We all need to have a retirement plan. The earlier we start working on our retirement plan, the easier it will be for us to build a nest egg for ourselves in our golden years.
In Singapore, the government has also done its part – requiring us to contribute a significant chunk of our salaries into our CPF accounts meant to save for our retirement, as well as our homes, investments and medical care. In addition, it also implemented CPF LIFE, which provides us a monthly payout in our retirement.
What Is CPF LIFE?
CPF LIFE is short for CPF Lifelong Income For the Elderly. Administered by the government, CPF LIFE is a life annuity scheme providing Singapore Citizens and Permanent Residents (PRs) the security of a monthly payout for their lifetime.
When we turn 55, a Retirement Account (RA) will be created for us. This will be in addition to our ordinary Account (OA), Special Account (SA) and Medical Account. Concurrently, savings from our OA and our SA will be transferred to our RA, up to the Full Retirement Sum (FRS) of $171,000.
How Much Do I Have To Set Aside At 55?
When we turn 55, we can choose from three levels of retirement sum to set aside in our RA – the Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS). In 2018, the FRS is $171,000, the BRS is half this amount at $85,500 and the ERS is 1.5 times the FRS at $256,500.
As mentioned, up to $171,000 will be transferred from our combined balances in our OA and SA when we turn 55 to meet our FRS. If we are able to pledge a property that we own, we can opt to contribute only the BRS. Of course, if we wish to receive higher payouts in our retirement, we can also opt to go with the ERS instead.
We have to also note that these figures are not static and they increase each year. They will rise every year to account for inflation and rising standard of living. To help us put in place plans to meet our desired retirement sums, the government has made known the amounts until 2020.
|55th birthday on or after||Basic Retirement Sum (BRS)||Full Retirement Sum (FRS)||Enhanced Retirement Sum (ERS)|
|1 January 2017||$83,000||$166,000||$249,000|
|1 January 2018||$85,500||$171,000||$256,500|
|1 January 2019||$88,000||$176,000||$264,000|
|1 January 2020||$90,500||$181,000||$271,500|
Any remaining balances in our OA and SA above the retirement sum level we opt to go for can be withdrawn from our CPF accounts when we turn 55. Of course, we can still let our funds sit in our OA account to continue paying for our home loans, if we have one, while continuing to earn an interest return.
If we continue working after turning 55, the respective contributions will continue to go into our OA, SA and MA accounts.
Regardless of the shortfall of our CPF balances to fund out RA when we turn 55, we can still make a withdrawal of up to $5,000 from our combined balances.
How Much Interest Do We Earn In Our Retirement Account?
When our OA and SA balances are transferred into our RA at 55, we continue to earn interest on our RA savings until they are put into the CPF LIFE scheme when we turn 65.
In the meantime, the first $30,000 of our balances earn an interest of 6.0% per annum (p.a.), the next $30,000 of our balances earn at interest of 5.0% p.a. and our remaining balances above $60,000 earn 4.0% p.a.
What Are The CPF LIFE Plans Available?
There are three types of CPF LIFE plans – Standard Plan, Basic Plan and Escalating Plan.
On the Standard Plan, we are opting to receive a higher monthly payout each month. This plan is most likely to maximise our CPF LIFE contributions.
On the Basic Plan, we are opting to receive a lower monthly payout each month. By receiving lower monthly payouts, we are effectively choosing to leave behind a larger bequest amount to our loved ones when we pass on. This is why it is labelled as more for our loved ones.
On the Escalating Plan, introduced in 1 January 2018, we are choosing to start off with a lower amount and receiving monthly payouts which increase by 2% yearly. This is to help offset ongoing inflation and rising standard of living in our retirement.
You do not have to choose the plan you want to go on when you turn 55. You will be asked by CPF again closer to your 65th birthday or when we choose to start receiving our CPF LIFE payouts.
How Much Will I Receive In Monthly Payouts?
Depending on the retirement sum we choose to contribute to CPF LIFE and the plan we opt to go on, we will receive between $750 and $1,850 in monthly payouts. Below is an approximate monthly payout plan.
When Do I Start Receiving My CPF LIFE Payouts?
When we turn 65, we will start receiving our CPF LIFE payouts credited into our bank account each month.
We can also choose to defer payments up to the time we turn 70 years old. This is to enable our funds to continue compounding by earning interest of up to 6.0% p.a. According to the CPF website, we stand to receive up to 7% more in payouts per year for each year we defer receiving CPF LIFE payouts from 65 to 70 instead.
What Happens To My CPF Life Contributions If I Pass On?
We will never take out of the CPF LIFE less than what we put into the scheme.
Consider this scenario, we put in $171,000 in our RA at age 55. By earning an interest of 6.0% p.a. on our first $30,000, 5.0% p.a. on our next $30,000 and 4.0% p.a. on our remaining $111,000, we will have slightly under $266,000 in our RA by 65.
If the entire amount goes into our CPF LIFE scheme, we will receive a monthly payout of approximately $1,350. If we were to pass on after receiving just one monthly payout, our loved ones would be bequeathed with $266,000 – $1,350 = $264,650.
If we only pass on when we turn 85, or close to the average life expectancy in Singapore, we would have received nearly $324,000. In this scenario, we will unlikely leave behind any bequests to our loved ones as this is much more than the $266,000 we put into CPF LIFE.
Do note that we do not take into consideration interest returns on the amounts put into CPF LIFE for these computations.
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