CPF Special Account Closure After 55: How to Prepare for 2025

As you may be aware, the CPF Special Account (SA) for members aged 55 and above will be closed starting in the second half of January 2025. This change was first announced during Budget 2024 in February, and you can read more details here.

We have been asked numerous times by the media for our take on this, and we believe the advice shared here may be helpful to you as well as you navigate this transition.

Given the upcoming changes, we understand that you may have questions about the best course of action for your SA funds. We are here to guide you through your options so that you can make an informed decision that aligns with your wealth plan.

To start, it is important to consider the purpose of the funds in your SA: were they intended for short-term use, or are you planning to keep them invested for long-term growth?

Based on your objectives, here are the available options:

If Your Goal Is to Keep the Money in Your SA for the Long Term:

Option 1: Top-Up to Retirement Account (RA)

If you are not planning to withdraw anytime soon, one option you can consider is topping up your RA up to 4X the Basic Retirement Sum (BRS). You have two ways to do this:

You can transfer cash from a low-interest savings account into your RA.
If you don’t have enough cash, you can transfer funds from your Ordinary Account (OA) into your RA.

However, it is important to note that once you transfer money to your RA, you’ll lose the liquidity, meaning that you won’t have quick access to those funds. It is best to ensure that the amount in your RA does not form a large portion of your total liquid wealth, as this money is essentially set aside for your retirement.

Option 2: Investing in Higher-Risk Instruments

If you are comfortable with the long-term horizon (think 10-15 years), you could consider investing a portion of your OA funds in equities or other higher-risk options. This could potentially lead to better returns over time, but only if you are okay with staying invested through market ups and downs. It is about balancing risk with your timeframe and comfort level.

If You Need More Flexibility or Plan to Use the Funds Sooner:

Option 3: Withdrawals from Your SA

For example, if you have $200,000 in your SA (after setting aside the Full Retirement Sum or FRS in your RA), and you want to withdraw about $3,000 per month, adjusting for 3% inflation each year, your balance will last about 5.7 years.

However, with recent changes, your SA would be closed, and the $200,000 would be transferred to your OA, where it would earn around 2.5% annually. With this change, the same amount of money would only last about 5.5 years.

If you have other sources of funds to help cover that 3-month difference, this should not be a huge concern. But, if you would prefer to have your money last the full 5.7 years, you could consider reducing your monthly withdrawals by about $100.

Important Advice:

If you are planning to use the money in the near future, we would advise against putting it into higher-risk investments like equities. The markets can be volatile, and you may not have enough time to ride out potential market fluctuations.

We know this information can feel overwhelming, but we are here to help you navigate them. The most important thing is to ensure that your choices align with your wealth plan and your personal situation.

If you are our client, feel free to contact your Client Adviser to dive deeper into these options together, so you feel more confident in your next steps.

We have been guiding clients for over 23 years in making the right retirement decisions, so do reach out to us if you need our expertise.

We do not charge a fee at the first consultation meeting. If you would like an honest opinion on your current estate plan, investment portfolio, financial and/or retirement plan, make an appointment with us today.

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