You’re only 30 and at the prime of your life, so why talk about retirement now? Isn’t that decades away for most of us?
But in fact, it’s essential to have this conversation and to start planning for our future RIGHT NOW, while we have the runway to grow our savings.
According to a 2018 report by the Department of Statistics, 1 in 2 Singaporeans aged 65 today is expected to live beyond 85 years of age. Previously in 1990, the average Singaporean lifespan was 76.1 years. So we are living longer.
As of now, the minimum retirement age is 62 (i.e. your company cannot force you to retire before this age). This means, with proper planning, we can potentially spend more than 20 years enjoying our retirement and being gainfully unemployed.
Trust me, I’m also worried. And since all of us are CPF members, I used that as my base and came up with 3 scenarios that we might face when we retire, and how we can better maximise our CPF savings.
What is the Basic Retirement Sum and why does it need to increase?
The Basic Retirement Sum (BRS) provides CPF members with monthly payouts to cover basic living expenses in retirement.
The BRS is adjusted gradually so that payouts remain sufficient for basic living expenses for future cohorts of members. This is so that when it’s our turn to retire, our estimated monthly payouts will be in sync with the cost of living then. BRS adjustments generally account for long-term inflation and some improvements in standard of living, and is also in line with rising income levels.
How does the CPF Retirement Sum affect me?
Let’s start off by explaining what we currently have in our CPF — there’s the Ordinary Account (OA), Special Account (SA) and MediSave Account (MA).
On our 55th birthday, our Retirement Account (RA) will be created. The savings from our SA, followed by our OA, will be transferred to the RA, up to our Full Retirement Sum (FRS). This retirement sum will be used to join CPF LIFE, which is essentially a longevity insurance.
Based on the amount that you’ve set aside as your retirement sum, you will get monthly payouts under CPF LIFE for as long as you live — these monthly payouts are for life (yes, even if we live beyond 100 years old), and the more we can set aside in our RA, the higher our monthly payouts will be.
So you might want to think twice before withdrawing your CPF savings at age 55.
As a guideline (we can have any amount in between), there are 3 types of retirement sums:
- The Basic Retirement Sum (BRS)
- The Full Retirement Sum (BRS x 2)
- The Enhanced Retirement Sum (BRS x 3)
Here are the latest figures for 2020:*In 2021, the BRS will be $93,000; and in 2022, the BRS will be $96,000. Compared to the 2020 cohort, members in the 2021 and 2022 cohorts who set aside their BRS will enjoy higher monthly payouts from age 65.
It seems like a lot of money now, but don’t worry! During the Budget 2020 announcement
, Deputy Prime Minister Heng Swee Keat said that about 70% of those turning 55 in 2021 and 2022 are expected to be able to set aside their BRS, compared to just 40% of those who turned 55 in 2010.
If you’re still worried, there are some actions you can do today to help ensure that you set aside your retirement sum and thus, the monthly payouts that you desire. But before we go onto that, let’s take a look at 3 possible scenarios:Scenario 1: You manage to set aside more than your CPF Basic Retirement Sum
Meet Tim. He is 55 years old this year and has managed to accumulate $120,000 in his RA — above the 2020 BRS of $90,500 but below the FRS ($181,000). He co-owns a HDB flat that he bought in his 30s, and doesn’t plan to sell it, so that’s a good 70-odd years left on his lease.
Because he has a property that can last him till at least age 95, he can choose to withdraw the amount (excluding top-up monies, government grants, and interest earned) above his BRS, which is $29,500.
However, he can also choose to not withdraw this amount and set aside a higher retirement sum, so that he can receive a higher payout from age 65. With $120,000 as his retirement sum, he will receive around $1,030 per month for as long as he lives — that’s $220 MORE
a month than if he had only set aside the BRS! *Based on the CPF LIFE Standard Plan payouts of a Singaporean male, computed as of 2020Scenario 2: Your CPF savings go beyond the Enhanced Retirement Sum
Enter John. He is also 55 years old this year but he has managed to accumulate a total savings in his OA and SA of $300,000. This is higher than the 2020 ERS of $271,500.
As the ERS is the maximum amount John can have in his RA in 2020 (and he chooses to set aside this amount to join CPF LIFE), he will receive a monthly payout of $2,180 from 65 years old for the rest of his life.
Alternatively, John can choose to just set aside the FRS to join CPF LIFE, or any amount in between the FRS and ERS and withdraw the remaining amount. Here’s a quick comparison of the varying monthly payouts he will receive for each option:*Based on the CPF LIFE Standard Plan payouts of a Singaporean male, computed as of 2020
As the retirement sums are just a gauge
, John can choose to leave any amount in between and his monthly CPF LIFE payouts will be calculated based on how much he sets aside in his RA.
