I have recently achieved another milestone in my FIRE journey. I have accumulated the Special Account (SA) limit of $176,000 (aka Full Retirement Sum) for 2019.
How did I achieve this feat? Like most people who are employees, I (and my employer) contribute to my SA every month through the mandatory CPF contributions. This is the slow and steady way of accumulating funds in the SA. If you have maxed out your Medisave Account (MA) limit of $57,200 (aka Basic Healthcare Sum) for 2019, your CPF contribution to MA will be automatically diverted to your SA instead. This provides an instant boost to your SA funds.
The earlier steps mentioned are “automatic”, that is, you do not have to do anything to activate them. However, if you really want to boost your SA, I will recommend that you top up your SA under the Retirement Sum Topping-Up Scheme. You can top up a maximum sum of $7,000 per year, IF you have not yet reached the SA limit for that year. Sadly, I am no longer eligible for this benefit. Mind you, this $7,000 is tax-deductible. If you are in the 10% marginal tax bracket, you will save $700 in tax per year.
And what is so special about the CPF Special Account? The SA earns you a whopping 4% interest! This is much higher compared to your FD or mortgage rate which is about 2% currently. You can also earn an extra 1% interest on the first $60,000 of your account balances (with up to $20,000 from your OA which means the first $40,000 in your SA earns 5% interest!!). If you are aged 55 and above, you can earn an additional 1% interest on the first $30,000 of your account balance (with up to $20,000 from your OA which means the first $10,000 in your SA effectively earns 6% interest!!!). This is risk free $ in a negative bond yield environment. If this is not risk free arbitrage (free $ on the table), I don’t know what is. The only downside is the top up is irreversible. If you have a long term horizon like me and you don’t need the liquidity, you can indeed take advantage of this “Special” deal.
The FIRE journey is a journey of many small steps. I encourage you to take the first step to FREEDOM!