Understanding MediSave in Your Golden Years
Transitioning into retirement brings significant changes to your financial landscape, particularly concerning your Central Provident Fund (CPF) accounts. A core component of this is MediSave, your dedicated account for healthcare expenses. Contrary to the misconception that it becomes dormant, your MediSave account remains active and continues to serve its purpose of funding medical costs for life. The key difference lies in how contributions and excess funds are managed post-retirement.
The Basic Healthcare Sum (BHS) and Its Implications
Central to the function of MediSave after retirement is the Basic Healthcare Sum (BHS). The BHS is the maximum amount you can have in your MediSave account. It is adjusted annually to account for rising healthcare costs. However, this yearly adjustment ceases for you once you turn 65, at which point the BHS becomes fixed for the remainder of your life.
This is a critical point for planning. It means the target savings amount for your MediSave is locked in, and any new contributions or accrued interest that push your balance over this personal BHS will not be held in the MediSave account. Instead, these excess funds are redirected to support your broader retirement and housing needs.
The Automatic "Overflow" Mechanism
Once your MediSave balance reaches your personal BHS, an automatic mechanism, often called the 'overflow' system, is activated. This ensures your funds continue to work for you by transferring excess savings to other CPF accounts. The destination of these overflow funds depends on your age and the status of your other CPF accounts.
- For members aged 55 and above: Excess MediSave savings are transferred to your Retirement Account (RA). This helps to build up the funds used for CPF LIFE, boosting your lifelong monthly payouts.
- If you have met the Full Retirement Sum (FRS): If your RA already contains the FRS, any further MediSave overflow funds will be channeled into your Ordinary Account (OA).
This system prevents over-saving in one account while strategically redirecting funds to enhance your retirement income, providing both a healthcare safety net and a monthly payout stream.
Key Changes Upon Reaching Age 55
The age of 55 is a major milestone for CPF members. In the second half of January 2025, a significant change is set to occur: the closure of the Special Account (SA) for members aged 55 and above. The savings from your SA will be used to form your Retirement Account (RA) to set aside the FRS, with any remaining SA savings transferred to your OA.
This change has several implications for your retirement planning:
- Consolidated Retirement Funds: Your SA and some OA savings are consolidated into a new RA, which is used to pay for your CPF LIFE plan.
- Post-55 Contributions: For those who continue working past 55, employer and employee contributions will be split between your Ordinary, MediSave, and Retirement Accounts. If you have already met your FRS, contributions that would have gone to your RA are instead directed to your OA.
How You Can Still Use Your MediSave in Retirement
Despite the changes and the BHS cap, your MediSave funds remain a vital tool for managing healthcare costs. Here are some of the primary uses:
- Hospitalisation Expenses: MediSave can cover a portion of your hospital bills, up to an annual limit.
- MediShield Life Premiums: This is a mandatory health insurance scheme that covers large hospital bills and selected costly outpatient treatments. Your MediSave is automatically used to pay for your premiums.
- Flexi-MediSave: For Singaporeans aged 65 and above, up to $200 of MediSave can be used annually for outpatient medical treatments at public sector specialist outpatient clinics, polyclinics, and participating CHAS GP clinics.
- ElderShield or CareShield Life Premiums: You can use MediSave to pay for these long-term care insurance premiums.
Comparison: Where Your Savings Go
| Account Status | Pre-BHS Allocation | Post-BHS Allocation (Aged 55+) |
|---|---|---|
| New Contributions | All standard MediSave contributions go into the MA. | Excess contributions (above BHS) go into the RA. |
| Account Interest | Interest is earned within the MA. | Interest on excess funds is earned in the RA or OA. |
| Main Purpose | To accumulate savings for healthcare needs throughout life. | To redirect surplus funds to boost retirement payouts and savings. |
| Eligibility for Top-Ups | Voluntary Cash Top-Ups (VCT) are allowed up to the BHS. | VCTs will flow to the RA once BHS is met. |
Strategic Considerations for Managing Your MediSave
- Monitor Your BHS: Keep track of your MediSave balance relative to your personal BHS. Use CPF's online tools to project your savings and ensure you are on track.
- Voluntary Top-Ups: Consider making Voluntary Cash Top-Ups to your MediSave to reach the BHS faster and receive tax relief, effectively boosting your RA savings.
- Evaluate Cash Flow: Before making irreversible MediSave top-ups, ensure you have sufficient cash on hand for immediate needs, as MediSave funds generally cannot be withdrawn as cash.
- Prioritise Your RA: If your retirement income goal is your primary concern, consider prioritizing building your RA up to the Enhanced Retirement Sum (ERS) before making further MediSave top-ups.
- Utilise Flexi-MediSave: If you are 65 and above, remember to utilise the annual $200 Flexi-MediSave for outpatient treatments to manage your daily healthcare expenses without impacting your main MediSave balance unnecessarily.
Frequently Asked Questions
What happens to my MediSave savings when I pass away?
If you have a CPF nomination, your remaining MediSave balance will be distributed to your nominees. Without a nomination, your savings will be transferred to the Public Trustee for distribution according to Singapore's intestacy laws.
Can I withdraw my MediSave as cash in retirement?
No, MediSave savings are reserved for healthcare expenses and cannot be withdrawn as cash. This ensures funds are available for your lifetime medical needs.
Does the BHS increase after I turn 65?
No, once you turn 65, the BHS is fixed for you for the rest of your life. It will not be adjusted annually for your cohort.
Can I use my MediSave to pay for my parents' healthcare bills?
Yes, you can use your MediSave to help pay for your parents' approved medical treatments, provided you have sufficient funds and meet the withdrawal limits.
Can I still top up my MediSave after meeting the BHS?
Yes, you can still make voluntary contributions. However, any funds that exceed your BHS will be transferred to your RA or OA, not kept in the MediSave account.
How does MediSave interact with MediShield Life?
MediSave funds are used to pay for your annual MediShield Life premiums. This ensures your insurance coverage is maintained without needing to use your cash.
What happens to my MediSave if I continue working after 65?
If you continue to work, you will still make MediSave contributions. If your MediSave balance has reached your BHS, these contributions will be diverted to your RA (or OA if your RA is full), thereby boosting your retirement savings.
Conclusion
Upon retirement, your MediSave account does not cease to exist but enters a new phase of operation guided by the Basic Healthcare Sum. By understanding how the overflow mechanism works and the strategic changes at age 55, you can effectively manage your funds to cover healthcare costs while maximizing your overall retirement income. Proactive planning and monitoring your CPF accounts are key to a financially secure retirement.
For more detailed information, you can visit the official CPF Board website.
