s parents included, often expect their children to fund their retirement. This can be a stressful burden to carry, especially if you are a young adult struggling with multiple financial commitments. Therefore, Heartland Boy has devoted considerable amount of time learning to grow his parents’ retirement funds. He would like to recommend that your parents can grow their retirement funds by leveraging on existing Central Provident Fund (‘CPF’) schemes.
1.Leave Their Monies With CPF To Grow Their Retirement Funds
Ask any Singaporean or Singapore Permanent Resident and they will tell you that age 55 is a significant milestone in their lives. It is not so much about celebrating yet another year in their lives, but rather, it marks the day where they can finally dip their hands into the pot of gold that they have painstakingly built up during their working years. Yes, Heartland Boy is referring to the CPF. At age 55, CPF members can withdraw:
- up to $5,000, or any balance in their Ordinary and Special Account savings above the Full Retirement Sum (‘FRS’), whichever is higher; and
- any Retirement Account savings (excludes any top-up monies, government grants, and interest earned) above the Basic Retirement Sum (‘BRS’) if accompanied by a sufficient property charge or For more information, please refer to this article to understand CPF’s withdrawal limits at age 55.
The temptation is indeed great, but do pause for a second and have your parents assess whether they truly need the money at that juncture.
If your parents are over age 55, choosing to leave their monies in CPF ensures that:
- They enjoy an additional 1% interest on the first $30,000 in their combined CPF balances. This is on top of the prevailing Retirement Account interest rate of 4% and the additional 1% interest on the first $60,000 of combined CPF balances applicable to all CPF members. This easily beats any existing interest rate offered by commercial banks. Moreover, the principal and interest are guaranteed by the government, a rock solid AAA rated institution.
- They will have more CPF savings, and can join CPF LIFE with a larger retirement sum, which will provide them with higher lifelong monthly payouts. They can choose to join CPF LIFE anytime between age 65 and 70. If they choose to start their CPF LIFE payouts later, their CPF LIFE monthly payouts may increase up to 7% for each year deferred.
- Even if they do not withdraw at 55 years old, they can still do so anytime later. Therefore, there is no hurry to decide on the withdrawal of excess funds.
Therefore, if your parents are gainfully employed at that juncture, it may be a superior proposition to leave their monies with the CPF. A good example would be Heartland Girl’s father. He turned 55 recently but chose not to withdraw the excess sum after setting aside the FRS. He realized that he would earn an interest rate that higher than if he were to leave the excess sum under the fixed deposit schemes offered by commercial banks. This is a very prudent decision that will add to his retirement funds.
2.Top Up Their CPF via the Retirement Sum Topping-Up Scheme
For young adults who have been giving their parents a monthly cash stipend, do consider utilizing the CPF Retirement Sum Topping-Up Scheme (‘RSTU’) instead. That is because you may be eligible to receive tax relief and reduce your income tax expense. Do note that the amount of tax relief that you enjoy is the amount of cash that you have topped up to your parents’ Special Accounts or Retirement Accounts (for parents above 55 year old), capped at S$7,000 per annum. This tax relief is applicable only if your recipient’s Retirement Account has not exceeded the current FRS. Cash top-ups beyond the current Full Retirement Sum will not be eligible for tax relief.
Therefore, by topping up your parents’ CPF accounts via the RSTU using cash, you fulfill your duty as a filial child and also receive tax relief! That is killing 2 birds with one stone. This was exactly what Heartland Boy did when he deposited a small amount to his mum’s retirement account during Chinese New Year. It is a small token that will support his mum’s retirement plans.
In all honesty, Heartland Boy acknowledges that this is a difficult suggestion to broach. Most parents of that generation still prefer to see cold hard cash as part of their retirement funds. To bridge this gap, you may try to argue that:
- If they have no urgent need for the monthly stipend that you are giving, contributing directly into their CPF accounts earns higher interest rates than what commercial banks give.
- They can still withdraw up to S$5,000 from their CPF accounts from age 55.
- They will be getting higher lifelong monthly income once they start their CPF LIFE payouts.
While the aforementioned all appear to be very objective advantages, Heartland Boy’s parents remain unconvinced till this day. That is because emotions often play a stronger role in their perspectives of money. For instance, Heartland Boy’s father sleeps more soundly if his pillow, rather than the CPF, is padded with his retirement funds. But Heartland Boy will continue to nag and hopefully his parents will switch sides one day. Talk about role reversal!
3.Transfer CPF Savings To An Unemployed Spouse
In a single-income family where the father is the sole breadwinner, it is likely that the father has accumulated savings in excess of the BRS while the mother has not. Therefore, to balance the equilibrium, the government has since lowered the threshold and allowed members to transfer their CPF savings to their spouses as long as members have savings in excess of the BRS. In this instance, there are numerous benefits to encourage the father to transfer some of his CPF savings to the spouse:
- Both parents need not worry if either of them passes on because each of them will now have his or her own stream of lifelong monthly payouts from CPF LIFE
- Both parents will now benefit from the extra interest paid in the respective accounts.
As soon as the government lowered the threshold, Heartland Girl’s father wasted no time in transferring some of his excess funds to his spouse’s account. This was a particularly savvy move as the cumulative balances in the spouse’s CPF were less than S$60,000. In other words, the very same retirement funds that belonged to the household, is now working much harder in his spouse’s CPF instead.
Indeed, this is a useful CPF scheme to take advantage of as no extra cash is invested externally from the household. It simply requires one spouse to transfer existing savings from his or her CPF to the other spouse. This not only generates additional interest on the pooled retirement funds, but it also gives peace of mind to the other spouse who has been contributing selflessly to the household in intangible ways not that are just not reflected in his or her CPF. It will make for a perfect retirement gift!
Growing Your Parents’ Retirement Funds
Despite the various ways to grow the retirement funds, you may have come to notice that Heartland Boy and Heartland Girl’s families are at different ends of the spectrum. Heartland Girl’s father uses his financial literacy to take advantage of the various schemes available in CPF to grow the household’s retirement funds. On the other hand, Heartland Boy is doing his utmost to help his parents play “catch-up” in terms of retirement readiness. But as they say, better late than never.