From withdrawing your CPF at 55 to reimbursing your account for selling your flat, we explain 6 common CPF myths that you’ve probably heard (or believe).
Love it or hate it, CPF is part of being Singaporean. Some of us don’t like the forced savings, while others feel it’s a great idea.
But amid the constant arguments, some common myths have emerged. Here are some of the most common ones you may have heard of.
Myth 1. You Won’t Get Anything From Your CPF if You Don’t Meet the Retirement Sum
The CPF Retirement Sum sets aside money to provide for your retirement. Currently, this is S$166,000. When you reach the draw-down age of 55, you can withdraw all your money except for this Retirement Sum (it will be paid out to you monthly, until the age of 90).
It’s a common misconception that, if you can’t meet the Retirement Sum, you won’t get anything at the draw-down age. Some Singaporeans even believe there are penalties involved. Neither of these are true.
Even if you don’t meet the Retirement Sum, you can still draw at least S$5,000 when your reach your draw-down age. There is no penalty, or requirement to “top up”, to meet the Retirement Sum; your monthly pay-outs will simply be based on what you have left in your CPF.
Myth 2. You Need to Top Up Your Medisave Until You Reach the Basic Healthcare Sum
The Basic Healthcare Sum (BHS) is currently S$52,000. However, this is not a requirement; it’s a maximum limit on how much you can have in your Medisave Account (MA).
Once your MA meets the BHS, any excess monies will instead go into your CPF Special Account (CPF SA), where it continues to earn guaranteed interest of four per cent per annum (the interest rate on your MA and SA are the same). Alternatively, if you’re retired, the money will go to your Retirement Account.
There’s no need to top up until you reach the BHS limit. However, you may want to make some voluntary top-ups to your MA, if you’re facing health complications and you feel the amount in your MA is insufficient.
Myth 3. You Can’t Service Your Home Loans With Your CPF Once You’re 55
Home loans (whether from the bank or from an HDB Concessionary Loan) can be paid either in cash, or through your CPF Ordinary Account (CPF OA).
There’s a common, and mistaken, belief that you must service the loan in cash once you’re 55.) But actually, you can always set aside a portion of your CPF OA to keep paying for your home loan, at any time before 55. You can then continue the service your home loan with this money, even past the age of 55.
However, you must still adhere to all the usual rules about using your CPF for housing. For example, you are still subject to the CPF Withdrawal Limit (you cannot withdraw more than 120 per cent of your property value from your CPF, to pay for your property).
Myth 4. CPF Makes You Pay “Double Premiums” Because of Medishield Life and Your Integrated Shield Plan (IP)
Medishield Life is universal health insurance, that’s administered by the CPF Board. An IP is a private health insurance policy, which you can choose to purchase from an insurer. While every Singaporean is automatically enrolled in Medishield Life, you are not required to also purchase an IP.
The IP provides additional coverage, on top of Medishield Life. For example, if you purchase an IP, you might be able to get hospitalisation coverage for up to Class A wards (it depends on how much you’re willing to pay in premiums).
Note that you do not make separate premium payments: if you have an IP, a single premium payment is made to your insurer, and this pays for both Medishield Life and your IP.
Myth 5. You Don’t Get CPF Contributions for Part-time Work
As long as you earn more than S$50 a month, and you are a Singapore Citizen or Permanent Resident, your employer must still contribute the added 16 per cent of your income to your CPF.
However, you must be employed under a Contract of Service. You won’t get CPF contributions if you have a Contract for Service (e.g. if you are a self-employed plumber and you’re paid to fix someone’s kitchen sink, the customer does not have to contribute to your CPF).
Myth 6. When You Sell Your House, All the Money Goes Back to CPF
You only have to return the amount used from your CPF OA, plus the accrued interest. The balance is yours to keep in cash.
Say that you sell your five-room flat for S$550,000. The amount you used from CPF (to make the down payment and service the loan), plus 2.6 per cent interest comes to S$495,000.
In this case, you would return only the S$495,000 to your CPF, and the remaining S$55,000 will go to you in cash.
Read This Next:
4 Safest Ways to Grow Your Retirement Nest Egg in Singapore
Can You Afford to Retire at Age 50 in Singapore?
By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.
The post 6 Common Cpf Myths in Singapore (You Probably Believe) appeared first on Financial News and Advice in Singapore.