Wednesday, January 27, 2016

Should We Use All Our CPF for Housing or Save It for Retirement?

Most of us know CPF can be utilised for housing. Now comes the question if we should use all our CPF for housing? I have written a few articles on CPF before and got interested in it when a colleague shared with me how he manage to amass quite a huge sum of money in his CPF accounts by the time he was age 55. The irony was, he was not really a high income worker, earning an average of about $2k-$4k a month throughout his lifetime. He had more than $600K in his CPF accounts just before the age of 55 and he has recently just retired from work once and for all. Furthermore, he has a fully paid up HDB flat in Bishan and is still able to accumulate a significant sum in his CPF accounts.

Some of us may say its impossible to have more money for retirement now because housing prices have risen by a substantial amount. Some of us may say it’s impossible to have more money for retirement now as compared to the 1980s or 1990s because housing prices have risen by a substantial amount. According to HDB's website, the price index of HDB resale flats have risen by about 2.5-3 times. It’s true that housing prices are higher now but our salary have also risen much more than the past.

The CPF system was created to help Singaporeans take care of their retirement, housing and healthcare needs.  If we empty it, we will certainly not have enough for retirement. Let's see what we can do to balance between paying for a house and saving up for retirement.  

CPF accounts earn up to 5% interest (Below age 55)

Most people max out their Ordinary Account (OA) monthly savings in their CPF for housing. Is this a wise thing to do?  Our CPF savings earn us a risk-free interest of 2.5% per year on our OA, and 4% on our SA & MA. The first $60,000 of the combined balance (of which $20,000 comes from OA) will earn an additional 1% interest per year. If I just do a simple calculation and take $50,000 and grow it in the OA, how much would the amount be 30 years later? The answer, about $104,878. The amount which was left inside the OA and not used for housing would have grown more than 2 times. We don't even have to contribute more and the money just grows by itself. This is the power of compound interest.

CPF accounts earn up to 6% interest (Age 55 and above)

Furthermore, CPF members aged 55 and above will also earn an additional 1% extra interest on the first $30,000 of their combined balances (with up to $20,000 from the OA) from January 2016. This is paid over and above the current extra 1% interest that is earned on the first $60,000 of their combined balances.

You can refer to the below infographics to know how much interest you can earn from your CPF accounts;

Optimising OA and SA

One thing we have to take note is when we buy a house using a HDB loan, the savings in our OA will be wiped out to pay for housing. If we have $50,000 in our OA, all will be wiped out to pay for our house and the remaining will be paid in instalments monthly. We will have lesser for retirement and the amount can be quite a significant amount due to the power of compounding. $50,000 earned in the OA at 2.5% for 30 years would have grown to $104,878. This is more than twice of the initial amount.

There is an easy way to build more money for our retirement. If we take a HDB loan for our house, the required down payment is only 10%.  Let's say we buy a $300,000 HDB flat, the down payment is $30,000. If we have a combined OA balance of $80,000 with our spouse, and we take a HDB loan, all our monies will be wiped out to pay for the housing cost if we do nothing.  However, if we decide to build more for retirement and we transfer $50,000 to our SA and leave a combined balance of $30,000 to pay for the down payment, we will easily have more money for retirement.

Just by doing the above, the $50,000 would have grown to about $195,084 in 30 years’ time if we transfer the $50,000 from our OA to SA. This is $145,000 more for our retirement which is quite a significant sum of money. However, do take note there is a limit to the amount that can be transferred from OA to SA, and that the transfers are irreversible and we cannot use the savings in our SA to pay for housing.

Continued use of CPF savings for housing payments after turning 55

This is a common question which people have. Some are shocked when they realise they don't have enough money in their CPF to pay for housing after turning 55. As most housing loans will stretch for 25 years, if we buy a house after the age of 30, there is a high probability that we will still have to continue paying the monthly housing mortgage after the age of 55.

55 years old is the time where we can take out our CPF money subject to the basic retirement sum. However, there are a lot of people who have concerns whether they can use their CPF to continue paying for their housing loan after 55 years old.

Yes, we can use our Retirement Account (RA) savings (excluding top-up monies, interest earned, and any government grants received) above the Basic Retirement Sum and OA savings (including future contributions to the OA) to pay for our property, subject to the applicable housing limits.

