For Singaporeans turning 55 years old every year, this is an exciting milestone because it marks the first time we can withdraw from our CPF in cash (not just using it for our housing repayments). The CPF Retirement Sum is an important number we need to keep track of as it determines how much we can withdraw from our CPF accounts.
For Singaporeans turning 55 years old in 2021, this is $93,000 for the Basic Retirement Sum (BRS), $186,000 for the Full Retirement Sum (FRS) and $279,000 for the Enhanced Retirement Sum (ERS).
So why are there 3 Retirement Sums and why do they increase every year?
CPF Retirement Sum Only Kicks In At Age 55
When CPF members – Singaporeans and Permanent Residents (PRs) – turn 55 years old, a Retirement Account (RA) will be created for us. The monies from our Ordinary Account (OA) and Special Account (SA) will be used to fund our RA, capped at the Full Retirement Sum (FRS). The amount in our RA will continue to earn interest until it is put into the CPF Life Scheme when we turn 65 years old. Our RA savings is used to determine our CPF Life monthly payment and our CPF balances.
To ensure that Singaporeans are saving adequately for retirement, CPF has set 3 amounts that we should meet to be prepared for retirement: Basic Retirement Sum, Full Retirement Sum and Enhanced Retirement Sum.
Thus, the Retirement Sums are threshold targets and they do not determine our actual CPF Life payouts nor the savings in our Retirement Account.
Basic Retirement Sum
For most Singaporeans, the greatest asset we own is our property (and it is also the asset that we spent most of our CPF monies on). CPF recognises this and we can opt to pledge a property that we own and set aside only the Basic Retirement Sum (BRS) or half of the FRS.
By pledging our property, we can withdraw more from our CPF accounts. We can withdraw any amount that is above the BRS that comes from our mandatory contributions. Our Retirement Sum Topping Up Scheme (RSTU) contributions are excluded and do not count towards our BRS. For examples of how this is calculated, you can read our article on how much you can withdraw at age 55.
The downside of the BRS is that being half the amount of the FRS, our eventual CPF Life monthly payouts are also correspondingly halved. Assuming that we choose not to sell or downsize our property, we may have to adapt to a less comfortable retirement lifestyle.
Full Retirement Sum (FRS)
The Full Retirement Sum (FRS) is meant to safeguard our retirement and is the maximum amount that would be transferred to our RA at age 55 and the maximum we can top up our SA before the age of 55.
Once we have met the FRS, we are able to withdraw more than $5,000 from our CPF at 55. We can withdraw any amount that is above the FRS.
For example, if we have accumulated $200,000 in our CPF (across all the accounts) at age 55 and the FRS for our cohort is $186,000, we can withdraw up to $14,000 ($200,000 – $186,000).
Enhanced Retirement Sum (ERS)
The Enhanced Retirement (ERS) is a little different from the BRS and FRS as it represents the upper limit of what we can top up our Retirement Account (RA) and the upper limit of our CPF Life payouts. We can only top-up our RA to the ERS after we turn 55.
The ERS is set at 3 times of the BRS and the CPF Life payouts are correspondingly much larger. For those of us who have excess funds that we intend for our retirement, putting the monies into our RA to meet the ERS has its merits.
The Retirement Sum Increases Every Year
Unlike the Basic Healthcare Sum which is announced every year, CPF has a schedule of Retirement Sum for Singaporeans turning 55 years old every year. This is to help us better plan for retirement. For those turning 55 from 2017 to 2022, the BRS increases by about 3% every year. This is to cater for long-term inflation and improvements in the standard of living. Correspondingly, the FRS and ERS are set at two times and three times the BRS respectively.
The increase of about 3% was determined at the recommendation of the CPF Advisory Panel in 2016. The panel examined the historical long-term rates of several indices, including the All Items (or headline) inflation and Core Inflation. According to the report, lower-middle retiree household expenditure grew at an average of about 5% annually over the past ten years.
While the Retirement Sum may seem restrictive, they actually represent certain retirement milestones. With the FRS, we can expect a monthly income through CPF Life payouts to provide for an adequate (if not luxurious) retirement lifestyle. With the BRS, we may have to consider downsizing our property to fund our retirement. With the ERS, we most likely can live off our CPF Life payouts comfortably.
Regardless, the monies in our CPF account can be any amount and we should adjust our retirement expectations accordingly if we fall short of the Retirement Sums.
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