Estimate your own payout with the CPF LIFE Estimator
.Scenario 3: When setting aside the CPF Basic Retirement Sum is a challenge
Some of us might be self-employed, unemployed or stay-at-home-mums (for self-employed individuals, CPF contributions for all three accounts is optional, but MA is compulsory). It’s also tough for those of us who are constantly between jobs, unable to work due to a chronic illness or can only draw a lower income from part-time/ad hoc jobs.
How like that?
Enter Sam. He turns 55 this year and has less than the BRS in his RA.
It is NOT compulsory for Sam to set aside the BRS
. He does NOT need to top up the shortfall with cash
. He also does NOT need to sell his property
to set aside the BRS. The existing amount in his RA will form his retirement sum, and he can still receive monthly payouts
from his 65th birthday. These monthly payouts will be pro-rated
based on what’s in his RA.If Sam has $5,000 or less in his SA and OA
— He can withdraw $5,000 from age 55. If he subsequently has savings in his RA, he will receive monthly payouts from what he has set aside as his retirement sum from age 65. If Sam has more than $5,000 but less than the BRS in his RA
— he can withdraw $5,000 from age 55, and similarly, he will receive monthly payouts from what he has set aside as his retirement sum from age 65.
Let’s say Sam has $60,000 in his Retirement Account. His monthly payouts will be around $580 (based on the CPF LIFE Standard Plan payouts of a Singaporean male, computed as of 2020).
If Sam has any new CPF contributions, government top-ups or other refunds received after his 55th birthday, part or all of these amounts will be transferred to his RA, up to his applicable FRS when he next withdraws his CPF.Note: CPF members who are born in 1958 or after also have the option to withdraw up to 20% of the savings in their RA as at age 65. The 20% includes the first $5,000 they can withdraw from age 55, and excludes top-ups made and any bonuses received.How can we achieve our desired Retirement Sum earlier?
First things first, let’s take a look at the base interest rates that the savings in our various CPF accounts attract (figures correct as of March 2020).
Here are some ways that can help you set aside your desired retirement sum earlier, be it the BRS, FRS or even ERS:1. Consider using more cash instead of CPF to pay for your house
If you can afford it, instead of obliterating your CPF savings
, try using more cash to pay for your property. You can also consider turning to the bank for your home loan
your mortgage every few years for a better interest rate. You’ll also get to keep more money in your OA, which can attract up to 3.5% interest per annum.
And if you plan to buy a condominium or upgrade your property, hold off from using all your OA. These are savings meant for your retirement, and wiping out your OA could mean you land up with a much lower retirement sum — and as a result, lower monthly payouts — when you retire.2. Make partial capital repayments on your housing loan, using cash
Many of us (me included) think that because we ain’t using our CPF monies now, we can just use it to pay off our monthly housing loan. I’m going to banish that thought. If you can afford it, use cash, or half-cash, half-CPF instead. In the long run, you would have set aside more savings for your retirement. Remember, your OA attracts up to 3.5% interest per year!3. Transfer money from your OA to your SA
Since I’ve already bought my HDB flat and I don’t intend to use my OA savings for housing in future, I really should be transferring my extra OA monies to my SA. This is because the SA attracts up to 5% interest per annum, which can really speed up how soon I can reach my FRS. Be right back, gonna login to my CPF with my SingPass to do it NOW.
Do note that once you make the transfer from your OA to your SA, it is irreversible. So be certain that you’re not going to use your OA anytime soon.4. Retirement Sum Topping-Up Scheme
You can also do a cash top-up
to your SA (for members below age 55), up to the prevailing FRS.
Instead of seeing it as you need to have a huge sum of money before you can do this, you can do small and regular top-ups. For just $100 a month at interest rates of up to 5% p.a. in your SA, your retirement nest egg can grow by more than $24,000 in 15 years!
You’ll also get to enjoy tax relief of up to $7,000 per calendar year (only for cash top-ups up to the prevailing FRS). 5. You don’t need to retire immediately
Who’s forcing you to retire if you still want to remain active and continue being a productive member of the workforce? Unless I’m swimming in money like Scrooge McDuck, I’ll continue working so that I can keep enjoying the employer’s contribution to my CPF accounts.
If I’m still working after age 65 and do not need extra income, I can choose to delay the start of my monthly payouts (the latest you can defer your payouts is till age 70), so that I can receive a higher amount every month in future.
Plus, there is a 7% increase in your payouts for every year that you delay the start of your CPF LIFE payouts!
Let’s use the example of John in Scenario #2, who has set aside $200,000 in his RA.
*Based on the CPF LIFE Standard Plan payouts of a Singaporean male, computed as of 2020
- John starts his monthly CPF LIFE payouts at age 65 — $1,640month*
- John delays his monthly CPF LIFE payouts till age 70 — $2,190month*
That’s an increase of $550/month!
For more information on topping-up, you can also check out CPF’s Retirement Sum Topping-Up Scheme page here
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