When we turn 55, an RA will be created. The savings from our SA and/or OA will be transferred to the RA. If we wish to continue using CPF savings to pay for housing loan instalments, there are three options we can explore:
  1. Apply to reserve some savings in our OA from being transferred to our RA before we turn 55, so that we can use them for housing after turning 55; 
  2. Use our new CPF contributions to our OA (if we continue working after 55);
  3. Apply to use our RA savings above our BRS.
The BRS is in place to ensure we have enough for retirement. We do not want to end up having a house to stay but no food to eat. This is known as asset rich but cash poor. 

Limits on using CPF for housing

Before we even think about using all our CPF for housing, it would be good to know that there are limits on the amount of CPF savings we can use. Using all our money in the OA for housing would possibly mean lesser for retirement. Hence, the housing limits, Valuation Limit (VL) and Withdrawal Limit (WL), are in place to ensure we have enough for retirement. Let's take a closer look at what VL and WL are.

Below is a table from CPF website to show the application of  VL and WL:

Loan From
Type of Home
Applicable Limits
Conditions to use CPF beyond VL
New flat
No limit
None. You can use your CPF until the loan is fully paid.
Resale HDB flat/DBSS flat
Below 55 years old
To set aside the current Basic Retirement Sum (BRS) in your Special Account (SA)* and Ordinary Account (OA).

55 years old and above
To meet the BRS in your Retirement Account (RA), SA* and OA.
* including the amount withdrawn for investment.
For bank loan, you can only use your CPF up to WL.
New HDB flat/Resale HDB flat/DBSS flat
VL and WL

Here's a nice info graphic to help you calculate VL and WL:


CPF can be used for housing but there are certain limits to how much we can use so as to ensure we have sufficient for our retirement needs. The power of compounding interest is what makes a lot of people richer and if we just have a little knowledge and leave some money in our CPF accounts, we would surely have more money for retirement.

To me, it is pointless to be asset rich and cash poor. If we buy a big house but have nothing left for retirement, it would be a very sad thing at the end of our golden years where we are supposed to be enjoying life more. Plan ahead, think far and our lives could be much better in the future. 


  1. hi bro, would it be better if we could use that extra OA for CPFIS? I mean with a medium risk investment it could jolly well be more than the 3.5% interest given buy the government? What do you think?

    1. Hi derrick,

      Yes we can invest our CPF OA in CPFIS. However, we have to always know we are risking the 2.5-3.5% interest. There is always a risk in investment while the interest in our cpf is given to us risk free.

    2. Hi SGYI, thanks for the reply. I agree that this will significantly increase the interest rate for such a safe investment. But would you agree that this method wouldn't be feasible if the family is considering getting a 2nd purchase of property? Thanks!

    3. Hi derrick,

      If the family is considering getting a 2nd property, then its better to leave some money in the OA for the purchase of the property. Nevertheless, its important to set aside money for retirement. We don't want to be asset rich and cash poor later.

  2. Hi SGYI

    It's interesting to always think about whether using the CPF to pay down those housing or leave it inside to earn that risk free rate.

    For me, my preference would be definitely not touching the cash to repay the housing but as far as using the cpf to do so, I have not thought to that level yet.

    1. Hi B,

      I've heard before to grow our retirement savings, the best is to max out our SA as early as possible. 4-5% compounded at a young age for many years can reach quite a significant sum for our retirement.

    2. Hi SGYI,

      I've spoken to a friend, he also mentioned that SA is a safe risk free investment, the accrued interest is crazy and probably could accumulate up to half a million when you retire.

      But one main question comes to my mind now, why would you want to have 500k in your bank at age of 55 for? If you haven started on investment of any kind early, it would have been too late to acquire or learn. The important milestone of your life with requires huge sum of money is already over. So the money just sits there until you die.

      Let's look at another scenario, you invest in CPFIS, it gives you a decent interest, it pays off your housing loan earlier, and you don't have to pump in any cash to support your HLE loan (some people pump everything into SA thus causing them to have to repay house loan using cash), and you have more cash at your disposal. The money could then be use for other passive investment.

      What do you think? cheers.

    3. Hi derrick,

      I think we should have a mix of both. To acquire some in our CPF and at the same time learn to invest our own money. I would rather invest cash than my cpf money. Like what I wrote in the article, $50,000 will grow to about $205,000 in 30 years time. Its not hard to accumulate $50,000 in SA as early as possible.

      We should leave enough money in our OA to pay for housing. We don't want to end up in a scenario where we have to use cash for housing then have problems living our lives later too.

    4. Hi SGYI,

      I agree fully with you on the mix. Now I have to figure out how much exactly is the percentage of the mix. hmm.. Cheers!

