Singapore’s Central Provident Fund (CPF), introduced in 1955 as an alternative retirement plan, is a mandatory savings scheme that every citizen of Singapore must contribute to. There are altogether four types of CPF accounts, namely the CPF Ordinary Account (OA), CPF Special Account (SA) and CPF Medisave account, and the less-mentioned CPF Retirement Account. Here is a complete checklist of the CPF Retirement Account, and what you should and should not do.
What Is the CPF Retirement Account?
Your CPF Retirement Account (RA) provides CPF members like you with a monthly retirement income to support yourselves during your golden years. The CPF RA is a retirement account that will be created for you by CPF when you turned 55 years old. On that day, savings from your SA and OA, up to the Full Retirement Sum (FRS), will be transferred to your RA to form your retirement sum, which will provide you with monthly retirement payouts.
It is interesting to note that besides the FRS, there are actually two more types of Retirement Sums, namely:
- Basic Retirement Sum (BRS)
- Full Retirement Sum (FRS = BRS x 2)
- Enhanced Retirement Sum (ERS = BRS x 3)
What Is A Retirement Sum?
A Retirement Sum is the amount of retirement savings that you have chosen to set aside in your RA to receive monthly payouts from your payout eligibility age, which is currently set at age 65.
Your retirement sum can be used to join CPF LIFE, which was introduced in 2009 to provide you with a monthly income for as long as you live. CPF LIFE is currently the primary retirement income scheme for all CPF members, as it replaces the old Retirement Sum Scheme, which is now being phased out. Here’s a full guide on CPF LIFE and LIFE payouts.
If you are a Singapore Citizen or Permanent Resident born in 1958 or after, and have the following RA balances, you will join CPF LIFE if:
You turned 55 between 1 January 2013 and 30 April 2016
- At least SGD40,000 in your RA when you reach 55 years old; or
- At least SGD60,000 in your RA six months before you reach your payout eligibility age.
You turned 55 on 1 May 2016 and after
At least SGD60,000 in your RA six months before you reach your payout eligibility age.
However, if you are not placed on CPF LIFE, you can apply to join the scheme between your payout eligibility age and before you turn 80 years old, or remain on the RA Scheme.
What Is the Full Retirement Sum This Year?
When you turned 55, you can choose the future monthly payout you want to fund your retirement lifestyle. The BRS will be made known to you earlier to help you plan for your retirement. All three Retirement Sums will be adjusted by about 3% every year because the payouts have to be higher every year to take into account long-term inflation and improvements in the standard of living.
The table below will show you how your RA savings at age 55 affect your future monthly payout.
When you hit 55 years old, CPF Board will check whether the balance in your RA meets FRS, BRS or ERS. This balance includes monthly payouts, payout eligibility age lump sum withdrawal and the RSTU but it excludes any interest earned and any government grants received.
Can You Be Exempted from Setting Aside a Retirement Sum?
If you have turned 55 years old, and are receiving lifelong monthly payouts from a private annuity (bought using cash or under the CPF Investment Scheme) or a pension, you may apply to be fully or partially exempted from setting aside a retirement sum in your RA, depending on the payout amount from your annuity or pension.
You can apply for exemption from setting aside a retirement sum here:
– If you are receiving monthly payouts from a private annuity – Apply here.
– If you are receiving monthly payouts from a pension – Apply here.
How Much Can I Withdraw from my CPF Retirement Account at 55?
How much you can withdraw from your RA at age 55 will depend on the amount you have. According to this article, here are some guidelines.
SGD5,000 or less: You can withdraw the entire amount when you turn 55 but you will not receive any payouts monthly.
More than SGD5,000 but less than BRS: You can withdraw SGD5,000 when you turn 55. Your payout monthly when you reached 65 will be pro-rated based on how much you have in your account.
More than BRS, but less than FRS: If you have pledged your property (with a remaining lease that can last you up to age 95), you can withdraw any savings above the BRS. If not, you can only withdraw SGD5,000.
What Is the SA Shield?
The SA Shield is a technique that some people are using to keep as much money as possible in their SA, as it is a guaranteed, no-risk account that allows you to withdraw your money slowly, and which also provides an attractive 4 – 5% interest. Here’s how you do it.
Before you reach 55 years old, use the CPF Investment Scheme (CPFIS) to channel your CPF SA monies that’s above SGD40,000 and that you cannot invest into selected short-term, lower volatile and safer investment vehicles such as treasury bills, Singapore Government Securities bonds or other government-backed investment instruments.
At 55 years old, CPF Board will transfer the SGD40,000 from your CPF SA to CPF RA. Since there is no more money in your CPF SA, CPF will automatically transfer your CPF OA monies to your CPF RA.
After the automatic transfer period, you can then sell off your investment vehicles and the monies will be siphoned back into your CPF SA. You can then enjoy a high-interest savings account that you can withdraw anytime you want.
How Do You Calculate Your Retirement Sum Beyond 2022?
If you haven’t reached 55, or there are still a few years before you reached 55, how do you then calculate your retirement sum?
As CPF does not publish retirement sums beyond 2022, you can use a compound interest calculator to check the retirement sum in the year that you will be retiring. However, this will only be an estimate, as the retirement sums will continue to increase at 3% yearly, or CPF might adjust the rate of growth to take into account inflation and other factors.
How Can You Start Saving For Your Future CPF Retirement Sum?
Having calculated your future retirement sum, does it look intimidating? While the sum may look impossible to achieve, don’t forget that if you have time, it is still possible to hit your retirement sum due to the power of compound interest. Here are some methods that you can use to reach your retirement sum, or even receive higher monthly payouts during retirement.
Retirement Sum Top-Up Scheme (RSTU): This scheme helps you build up your own or your family’s retirement savings through higher monthly payouts and/or extended payout duration. You can top up via CPF transfer or cash top-ups to your own and/or your loved ones’ (your spouse, parents, parents-in-law, grandparents, grandparents-in-law and siblings) SA (for recipients below age 55) up to the current FRS, or RAs (for recipients age 55 and above), up to the current ERS. However, do note that you will not be able to transfer your CPF savings to your children.
You can enjoy tax relief for up to SGD7,000 yearly if you are topping up for yourself, and another tax relief of SGD7,000 per year if you are topping up for your loved ones, up until you hit the current FRS. However, do ensure that you do not need the cash urgently, as it will be locked up.
Transfer Funds from your OA to SA: Some people have been channeling the funds in their OA to their SA, to boost the interest rate from 2.5% to 4% per year. Again, ensure that you do not need the money in your OA for housing purposes, as the transfer is only one-way.
Other Investments: You can also build up your retirement nest egg by investing your cash in other investment vehicles such as stocks, unit trusts, currencies, ETFs, etc, although do note that as compared to the risk-free returns of CPF, these investments are all high-risk products.
How to Start Retirement Planning Early
To build up your retirement savings, you need to plan for your retirement early. You can use the CPF Retirement Estimator or the Retirement Calculator, developed by the CPF Board to help you. The latter tool helps you determine if your retirement goal is achievable by determining the amount of savings you need based on your desired retirement age and retirement lifestyle.
If all these still sound very confusing, you might want to talk to an experienced financial adviser. You may send us an email at firstname.lastname@example.org as we partner with only the best financial advisers in Singapore, all with more than 10 years of experience.