After decades of contributing to your CPF accounts, you finally find yourself on the cusp of your 55th birthday. 55 is the age at which you will be able to make your very first withdrawal of your CPF savings, if you so wish.

When you turn 55, you are allowed to withdraw $5,000 worth of CPF savings so long as the savings in your Ordinary and Special Account add up to at least $5,000.

In addition to the $5,000, you can also withdraw savings in excess of the Full Retirement Sum if your CPF balance exceeds that sum.

The current Full Retirement Sum for people turning 55 in 2020 is $181,000. This amount gets adjusted upwards every year, so if you are turning 55 after 2020, you will have to check the updated amount for your cohort.

Later on, when you celebrate your 65th birthday, you will be able to withdraw a lump sum equivalent to up to 20% of your Retirement Account savings. This amount will include the $5,000 that you were allowed to withdraw at age 55.

Pros and cons of withdrawing your CPF savings at age 55

The main disadvantage of withdrawing your CPF savings at the age of 55 is that you would be forgoing the almost risk-free interest you would otherwise earn on that money if you were to leave it in your CPF Accounts.

In fact, according to the CPF Board’s most recent Retirement and Health Study, about 4 in 10 CPF members aged 55 to 70 did not make any cash withdrawals after turning 55 despite having had the option to do so.

Money in your CPF Retirement Account can earn interest rates of up to 5% per annum as of 2019. This is a remarkably high interest rate, especially considering the fact that it comes with almost no risk.

Thanks to compounding interest, that $5,000, if not withdrawn at age 55, has the potential to grow quite a bit in the ten years until you hit 65. Just a back-of-the-envelope calculation shows that $5,000 could grow to $7,401.22 in ten years at a 4% interest rate.

On the other hand, if you have immediate spending needs such as healthcare or your children’s education, withdrawing your CPF savings can give you access to much-needed cash. This is especially so if you would otherwise have to resort to high-interest credit card debt or personal loans.

That being said, before withdrawing your CPF savings, proper planning is needed so you are sure that you will be using the money wisely, and can avoid spending your retirement funds unnecessarily.

If you do decide to withdraw your CPF savings, you can do so quickly and easily through PayNow with OCBC. PayNow is available on OCBC Pay Anyone™, OCBC Mobile Banking App and OCBC Online Banking. Using PayNow to withdraw your CPF savings is preferable as you will receive the money in just one day. By contrast, if you withdraw your CPF savings using Interbank GIRO, you will have to wait five working days.

Thing to consider before withdrawing your CPF savings

As discussed earlier, the opportunity cost of withdrawing your CPF savings is quite high due to the attractive interest rates offered by the CPF Board. It is thus important to think things through carefully before deciding to withdraw your CPF savings.

One of the key factors to consider is whether you have already planned how to use the money. Avoid withdrawing your CPF savings without first having a clear plan in mind. Give priority to immediate needs rather than wants that can be satisfied later.

According to the CPF Board’s most recent Retirement and Health Study, of the CPF members aged 55 to 70 who made cash withdrawals from their CPF savings since turning 55, 51% left them in a savings account, seemingly with no specific plans for their use. This means more than half the people who made a withdrawal actually forgo the interest their CPF savings could have earned if left in their CPF accounts.

It is thus smart to find a good reason to withdraw your CPF savings before doing so. Some pressing reasons to withdraw your CPF savings might include paying for urgent medical expenses or financing your child’s education. On the other hand, depending on your circumstances, other types of spending, such as renovating your home or purchasing a new car, might not be quite so pressing.

Once you have determined your present and future spending needs, you then have to ask yourself whether you wish to use your CPF savings to pay for these expenses, or whether you can wait a bit longer in order to finance them in other ways, such as by saving and investing on your own.

If you have made up your mind to withdraw your CPF savings but will not be using the money right away, look into getting higher returns for it than a deposit account can offer, as interest rates for such accounts tend to be very low.

For instance, you might choose to use the money to buy investment products that will help it grow over time. Before investing, be sure to understand the risks as well as your own risk appetite given your age and retirement portfolio. As you are approaching retirement, your risk appetite might be lower than before as you now have less time to bounce back from losses.

Finally, when contemplating the use of your CPF savings to make big ticket purchases, ask yourself if there are any alternative ways you can finance them instead.

For instance, the Retirement and Health Study revealed that 4.4% of CPF members who made withdrawals from CPF after age 55 used the money to fund home renovations.

They might instead have considered dipping into their cash savings, using other sources of passive income, or taking out a renovation loan with a lower interest rate than CPF’s. Doing any of these things could have helped them achieve their renovation goals while letting their retirement savings continue to enjoy the high interest rates offered by CPF.

Your CPF savings are your monies at the end of the day, and it is therefore your prerogative to spend them in ways that make you happy. Careful planning and deliberation can help you maximise the utility you get out of your CPF savings. As the opportunity cost of lost interest is quite high, when you do decide to withdraw your CPF savings, whether at age 55 or later, consider options such as putting them in savings and investment products that offer good returns.

At OCBC Bank, we help you make a seamless transition to your Silver Years with our holistic approach to retirement planning. Come visit our branch to have a chat about how we can help you.