  3. so let me understand this correctly.
    1. When buying a flat, apply for HDB Loan.
    2. Ensure the combined OA accounts of both applicants is sufficient to meet the 10% down payment.
    3. Transfer everything else to SA to earn extra interest.
    4. Pay off the monthly mortgage using the monthly CPF contribution + cash if there is a shortfall.

    1. Hi Lakota,

      Yes we can do it this way. We will definitely have more money in our SA as compared to another person who use everything in his OA to pay for housing.

  4. Hi SGYI,

    Very timely reminder for me to do the transfer to SA seeing that I'm able to get my HDB nest soon.


    Anyway, just a quick question. Wouldn't the actual returns be lower since we still gotta subtract the interest we pay for our housing loan(2.6% if we are taking HDB loan)?

    If we are taking the HDB loan, our actual returns will only be 2.4% right? Since we have to subtract 2.6% from 5% (4% SA + 1% additional for balance below $60k).


    1. HI PassivePeon,

      In a way you're right that the actual returns will be lower. But I would think that paying for a house and putting money in SA for retirement is different. The house we pay for does still appreciate in value so the interest paid may not be that much of a concern.

  5. If I am 35 this year, technically my $50K in SA can only grow till 20 years later right (55yrs old)? which is lower than the $205K projected? pardon my ignorance.

    1. Hi,

      The money in your SA can grow as long as you live. If you do not take out the money in your SA when you're 55 years old, the money inside still earns the same interest. For 20 years, yes the amount will be lower than $205K.

  6. The story is rosy when the assumption is that both husband and wife are salaried workers with monthly CPF contributions. It does not pan well for single income family as the sole breadwinner's CPF OA gets reduced to $0 every month and needs to top-up additional cash to service the housing loan. This is an example how early transferring from OA to SA could be disastrous. The key point is to reduce + complete paying for the housing loan as soon as possible.

    1. Hi Mao Mao,

      We should plan out in a way that we have enough for our daily living and enough for retirement as well. Balance is the key to financial planning.

  7. Timely reminder indeed SGYI. I am just considering whether I should use cash to pay for my resale flat or use my CPF OA. My lawyer just reminded me that I can let my CPF monies earn the interest and pay by cash instead. My main concern is whether I will be able to take out my CPF money easily when I reach 55 in ten year's time.

    1. Hi,

      For CPF money when you reach 55, the basic retirement sum will increase every year. It is about 3% which caters to the inflation rate. You can calculate whether you will have enough for retirement when you reach 55. Most importantly you still need some cash if you want to retire at age 55 else if you can't take out your CPF at age 55 because you don't have more than the basic retirement sum, you'll have to find other ways till age 65 where you will get monthly cash from CPF then.

  8. Thanks for the article. I am deciding whether to use my CPF monies or cash to pay for my resale flat. My main concern is whether I will be able to get my CPF monies easily when I reach 55 in ten years time.

    1. Hi Cassie,

      As per my reply to another comment above, you can calculate whether you will have enough for retirement when you reach 55. Most importantly you still need some cash if you want to retire at age 55 else if you can't take out your CPF at age 55 because you don't have more than the basic retirement sum, you'll have to find other ways till age 65 where you will get monthly cash from CPF then.

  9. I have been planning to balance by perhaps taking 10% of the OA to do a CPFIS- OA investment while maintaining the rest to asssist in buying a house in a years time. I would like to find out what happens after a year, Can I still continue to keep the investment running while buying the house or if I decide to buy the house, then ALL the CPF OA including the CPFIS OA gets wiped up?

    Is it an either or for investment and property? I can't find any clear information on that portion.

    For example 70k in the OA of which I would like to set aside some 10k for the investment portion, leaving 60k to pay for downnpayment of a house, assuming its 300k followed by monthly contribution for 30 yrs.

    Can the 10K remain separately as part of my investment without getting wiped out?

    1. Hi BK,

      From what i know, your CPFIS will not be wiped out if you choose to invest your CPF OA. That's what a lot of people do too.

    2. Many thanks on the clarification.

  10. My spouse and I bought a BTO flat. Our CPF is sufficient to pay the new flat in full, almost clearing all in OA. Is it advisable? Both working and in early 50's. Thanks

    1. Hi,

      You can consider to choose to take a small portion of loan with interest lesser than 2.5% so the remaining balance in your OA still earns the 2.5% interest. When interest rates goes above 2.5%, then you can pay down all the loans.