CPF Top Ups

I took a leap of faith and decided into topping up my CPF Medisave Account yesterday.

Amidst the frenzy market movements so far, I always wonder if giving up this liquidity was actually worth it. But since the button has been pressed, I think there is no need to look back.

Just a few points to summarize my thought process:

1) Was thinking between topping up Medisave and topping up Special Account. To qualify for tax relief, the limit for topping up Medisave is $37,740 minus compulsory CPF contributions. (provided your Medisave doesn't hit the Basic Healthcare Sum of $60,000- as of 2020) Special Account top ups on the other hand is subjected to a limit of $7,000 which we can deduct from our tax bill.

2) I particularly like this point: if Medisave hits the Basic Healthcare Sum of $60,000, any extra money will be transferred back to Special Account. Example: if we have hit this amount, any subsequent Medisave contributions will be effectively channeled into Special Account. Same goes for interest, where at a quick glance we are looking at $60,000 x 4% = $2,400. This gives better flexibility as we have to top up our Medisave as long as we are working and it is better to hit the Basic Healthcare Sum as soon as possible. (we will hit this amount anyway if we work long enough) Since Medisave contributions will be a larger % when we get older, this point will be even more salient.

3) Medisave gives better flexibility as we can effectively use it for medical expenses, whereas Special Account can only be used at least after age 55.

4) Both topping up your Medisave and Special Account reduces your income tax bill. Both accounts have a basic interest rate of 4% so I think this is a pretty safe haven cushion, since the Singapore government has a current rating of ‘AAA’.

But of course, this means giving up some short term cash in the moment, but for now it’ll be just going back to work and working even harder for more cash. Cheers!